Election Funding : Negative Impact on Economy
September 19, 2014
We know there is a cap on election-related spending. The rules stipulate that a candidate contesting the Parliament election can spend up to Rs 70 lakh in a big state and Rs 54 lakh in a smaller state (after an upward revision in poll expenses from the earlier Rs 40 lakh and Rs 22 lakh respectively).
If we take the higher figure into account, even then the total campaign cost for a House with 550 elected members (two more are nominated) should not exceed Rs 385 crore. Yet, a study by the Centre for Media Studies showed that the total expenses in the 2014 elections were estimated to be a whopping Rs 26574 crore. Add the government expenses of Rs 3,426 crore (which more than doubled from Rs 1,483 in the last general elections of 2009) – and the total reaches an astronomical Rs 30,000 crore (or Rs 5 billion) – second only to the US Presidential election of 2012 that the US Federal Election Commission estimated to cost about $7 billion.
Prevalence of Black Money in Elections
How should one explain the huge gap in the budgetary provision, administrative cost, stipulated expenses and the actual expenditure? This does reflect that there is something seriously wrong and that the whole process of estimation is flawed.
What makes the issue of election finance even more complex is the perceived black money component. Remember late BJP leader Gopinath Munde’s faux pas last year that he spent Rs 8 crore on an election campaign? He had to hastily retract following a notice from the Election Commission in this regard. But can anyone dispute the widely acknowledged use of money (and muscle) power in Indian elections?
The dubious role of crony capitalists and business houses eager to put their money on the winning horse for quick encashment too is far too obvious in the context of Indian elections. Much has been said about Narendra Modi using the Gujarat-based Adani Group’s jet for his election campaigns. It is anyone’s guess that whether such proximity to Modi helps Adani in his business concerns or not. The larger question though, is how such favours influence the incumbent government’s economic policies.
Politician-Businessman Nexus Fuels Election Costs
It is a fact that governments and political parties do prefer to cater to special interest groups in the run up to the elections. Consider this – We often talk of the builder-politician nexus and the so-called ‘land sharks’. We know about the controversy over the FSI (Floor Space Index) in Mumbai in the late eighties and more recently about the illegal constructions at the Noida Extension in the National Capital Region of Delhi.
Obviously, builders do have a stake in the election process of the country and it tells on the economy! It cannot be a coincidence that cement consumption declines considerably, as a 2011 study by political scientists Devesh Kapur and Milan Vaishnav shows, during the election month because, builders, who finance politicians, face liquidity constraints during this period resulting in slump in cement consumption!
Elections : Accentuating Economic Slowdown
The anomalies concerning election related expenses are just the tip of the iceberg because elections – an absolute necessity for a functioning democracy – also bleed the economy in no uncertain ways.
And it just does not pertain only to the unscrupulously insurmountable election campaign cost or the escalating cost of administering elections. Studies have shown that even the Indian economy slows down in an election year and new projects are delayed as investors tend to defer their decisions till a clearer picture emerges on the economic front of the new government. Even industrial credit growth slumps for want of industrialists who rather wait for the election outcome than to rush for bank loans ahead of elections.
A study by financial newspaper Mint showed that this trend of economic slowdown in an election year has prevailed for over 30 years largely because of a rise in the Government spending in an average election year, “which tended to fuel inflation rather than spur growth”. Another study shows the average increase in nominal government spending during election years is 15.84 percent compared with 11.38 percent for non-election years and the average fiscal deficit for the election year is 5.87 percent compared with 5.08 percent for the non-election years!
The reason why the government should spend more in an election year is obvious. Isn’t it the opportune time to lure the voters with a semblance of populism? Yet, such populist measures in the long run prove to be largely wasteful and an extra burden on the exchequer.
A World Bank study on “Political Cycles in a Developing Economy: effect of elections in the Indian States,” too has suggested prevalence of a general trend of “opportunistic” politicians manipulating economic policy around election times for political gain. The report, based on the study of the effect of state legislative assembly elections on the respective state governments’ policies in 14 states over the period 1960-1994, pointed out at the prevalence of populist measures during the state elections such as lowering of taxes on producers, and increasing public investment spending, and road construction to woo the prospective voters.
Such opportunistic policies lead to post-electoral recessions – a direct bearing on the economy.
Many European countries have state funding of elections. A debate on crowd-funding of presidential campaigns has been raging in the US for quite some time. Isn’t it high time for us too to explore a better way to tackle the issue of election expenses – both direct as well as surrogate – considering their impact on economy?
Comments
Post a Comment