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World’s biggest election: Game changer for India?

Security personnel control crowd during a rally of BJP PM candidate Narendra Modi for the upcoming Lok Sabha election in Sasaram, India.
Satosh Kumar | Hindustan Times | Getty Images
Security personnel control crowd during a rally of BJP PM candidate Narendra Modi for the upcoming Lok Sabha election in Sasaram, India.

In India, the world's largest democracy, anticipation is building ahead of the country's general elections which market watchers say could have significant implications for its economy in the coming years.

From April 7 to May 12, some 814 million eligible voters will head to the polls to choose representatives for the 543-seat Lok Sabha, or lower house of Parliament, in what will be the biggest election in history.

The votes will be counted on May 16, after which the party or coalition that earns a majority of seats will select the country's next prime minister.

(Read more: Indian elections: What to expect)

"The 2014 election is a decisive moment for India. Not in recent years has there been such a sharp divide in economic visions for the economy," said Tushar Poddar, chief India economist at Goldman Sachs, referring to the two largest national parties: the incumbent Indian National Congress (INC), commonly known as Congress, and the opposition Bharatiya Janata Party (BJP).

The BJP's vision, under its Prime Ministerial candidate Narendra Modi, has a focus on urbanization, infrastructure and clearing red-tape. On the other hand, Congress, under the leadership of Rahul Gandhi, is aiming to promote inclusive growth, through a host of welfare schemes, including a right to health care for all and pensions for the aged and disabled.

"In previous elections, the major parties have had much more of a middle-of-the-road agenda," Poddar said.

India's elections are taking place against a backdrop of an economy that has slowed to 4.7 percent in the last quarter of 2013 from near-9 percent expansion in fiscal year 2011.

Frustrated by the current government's handling of the economy and its string of corruption scandals, many residents are yearning for a change in leadership from the Congress-led ruling coalition known as the United Progressive Alliance (UPA).

(Read more: Rupee on a roll, but how far will it go?)

According to a poll published last month by Pew Research Center, 63 percent of Indians think the BJP party should lead the next Indian national government, compared with just 19 percent who preferred Congress.

The BJP-led National Democratic Alliance (NDA) was last in power from 1998–2004.

With no single party winning a parliamentary majority since 1989, recent governments have involved coalitions of smaller regional parties led by either the BJP or Congress. The upcoming election is likely to be no exception.

Three possible outcomes

An analysis of opinion polls points to three potential election outcomes, according to Goldman Sachs.

The first scenario is a strong BJP-led coalition with a few allies, which polls suggest is most likely. Under this scenario, the BJP-led NDA wins about 230 seats and gets some help from allies to reach the required 272 seats needed to form a government.

The second scenario is a weak BJP-led coalition, where the BJP-led coalition wins around 180 seats and needs considerable support from allies.

(Read more: 'Fragile Five' face low risk of full-fledged crisis: Roubini)

The third scenario is Congress–led coalition, which polls suggest is least likely. Under this scenario Congress pulls together a majority with the support of the regional parties. This will likely be relatively less stable than other potential coalition combinations, due to the presence of a large number of regional parties, said Goldman.

Despite India watchers, however, warn that the outcome is far from certain.

"Clearly, the most favored outcome for the financial markets will be a decisive majority, led by the opposition party. That said, the outcome of the elections is far from certain," said Radhika Rao, economist, Group Research at DBS.

"A key game changer will be, if either of the two main parties wins an outright majority, thus diminishing the bargaining power of the smaller coalition partners. This will ensure more stability to the decision making process and address governance issues," she added.

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