The compromised duo

India is about to go for the next Lok Sabha elections in April-May of 2019. This is a democratic process where every eligible member of the country is given a right to choose his/her representative and seek a change in the regime. With an estimated 900-odd million population to vote, the process, no doubt, comes with a huge financial encumbrance as well as resources into its making. The election is conducted in an efficient manner by the Election Commission of India (ECI) and a huge sum is earmarked for the process.

A deeper look at the expenditure reveals that in 2014, the ECI spent about Rs 3,426 crore which is 131% higher than the expenditure incurred in the general elections of 2009 (Rs 1,483 crore). Till date, the general election of 2014 is considered as the most expensive Lok Sabha election conducted so far by the Commission.

The recently unveiled interim budget shows a slew of people-friendly measures in this direction. There is an interesting theory regarding pre-election spending - the theory of opportunistic political business cycle by which incumbent government infuse money into the economy, mainly targeting short-term financial gains to attract voter base.

Pre-election moves by the government may cause temporary economic expansion before the elections. These are generally done to capitalise on the short-term memory of the voters, leading to altering in the voters’ decisions. Such expansion, which induces private consumption of non-durables among households, fuels inflation and fiscal deficits in the post-poll period. It has been observed that the extra public expenditure ahead of polls being helpful to gain power.

An analysis by a newspaper suggests that the governments which exercised fiscal prudence were voted out (NDA in 2004 and UPA 2 in 2014) whereas UPA 1 paid scant attention to fiscal prudence in 2009 but returned to power. However, it will be interesting to see the fate of the current government as it is trying to encash on the opportunity through budgetary push. On the other hand, political parties involve in various innovative and costly campaigns to garner vote and reach out to the masses.

Despite various limits and caps per candidate, many tend to spend more which are either under-reported or unaccounted. The Second Administrative Commission in 2009 and Law Commission in its 255th report on electoral reforms in 2015 suggested an array of reforms in election finance. In addition to these committees, in 1998, a parliamentary panel investigated the prospect of partial state funding to deal with the black money issue during elections. However, nothing came out of this.

During elections, there are three layers of spending — the first one being base expenditure for the conduct of elections, the second being for pre-poll alluring and the third being the under-table transactions. Wherein the first part is unavoidable, the second and the third can be avoidable through instituting strong checks and balances mechanism.

Thus, huge expenditure by various stakeholders makes the election an extravagant ballot where the money power speaks for political supremacy, which is unfortunate. It makes mockery of democracy. However, whether such collective pre-poll monetary infusion by different stakeholders contribute to the national output, is a question that needs to be highlighted.

Economists in the past have put forth their concern about the burgeoning deficits post the elections. They argue that such mindless expenditure would weaken the macro-economic variables which, in turn, affect growth and investments. However, political masters are left with no options as they have to choose between power and economy.

In the matter of contribution to the GDP, if one observes the quarterly GDP data of the last three decades against the polled quarters, one can see that there is no specific trend. However, a closer look at the last 10 years’ data shows that there has been a slight increase in the GDP figures of subsequent quarter post-national elections. Still, such conclusions are vague and carry no specific policy implications.

A contrary view suggests that all the money distributed end up at household kitty and is either spent for self-consumption, invested or saved. Theoretically speaking, the money thus circulated has a great bearing on the economy wherein increase in the supply of money adds to liquidity with the consumers, which in turn leads to an increase in demand for consumption of goods and services. This positively affects the economy.

Although this effect cannot be direct, as a habit, many voters wait for the political parties to distribute money ahead of election, a phenomenon which is quite common these days.

In the recently held state elections in Karnataka, according to the Centre for Media Studies, the estimated money spent by various political parties was around a whopping Rs 9,500 crore to Rs 10,500 crore. Their estimate for the 2019 Lok Sabha election is between Rs 50,000 crore and Rs 60,000 crore. Such massive spend will have huge impact on the economy but it is unfortunate that it cannot be measured directly.

So, what needs to be done? Given the financial transactions involved in conducting elections and its externality on economy, it is pertinent that certain measures are adopted to curb the excessive circulation of money.

First, it is important that the election regulator must consider removing caps on expenditure and include comprehensive reporting mechanism. This can mainstream many under-table transactions. Another way is to cap donations which the incumbent government has already brought in but needs thorough evaluation. Yet another way can be to look into the partial state funding as practiced in various developed countries. However, such moves need political maturity. Better internal accounting practices among the political parties and bringing the electoral funding under the scope of RTI is the need of the hour.

There is a need to initiate electoral reforms by bringing transparency in seeking votes on the basis of individual performances in delivering governance and outcomes in their respective constituencies. Introduction of right to delivery of services in both pre and post poll by the parties may bring some changes in reducing the money transactions.

However, it must be kept in mind that any great reforms can never separate the duo - economy and elections. Nevertheless, they can only be regulated. India with all its maturity must pull its sleeves to devise a strategy for better elections experiences.

(The writer is a faculty at IILM University, Gurugram)