In India, grand-scale logistics and safety concerns mandate a staggered, month-long electoral process. This year, in the 15th nationwide parliamentary elections since the country gained independence from the British on Aug. 15, 1947, many were waiting to see if a stable election would calm disquieted markets. On May 16, 2009, the outlook was positive.

Indian elections rolled out in five phases across 28 states and seven federal territories during April and May. As many regions are subject to heightened concerns over terrorism, security was a priority that necessitated the staggered election process. In the end, roughly 60 percent of 715 million eligible voters turned out to cast ballots.

In India, a party needs 272 seats in the Lok Sabha (lower house of Parliament) to form a government on its own; in such a large and diverse country, this means that coalition alliances are often needed to achieve this majority. The current ruling party, the United Progressive Alliance (UPA), is headed by the left-of-center Indian National Congress (INC, or Congress), with its head, Dr. Manmohan Singh, in the Prime Minister's seat.

The results of the election, announced on May 16, showed Congress gained what amounts to a political mandate, with 206 seats in the Lok Sabha. The UPA won 261 seats overall, with all rival parties losing seats across the board. Dr. Singh was reappointed for a second term as Prime Minister of India on May 22.

What do these political changes mean for the larger business community?

When results first appeared, the rupee jumped 3.1 percent, the biggest surge since 1986, according to Bloomberg News. Indian stocks jumped so high and so quickly that the Bombay Stock Exchange Sensitive Index was closed for the first time ever, up 17 percent.

"This 17 percent surge reflects that there was a certain amount of concern over the elections, and now people are ready to give [India] the benefit of the doubt," Nick Chamie, head of emerging markets research at RBC Capital Markets, told MarketWatch following the election results.

Stocks also rallied on Wall Street upon news of the election results. The Dow Jones Industrial Average jumped 235 points, or 2.9 percent, while the S&P 500 index jumped 26 points, or 3 percent. "But the performance of emerging markets exchange traded funds was even more impressive," according to MarketWatch. "The iShares MSCI Emerging Markets Index rallied 5.6 percent and the Vanguard Emerging Markets Stock ETF gained 6.2 percent."

Some analysts are so optimistic about a non-coalition government they are revising Indian growth forecasts. Morgan Stanley analysts bumped their prediction for Indian annual gross domestic product (GDP) growth from 4.4 percent to 5.8 percent, according to TIME Magazine.

Beyond the immediate reactions in shares last month, there are other reasons the United States and other global players should take note of India's recent election.

When the Group of Twenty (G-20) Finance Ministers and Central Bank Governors recently met at the London Summit to discuss financial markets and the world economy, only two of the participating member nations could boast of positive GDP growth: China and India. As BusinessWeek recently reported, India may eclipse export-dependent China to become the world's fastest-growing major economy: "As China's export constitutes 37 percent of its economy against 13 percent in the case of India, the recession in the developed world will make China suffer the most."

This growth is predicated on foreign investment, which Singh and the Congress are expected to encourage. The Congress campaigned on promises of development and jobs for rural regions of the country, as well as peace and cooperation negotiations with Pakistan and, importantly, the fostering of a closer relationship with the U.S.

President George W. Bush was instrumental in negotiating and passing the U.S.-India Nuclear Cooperation Approval and Non-Proliferation Enhancement Act in 2008, a civilian nuclear power development, inspection and trade agreement that came after three years of partnership discussions. Financially, the U.S. expects that such a deal could spur India's economic growth and bring in $150 billion in the next decade for nuclear power plants, of which the U.S. wants a share. (Source: The Washington Post)

While President Barack Obama has offered scant words on Indian relations since his November 2008 election, U.S. Deputy Secretary of State James Steinberg spoke at the Brookings Institute in March commending past collaboration between the U.S. and India. There he suggested that elected leaders in the U.S. "remain committed to expanding these opportunities in our cooperation."

One major point raised by Steinberg, also addressed in the Asia Society Task Force's January 2009 Advancing U.S. Relations With India report, is that the continued friendly U.S.-India relationship "require[s] deep engagement with the private sector." As the Task Force report states, "With the great strengths, the ingenuity, and the complementary perspectives that the U.S. and Indian public and private sectors can mobilize, the two countries together have the potential to make a difference to the most pressing challenges of our lifetime."

Now that Parliamentary procedures have smoothed due to major gains by Congress, reforms are expected to proceed, attracting much needed foreign private-sector exchange.

While the outlook is mostly positive, possible impediments remain for India and global business. "It's a foregone conclusion that reforms will continue," Suresh Tendulkar, economic adviser to Prime Minister Singh, told Bloomberg News. "At the same time, the government will have to tread carefully in opening up the economy given the global slowdown and bad market conditions."

Resources

Highlights of India's National Elections
The Associated Press, May 13, 2009

Shaky Coalition Expected as India's Election Ends
by Tim Sullivan
The Associated Press, May 13, 2009

Indian Rally Lifts Sentiment for Emerging Markets
by Nick Godt
MarketWatch, May 18, 2009

The U.S.-India Nuclear Agreement: Expectations and Consequences
Transcript of James Steinberg
The Brookings Institute, March 23, 2009

Obama Must Stop Neglecting India
by Tunku Varadarajan
Forbes, May 18, 2009

Sensex Ends Up 2.5% (subscription required)
by Shikhar Balwani
The Wall Street Journal, May 15, 2009

India Stocks May Suffer Election 'Blip,' HDFC Says
by Pooja Thakur
Bloomberg News, May 14, 2009

U.S.-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act (H.R. 7081)
GovTrack.us, Oct. 8, 2008 (last action)

Bush Officials Defend India Nuclear Deal
by Dafna Linzer
The Washington Post, July 20, 2005

Advancing U.S. Relations With India
The Asia Society, January 2009

India to Pass China as Fastest Growing Economy
by Shantanu Sharma
BusinessWeek, Feb. 9, 2009

After Elections, India Stocks Soar 17%
by Nandini Lakshman
TIME Magazine, May 18, 2009