Election Economics: DNA 12th March 2009

Recession and inflation are seen as vulgar words at the time of elections. That is because the man on the street may not understand globalisation or meltdowns, but grasps loss of jobs and higher prices quite quickly. Therefore, the government has tried its best to prop up the economy in every which way, alternating between monetary policy measures such as lowering of interest rates and fiscal impulses in the form of tax cuts and higher expenditure outlays.While all alternatives have been explored, a major big-bang stimulus is on the anvil, albeit quite inadvertently. It is not a result of any conscious Keynesian policy of pump priming but from the big grand process of elections. This is over and above the various populist schemes which have been announced by government in the past keeping the elections in mind. In fact, this is significant because once the elections are announced the government cannot introduce new schemes which can be seen as measures to invite a more favourable voting pattern. But, the process by itself has the ability to provide an additional dose of the booster that has been spoken of by the government.The 15th Lok Sabha election has tremendous potential to provide the impetus to the economy because it involves the cycling of a large amount of funds. It provides employment to a lot many people and in the normal course allows for strong backward linkages for a number of industries especially at the small scale level, which is beneficial to a larger section of blue collared labour. More importantly, all the outlays are instantaneous and do not involve any time lags.
Let us look at the outlays involved. Based on what the EC has mentioned as well as the numbers of the earlier elections, there would be at least 5500 candidates in the fray who can officially spend up to Rs25 lakh each, amounting to Rs1350 crore. The number would only move upwards as more candidates enter the fray. There would be 8 lakh voting booths across the country. These booths would be in schools/panchayat offices, town halls with the paraphernalia of shamianas being erected. They have to be rented out for this time period which at an average cost of Rs10,000 per booth would add another Rs800 crore. This cost would be higher actually as the space has to be blocked for more than the day of the elections.There would be over 13 lakh EVM (electronic voting machines) used, which though already purchased would have to be serviced with batteries being changed and transported across the country, which at an average cost of Rs5000 would mean an expense of Rs650 cr. The EC also recorded that there would be around 40 lakh officials as well as 21 lakh security personnel who would be deployed. Each of these personnel has to be ferried, housed and looked after for more than 3 days around the elections which are spread around over 30 days. A conservative expense of Rs5,000 per head, would add another Rs3000 cr. It's a conservative estimate.Add to this the money spent by individual parties (there were 220 such outfits in the last Election), which could cross Rs1500 crore. The Congress and BJP are expected to spend at least Rs 1000 crore between themselves. Further, there would be vast sums of money paid to get votes, which is pertinent especially in UP and Bihar, and now more prominently in the southern states of AP, TN and Karnataka. This amount has been estimated to be Rs 2500 crore.Now, if we add up these numbers, the total direct cost would come close to Rs10,000 crore, which is probably more than what was spent on the recent US presidential elections. One may take umbrage to this amount being spent, but there is need to reflect over the implications. This number is equivalent to the infrastructure announcements made by the government or the tax cuts given to various industries or the loan waivers announced earlier. It covers the entire country, and more importantly provides additional purchasing power to several classes.Most of this expenditure is on consumption and is instantaneous. Further, this money provides succour to industries such as transport operators (trucks, tempos, autorickshaws, taxis), paper, ink, tent houses, artists, roadside food stalls, diesel/petrol dealers, advertising agencies etc. It provides employment opportunities, especially to the lumpens who are employed by the parties to muscle votes.Given that the money is spent on consumption items, all these related industries will see a higher and more rapid multiplier effect which will help stimulate the economy. It is pan-India and not project or region specific. So, the benefits percolate throughout the country. Hence, even pessimistic economists should see a high GDP growth rate in the first quarter of 2009-10. There is hence, a very thick silver lining here to the so called wasteful expenditure, much like the Keynesian 'digging up holes to fill them up' policy.