India is likely to be the second-largest contributor to global economic growth after China over the next five years, as it has gradually opened its economy to foreign investors, according to Frédérique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia.
Indian government bonds have also recently been incorporated into the Emerging Markets Global Diversified Bond Index – a key benchmark, Carrier said.
Between April and June, as many as 945mn eligible Indian voters will head to the polls, the largest-ever democratic event.
The central government will be formed by the party or parties that achieves a majority in the 543-seat lower house of parliament – the Lok Sabha.
Carrier said: “The election appears likely to provide the country with leadership continuity. Prime Minister Narendra Modi enjoys an approval rating of 77 percent, the highest level of any democratically elected leader in the world despite having already served two terms, according to Morning Consult, a market research firm.
“Modi’s humble background and economic track record are appealing to the electorate.”
His government has overseen wide-ranging supply-side reform programmes, which Carrier said gave most Indians access to public services and facilitated the receipt of popular government cash transfers.
In Modi’s first term there was a broad bank recapitalisation package and a new bankruptcy code.
In the second term labour reforms and a new digital identification system enabled digital payments and data-management platforms.
Carrier added: “Underpinned by the reforms, India’s economy has grown at enviable rates of close to 6 per cent annually, on average, during his tenure. The stock market has similarly been on an uptrend, gaining more than 200 percent since his election in 2014.
“Additional, gradual structural reforms are needed for India to maintain its economic momentum, in our opinion. Job creation remains low, with a large percentage of the population underemployed. Education levels are still inadequate for an aspiring economic power.
“We believe it’s important that a stable government with a working parliamentary majority emerges from the election, be it a single-party majority or a sturdy coalition.
“This would heighten the prospects that reforms face few obstacles in the Lok Sabha, are implemented efficiently, and have a greater likelihood of resulting in healthy economic growth over the coming years.
"Failing this, we think foreign investor confidence might be shaken and could result in capital outflows.”
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