Why India’s political structure is diverse

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Nov. 26 2014, Updated 8:00 a.m. ET

India’s political structure

India is a parliamentary democracy. It has an upper and lower house. The president is the head of state. The prime minister is the head of the government. In this system, eligible candidates take part in general elections every five years. Candidates who win during the elections form the lower house of the parliament—the Lok Sabha in the local language. The upper house—the Rajya Sabha—consists of individuals nominated by state legislatures and India’s president.

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Changing political scene

Since the first general elections in 1951, the nation elected a single political party—the Indian National Congress (or INC)—to power. However, the trend broke in 1977. Since then, a multi-party system dominated the political scene. As stated earlier, the government is elected for a five-year period. During the 1990s, the nation rarely saw a government complete a full term.

Political alliances, coalition governments, and fractured results were the highlights from election outcomes in the 1990s. The current parliament is the 16th Lok Sabha. If all of the governments had completed their tenures, this would be the 13th assembly. Some stability returned in 2004, when the United Progressive Alliance (or UPA), led by the INC, was elected to the lower house. The UPA successfully completed its term. The UPA repeated its performance in 2009 and returned again.

The UPA’s main rival, the National Democratic Alliance (or NDA), had a hard time getting the electoral public’s favor. However, several social, political, and economic issues in the past decade put the NDA in a good position for the elections earlier this year in April and May. The results were surprising.

The Bharatiya Janata Party (or BJP) is the leader of the NDA. It emerged as the largest party. It formed the government without requiring the support of its NDA alliance partners. A party or alliance needs 272 seats to have the majority and control the lower house of the parliament.

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A stable government

A stable government, that’s able to make quick decisions and bypass the red tape, is essential to create a favorable and attractive investment climate in a country. Freedom to make policy decisions without the burden of several allies pushing for their own selfish interests is usually good for an economy.

India’s current government is led by Prime Minister Narendra Modi. The government is expected to be in a better position to attract investment—compared to previous governments. This will elevate India’s position as an investment destination for the global investor.

Effective and efficient policy implementation and execution will be crucial for investors in large exchange-traded funds (or ETFs) that are focused on India—like the WisdomTree India Earnings Fund (EPI), the iShares MSCI India ETF (INDA), the iShares S&P India Nifty 50 Index Fund (INDY), the PowerShares India Portfolio (PIN), and the iPath MSCI India Index ETN (INP).

Before we discuss India’s economy, we’ll provide a brief introduction to the decision-making process in India. This will give you an idea about India’s governance.

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