International investors have been watching India closely as the country casts votes in what has been called the world’s largest exercise in democracy.
During the drawn out process, which ends May 12, more than 800 million will cast votes in the longest general election in the country’s 67-year history.
The outcome has implications for the future of the nation that, despite the macroeconomic setbacks it has suffered over the past couple of years, is one investors believe holds tremendous potential.
Here are three reasons the Indian election is important to investors:
1. Waiting for Reforms
There’s a great deal of interest in the elections because if you look at India over the past two-and-half to three years, the major reforms that investors had been expecting have not come through, and as a result, the economy has drifted lower, said Deepak Lalwani, OBE, director of Lalcap, a London-based consultancy specializing in India investments.
“There’s a sort of policy paralysis in India that only a strong leader with the backing of a stable coalition government can help lift,” Lalwani said. “India had experienced significant growth but that trajectory came to a standstill, as it were, since the necessary reforms haven’t gone through. Clearances for major infrastructure projects, for example, didn’t pass, and also, the government’s inability to control inflation has kept interest rates high and diminished business confidence, thereby reducing capital expenditure and slowing the economy overall.”
Many large and important projects are awaiting approvals from government departments, but things are not moving, agreed Nupur Pavan Bang, head of analytics at the Insurance Information Bureau of India.
The government machinery needs to start working, but more importantly, “something needs to be done to bring in accountability for people responsible for implementing the government schemes. A large country like India needs certain schemes to uplift certain strata of the society. However, there are serious questions regarding the schemes reaching such people and their efficacy, although they will probably help bring down India’s fiscal deficit,” Pavan Bang said.
2. Potential for Expansion