Emerging Markets Monitor

India: No Small Part of Big Election Year

gennaio 22, 2024 | 6 min read

Offering fresh insights and analysis, our emerging markets professionals explore top-of-mind questions about investing across the asset class in our monthly Emerging Markets Monitor. Read what they have been discussing.

Worldwide, 2024 is shaping up to be one of the busiest electoral calendars in recent years as people in emerging markets (EM) and developed markets alike head to the polls. Elections will be taking place in countries accounting for more than 60% of global economic output (over a third in EM alone) and more than half of the world’s population.¹ As voters in places like the United States, Mexico, South Africa, and India cast their ballots, the outcome for geopolitical stability, fiscal discipline, and fragile economies may be surprising.

India’s Prime Minister Narendra Modi, who over the past decade has overseen the rollout of infrastructure upgrades (e.g., road and rail), a national digital identity system, digital payments, and a “Make in India” push, is seeking his third term in office.² Combine the government’s focus on these economic reforms with its social welfare schemes for the lower-income demographic (e.g., free food ration, state provision of housing support and medical insurance, opening of bank accounts, potable water connection for every household) and it appears the overall effect may work in Modi’s favor.

The incumbent prime minister has strong momentum heading into this year’s national election, having won three out of five recent local assembly elections in battleground states. If successful, Modi’s Bharatiya Janata Party would likely continue with gradual reforms to sustain the country’s strong economic growth trajectory.

Modi’s Legacy Has Appeal

India Continues to Expand Its Road & Rail Network

As of 2023

Source: Financial Times, Union Budget

While also setting in place a head of state, for India the results of the upcoming election may continue to influence the direction of long-term structural reforms, including those that help support any global supply chain reconfigurations which, we believe, are likely to accelerate going forward. The coming years may be crucial in determining whether India capitalizes on the opportunities presented by friend-shoring or China Plus One supply chain strategies to develop a large, productivity-boosting export manufacturing base. With its sizeable domestic market and political and macroeconomic stability compared to its peers regionally, India is potentially well placed to benefit from any meaningful moves. Of course, challenges remain like India’s higher logistics costs, low labor productivity, and any potential regulatory impediments.

Under the most optimistic scenario of capturing the opportunity from supply chain shifts, increased foreign direct investment, and the introduction of productive reform agendas, economic growth in India could reach as high as 7.5% year over year.³ Higher exports could also lower India’s external stability risks (i.e., impact on current account from high crude prices), potentially resulting in lower currency volatility.

India: Economic Output Well Placed to Prosper

As of 10 October 2023
Source: Haver Analytics, IMF

Beyond the most recent calendar year, India has been one of the best performing markets over the past decade. The country outperformed most global markets in 2023 (excluding the United States and Taiwan), and its National Stock Exchange moved ahead of Hong Kong to become the world’s seventh-largest equity market by total market capitalization. India’s ascendency has been supported by growing investor participation, deepening and broadening liquidity, rising analyst coverage, and capital issuance—trends we expect to continue over the coming years.

Furthermore, India can be characterized by its remarkable diversity, making it one of the most vibrant economies in EM. We believe overtaking China to become the world’s most populous country in 2023 makes a compelling case for more Indian investment opportunities over the next decade. With a young and growing labor force—nearly 80% of its population is younger than 50—and a rising middle class, India has a demographic dividend tailwind and is projected to grow into the 2060s.