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As a child, Ruchir Sharma spent his summers in his maternal grandparents’ small town in Uttar Pradesh, one of India’s poorest and most populous states. Although the town was about four hours from New Delhi, it was a world away from his otherwise urban life. Distractions were few so he spent his summers studying adults—and watching them “hurl their choicest insults at the TV” as they took part in India’s leading spectator sport: politics.

It was an early glimpse into how the world’s largest democracy works.

Sharma, chief global strategist at Morgan Stanley Investment Management, has refined his insights over the ensuing years, frequently making personal trips to India to track at least one Indian state or national election a year alongside a growing caravan of Indian writers and editors. His new memoir, Democracy on the Road: A 25-year Journey Through India, details his travels to 15 of the country’s 29 states, including meetings with Indian politicians in the privacy of their homes and conversations with voters at political rallies in the small towns between the country’s megacities. These byways often play an outsize role in deciding election results.

India’s benchmark S&P BSE Sensex market index hit a record high of 39056.65 on Tuesday. Rising optimism that Prime Minister Narendra Modi’s pro-business coalition will stay in power in national elections beginning April 11 could be partly responsible for the index’s advance. A month ago, India was one of this year’s worst-performing markets. Election season ends at the end of May.

Sharma leaves for India again next month to catch the tail end of this year’s elections. He recently spoke with Barron’s about what drives Indian voters; why investors might want to lower their expectations for Indian stocks even if Modi beats rival Rahul Gandhi, Indira Gandhi’s grandson, at the polls; and why investors need to stop comparing India with China.

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Barron’s: In your book, you talk about how elections are determined in India’s “mofussils”—a colonial term Indians now use to describe rural places where old ways run deep. What do people miss by not spending time in these towns?

Ruchir Sharma: How the thinking is so different. For example, the national media in India is focused on pollution and the quality of air in Delhi. Yet, as you go outside of Delhi, the smog may be as bad, but nobody talks about it. For the people in these villages, just getting by is more important. The other thing is how deep the caste system runs in India, especially in the rural areas where two-thirds of the people live. Also, Modi’s nationalist message resonates far less outside the northern parts and people underestimate the diversity of the country. It is more like a continent with 29 states than one country.

So local issues trump national ones. What will you be looking for when you head back to India next month?

How much Modi is able to convert his personal popularity into votes for the BJP [Bharatiya Janata Party] and how well the opposition alliances are working together. Whenever the opposition come together, they always pose a threat.

What brings them together?

Often it is to bring down the original leader. In India there has always been populist sentiment against the incumbent politician. Two-thirds of incumbent governments in India have typically lost an election. In the U.S., 80% of incumbents typically get re-elected. Now, though, I’m seeing the anti-incumbency trend go global. Last year, only 40% of governments across the world got re-elected—that is a big change compared with roughly a decade ago.

What is driving that? Rising inequality?

In India, the view is that the state is broken and never delivers so they are always angry at the incumbent. But now across the world there is a growing frustration with what the establishment is able to do for you. It has also been partly stoked by social media, which makes it easy to bring people down now.

What does that mean for investors?

It creates more volatility.

If India always roots for the underdog, that can’t be good for Modi.

That is the risk he faces. The business people in India are feeling listless. They haven’t gotten from the government what they wanted, but they are scared of change. Their default is to favor stability.

In December, the second head of the Reserve Bank of India under Modi resigned amid tensions with the government. The rupee sank. We have a more authoritarian turn in other emerging markets such as Turkey. Could we see that in India if Modi is re-elected?

That is one of the risks. But even if Modi wins, it is unlikely that he is going to come back with a greater majority. Even in 2014, he won only 31% of the vote share. That is the upside to India’s democracy for you. Given the diversity of the country, the checks and balances are stronger than in a place like Turkey.

That diversity also makes economic reform hard. Over the past 20 years, you have had the chance to talk to the Gandhis, Modi, and other leaders and have lowered your expectations for reform. Why?

I’ve become more of a realist, realizing this country will change at its own pace. This isn’t a country where you can go and tell them to be like [Ronald] Reagan or be like [Margaret] Thatcher. It isn’t going to work that way. All the leaders tend to be statist—they believe too much in the state. Whatever reforms or focus on development there is, I tend to see much more of it with the state governments. It is very hard to get top-down change in India.

The last time Modi won, investors were excited about the prospects for economic reform and the reduction of bureaucracy. The market has been rising on similar optimism lately. Should investors temper expectations?

It is good to keep expectations low. The reform and change [Modi brought] is different than what was anticipated. He wants to fix things here and there, but it isn’t free-market reform or liberalization—or the kind of change that, for example, is expected from Brazil today, under [President Jair] Bolsonaro.

What is one big thing investors should know about India?

Forget the India/China comparisons. Apart from the large populations, these two great nations of Asia have nothing in common. Nothing. Everything you say about China, the opposite is basically true of India. Where China is more homogenous, India is as heterogeneous as they come. The risks China’s leaders have taken for economic liberalization are very different compared with what Indian leaders have done over time.

People always think of China as an authoritarian state-driven model, but the share of the Chinese government in the economy has come down dramatically over time. They took some big calculated risks with reforms, often with new leadership—not because of crisis, which is usually the catalyst for other emerging markets. During the reform of the state-owned enterprises in the 1990s, they let go of 70 million employees. That is what kept China ahead of the curve. In the past few years, China is showing some signs of reverting, but that doesn’t’ take away from the big picture. China gave its people much more economic freedom than India did. And that is ironic.

Give us an example of India’s failure in this regard.

Look at demonetization [Modi’s government voided 85% of the currency overnight in November 2016]. India wanted to move to a cashless society, but China has moved to a cashless society much quicker with the private sector. In Beijing or Shanghai today in the middle classes, cash is nonexistent. It happened organically through the tech revolution and the development of some great payment solutions, and not through some massive state intervention or something as draconian as demonetization. India’s not going to become the next China.

Duly noted. Thanks, Ruchir.

Write to Reshma Kapadia at reshma.kapadia@barrons.com