Why pocketbook politics will decide India's election

Connect the World: India elections

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Story highlights

  • John Defterios says India's election race will boil down to the economy
  • He says the Indian business community thinks PM Singh lost his zeal for reform
  • Whether it is in the U.S., Europe or Asia, pocketbook issues dominate, he writes

A great deal has been said about the five week long election underway in India.

The world's largest democracy. 814 million people going to the polls. A candidate representing a family dynasty versus a firebrand chief minister.

But this race will likely boil down to three simple numbers that impact every citizen in the country: growth, inflation and interest rates.

To be blunt, they do not favor the incumbent Congress party which has ruled for the last decade.

John Defterios

What's at stake?

Economic growth came in at only 4.5% in the last fiscal year, the worst performance in a decade. We are awaiting the final tally for last year, but bets are it will be below 5%.

Consumer inflation for February came in at a 25-month low of 8.1%, but that is incredibly high when the rest of the world is trying to fight off deflation, not the rising cost of food.

With prices soaring over the past year, the relatively new but high profile central bank Governor Raghuram Rajan was forced to raise interest rates three times since last September.

The repo rate for the Reserve Bank of India stood at 8% as Indians began their journey to the polls.

Whether it is on the campaign trail in the U.S., Europe or Asia, pocketbook issues dominate.

By the numbers: The world's biggest exercise in democracy

It is widely viewed in the Indian business community that the competent, but aging Prime Minister Manmohan Singh lost his zeal for reform and that Rahul Gandhi committed too late in the game to express a desire to lead in a party which has run out of ideas to jumpstart growth.

Prior to the global banking crisis India was humming along, with growth of over 9% for a handful of years.

You probably remember when comparisons were being made about the two towers of the emerging markets, China and India.

A state-run apparatus stacked up against the sprawling democratic structure of India, with chief ministers of states controlling so much power.

In the Congress party era, names like Tata and Infosys came to the fore. We understood the vibrancy and productivity of Bollywood. And we are well aware of the rising middle class in India.

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But this is an election where one should keep an eye two core voting blocks: the youth and those in the vast rural lands.

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India is a young country. Nearly half are under the age of 26. Despite the wealth creation in the past decade, about 850 million Indians live outside major cities and remain dependent on farming.

According to a poll by Pew Research ahead of the vote, both these blocks favor the BJP party by a margin of 3 to 1. They think Chief Minister Narenda Modi is better positioned to cut bureaucracy, tackle corruption and revive growth.

They were probably were led to that position by the three numbers that have clearly undermined support for the Congress party.

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