The biggest election the world has ever seen

The last three years have raised questions about the health of our own parliamentary democracy, but the system that was created in its image in India has surprised everyone with its resilience and longevity. This week, 900m voters will take part in what will be the biggest election the world has ever seen.

Everything about this vote is super scale. An estimated spend of $10bn will put even the famously extravagant US Presidential election in the shade. There are seven separate days of voting spread over a six-week period from April 11 to May 23, to enable security forces to be moved around the country to maintain order. Five years ago, more than 8,000 candidates represented a bewildering array of parties. Turnout was an impressive 66pc.

This year’s election is effectively a referendum on the first five years of Narendra Modi’s new brand of Hindu-nationalist populism. Voters will decide whether they want more of the same strong-man politics or a return to a less divisive Congress party. The opposition presided, more or less unchallenged, over India’s slow-growth post-independence era but was put to the sword five years ago, winning just 44 seats and attracting only 20pc of the popular vote.

Modi has presented himself as a hard-working guardian of the people who is rooting out the country’s endemic corruption, but he is a Marmite character, loved and loathed in equal measure.

Congress looked to be on the ropes last year, but it has bounced back since December when it won back three northern states from Modi’s BJP. Rahul Gandhi has been joined on the stump by his more charismatic sister Priyanka and the election may be closer than was thought only recently.

Although identity politics will be a key influence in India as in much of the rest of the world, the economy remains the key determinant of whether Modi will secure a second term as Prime Minister. He was elected in 2014 on the back of ambitious promises for job creation and economic reform and he has largely failed to deliver.

Far from creating 10 million new jobs a year, the Government has presided over growing unemployment. The jobless rate of 7.4pc is the worst in two years and the situation for women even bleaker, with participation in the workforce at just 27pc. More than 5 million young people look for a first job each year so growth is imperative. The unemployment rate for graduates is more than 15pc.

Rising joblessness may ironically be a consequence of some of the positive reforms initiated by the Government, such as the badly-executed introduction of a national sales tax and so-called demonetisation. At a stroke, this removed high denomination banknotes from circulation and dealt a blow to many business areas like construction which are significant employers in India’s large informal economy.

Overseas investors have also largely kept away, put off by restrictive land and labour regulations, bureaucratic bottlenecks, poor infrastructure and a banking system dominated by regional banks that are drowning in bad debts.

One further important miss by the Modi administration has been the Make in India growth plan for the manufacturing sector which has signally failed to set the country on a Chinese-style journey out of poverty and up the economic value chain. Manufacturing accounted for more than 17pc of the economy in 2006, according to the World Bank, and just 15pc today. The sector was not even in the top ten for foreign direct investment last year.

But there is a good news story, too. GDP remains above 7pc, despite slowing over the past couple of years. That is higher than China’s rate of growth and would be the envy of any country in the developed world. The services sector is globally competitive, with strong growth in areas like tourism, IT and legal services. It accounts for 60pc of the economy.

Consumer spending is growing twice as fast as the expected global average and within a few years India is expected to become the world’s third largest consumer market after the US and China. With a young, large and cheap workforce, the country should be very attractive to overseas investors. Two thirds of the population is under the age of 35.

Stock market investors have focused on this good news story alongside growing appetite for riskier emerging market shares generally in the wake of the Federal Reserve’s change of heart on US interest rates. The Bombay Stock Exchange’s Sensex index last week became the first of the world’s major stock market indices to hit a new all-time high this year as a dramatic rally since last October has clawed back the losses incurred in last autumn’s slump.

Foreign investors have been a key contributor to the resurgence in Indian shares. In the first three months of the year, overseas investors bought $8.4bn more shares than they sold. That was the highest quarterly inflow since 2013 and sets India on track for its biggest yearly inflow since the market enthusiasm that greeted Modi’s 2014 election.

India’s stock market tends to get less coverage than its counterpart in China but investors who have stuck with it over the years have actually enjoyed much better returns. In the past 20 years it has performed more than twice as well while broadly following the same quite volatile path.

The ups and downs of both markets, and the wide dispersion between their winning and losing stocks, make the best approach to hold Indian and Chinese investments as just a part of a well-diversified portfolio, to find a good active manager with researchers on the ground and then to buy and forget. Investing in these markets is not relaxing.