Voting started on April 16 and the five rounds of voting which end on May 13 will allow the 700 million eligible voters to elect their choices for the lower house of parliament and the next Indian government.
Many commentators expect a close contest between the current coalition government dominated by the Congress party and another alliance led by the other major force in Indian politics, the BJP. But with both parties losing support in recent years. there is also the possibility that a third coalition of smaller parties dominated by the communists could become the next government.
Most analysts expect little impact economically, regardless of the outcome of the election.
Templeton emerging markets investment trust manager Dr Mark Mobius says: “A coalition will probably have to be formed to run the government and such coalitions would not normally result in drastic changes. I do not expect drastic policy changes. Coalitions require consensus among many disparate views and this will result in a steady continuation of current policies.”
Aberdeen Asset Management Asia managing director and manager of the New India investment trust Hugh Young also suggests the election of one of the two main parties would see little change to the economy.
He says: “Despite having vastly different ideologies, the last two governments both pushed for further economic deregulation and we expect the next one to do the same.”
The one unknown element is the third coalition. JP Morgan Asset Management Asian desk client portfolio manager Dennis Eldridge says the last time that a third front coalition was in power was not a positive one for the Indian economy.
This is echoed by Atlantis India opportunities fund adviser Vinay Gairola who says: “The emergence of a non-Congress, non-BJP coalition remains the key risk to our otherwise positive view of the election outcome because it throws up an unknown factor – the likelihood of a number of small parties joining to form a government.”
But Gairola says that although the third front brings the most uncertainty politically, even they are unlikely to rock the boat too much. He says: “The Indian economy is in a state where any government that comes into power would have to work towards growth in the economy, given that India adds nearly 18-20 million graduates to the workforce each year, and these people need to be provided with jobs. Any government would have to continue with the policies of its predecessors to ensure the economy continues to grow at the requisite rate to ensure this.”
This is a positive outlook for potential investors, either in emerging markets or India directly.
Funds investing in India did not escape the downturn of the last year. The main stockmarket in India, the Bombay Stock Exchange Sensex 30 was down by 52 per cent in 2008. It had a rocky start to 2009 but at April 16 was up by 10.5 per cent since the start of the year.
First State Indian sub-continent, Jupiter India and Neptune India are all down on the last 12 months, with negative returns of -22.6 per cent, -21.9 per cent and – 26.6 per cent respectively but for the year to date they are showing returns of 8.1 per cent, 7.6 per cent and 9.8 per cent.
The Indian economy has remained quite resilient. The IMF is forecasting GDP growth of 5.1 per cent for this year, down from the record 9.1 per cent recorded last year but still considerably better than much of the rest of the world, prompting Fidelity Internat- ional’s Anthony Bolton to tell an audience in Mumbai this month that “GDP growth is pretty healthy compared to other countries.”
Much of this resilience is put down to the fact that the Indian economy is driven primarily by domestic demand, so falling demand from the West has a more muted impact than on some other emerging market economies.
Young says: “India’s economy has not been immune from the effects of the global credit crisis but so far has weathered it better than most. Growth has fallen but it is still expected to be positive this year. The economy is more domestically orientated than those other emerging countries.”
In fact, it seems that economic or political stimulus are less an issue than a more natural effect – the weather.
Gairola says with Indian dependent on agriculture, a good monsoon season is vital to keep consumer demand high. “A good monsoon in 2009 will quell doubts raised over the rural consumption story in light of the 2.2 per cent contraction in agricultural GDP at the end of 2008,” he says.