India Politics
Pathways deliver a deep dive into navigating the ideas and insights on new and rapidly growing India asset classes. In this Pathway we examine how India's loud, messy, chaotic democracy can overemphasise political risks for long-term investors.

By Arvind Chari, CIO
India's noisy democracy has long confounded investors. The world's largest election spectacle unfolds every five years with much fanfare. Campaign rallies overflow with colorful chaos. Results seemingly hand power to either pro-reform free marketeers or socialist state interventionists. The mood swings from optimism to anxiety overnight as ballots are counted.

Beneath the dramatic electoral spectacle lies an enduring continuity. Businesses have adapted to expect the unexpected from India's vibrant democracy. But informed investors have learned to see through the election drama and recognize India's steady incremental progress.

Governments come and go, but India's diverse economic ecosystem persists. The nation's growth trajectory depends not on the idols in New Delhi's corridors of power, but the billions of aspirations and actions of ordinary Indians that play out each day.

Indian Elections Don't Matter to Long Term Investors

On 17th May, 2004, the Indian stock markets hit its lower circuit, (-20%). The Bombay Stock Exchange (BSE)-30 Index, Sensex, fell by 842 points, its steepest one-day fall ever then.

The National Democratic Alliance (NDA) led by Bharatiya Janata Party (BJP)  lost the general election to the United Progressive Alliance (UPA) led by India’s GOP, the Indian National Congress (INC). That the UPA alliance was supported by the Left/communist parties seemed to have spooked the markets in believing that the reform momentum will end and India’s growth trajectory which was recovering would be stalled.

India – No Country for a Strong Man

Do Global Corporations and Investors consider India becoming un-democratic, autocratic?  Should they worry about Modi being a ‘Strong Man’? Global Corporations and Investors have seen the financial impact of investing in undemocratic, strongman led countries. We do not think this worry has got anything to do with the form of political system. The worry stems from individuals who have unlimited power to decide and destroy. We however argue that, India is not China, Russia or Turkey. Modi is not a Xi, Putin or Erdogan.

The Emergency: When India Lost its Freedom 40 Years Ago

On June 25, 1975 Prime Minister Indira Gandhi – without consulting her Cabinet colleagues in the then Congress government – sent a letter to the President of India recommending the suspension of individual rights and freedom. India remains a working experiment in democracy. The Emergency temporarily shut down the experiment. For those who were unaware about this dark phase of India’s history, it is a reminder of the continuous struggle to find the correct form of government that connects the people to its leaders and, yet, is given the time to deliver on its promise.

Modi more Obama than Reagan

In light of the reality of India, the statement that a BJP-led government could be a Reagan-like Administration is a stretch. If the BJP did take those imaginary steps of reducing subsidies and leaving 50 years of bad planning to free markets to resolve, it would be hounded from power within a year.

The chances are that a future Modi Administration may end up more like an Obama regime: one of high expectations and low delivery where many supporters would like to press the CTRL ALT DEL button, as would President Obama.

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