A hoopla over electoral bonds, money donated by businesses slapped with ED notices, PM’s glib jibe, and a fantastical estimate on election funding. What more can you ask for? Nothing, except, it does not matter
By Alam Srinivas
- Over the decades, the rules of election spending have changed. Although the legal and illegal donors are still businesses, the political parties manage the money vastly differently than before.
- CMS India estimated that the country would spend Rs 135,000 crore on this year’s national election. While a bulk of it would be in cash, there would be legitimate spending by the Election Commission of India.
- The media speculated on how election spending could be a game changer for the rural economy. It would put more money in the hands of rural consumers, and rev up the already-turbocharged Indian economy.
- The estimated election spending in India is a miniscule 0.4% of India’s current GDP, which is far lower than what the central and state governments spend annually on freebies, subsidies, and welfare schemes.
An average of Rs 250 crore spent per Lok Sabha constituency. Although this is spent by all the candidates and political parties, one can assume that in most seats, the fight is either two-cornered, or possibly three-cornered. This implies that each candidate spends an average of Rs 80-125 crore
In the middle of an election campaign, in a far-flung and small state of Telangana, Prime Minister Narendra Modi ignited a spark to the huge pile of dry and combustible political garbage. He said that there was a time, not too far ago, when the Prince of Congress daily and rigorously attacked India’s two Emperors of Wealth, Mukesh Ambani and Gautam Adani. Then came the jibe. But Rahul Gandhi stopped it during the elections, possibly because the Congress Party and members of the INDIA alliance received “tempos” of cash from the two industrialists.
Rahul Gandhi did aim deathly and destructive heat-seeking missiles at the PM with allegations that the latter favoured and nurtured the AA or A-Square Economy. After the PM remark, Gandhi reacted that this was the first time in thousands of speeches over the past decade that Modi had mentioned the two names because “he believed they could save him.” Gandhi added that Modi “knows how Adani sends money in a tempo, which is a personal experience for him.” A sting in the tale: a senior Congress politician admitted that he would stop maligning Ambani and Adani if they gave him election funds.
During the ensuing debates and discussions, the real implications were lost. From a public forum, the PM admitted that black money played a huge role in elections, and that he and his government knew about it. This should have been unacceptable to him at any cost – remember his 2014 election slogan on corruption, “Na khaunga, na khaane dunga (Neither will I take, nor will I let others do so).” A political analyst jokes, “If the Congress got the money in tempos, the BJP would have got it in large trailers or trainloads.” By talking glibly about election-related corruption, Modi normalised it.
This was bolstered by a fantastical claim. CMS India estimated that the country would spend Rs 135,000 crore on this year’s national election. While a bulk of it would be in cash, there would be legitimate spending by the Election Commission of India (ECI), and the government to organise the polls, and related security. The figure was more than twice the Rs 60,000 crore spent in 2019. The global magazine, Economist, settled on $16 billion, and stated that India’s elections would be the most expensive in the world, higher than the amounts spent on the US Presidential election later this year.
Based on these estimates, the media speculated on how election spending could be a game changer for the rural economy. It would put more money in the hands of rural consumers, and rev up the already-turbocharged Indian economy. Others lamented the inability of either of the four estates – despite the Supreme Court’s ban on electoral bonds early this year – to curb this dangerous trend. The logistics that link elections to economics, politics to business is stable and strong enough to defy disruptions. Nothing can change this horrific reality. Election funding will continue to lie in the dark-grey zone.
However, the stark truth is that it does not matter. Although the sums seem humungous and unbelievable in isolation, they are miniscule when seen in the overall economic context, especially in recent times. Election spending has no correlation with annual GDP growth. The nature of election campaigns has changed in the past decade or so, which blunts the impact of illegal election funding. More importantly, the current estimates may be highly exaggerated. In summary, we should not be too bothered about these issues. Slowly, but steadily, they are becoming irrelevant, at least for economists.
Inflated Estimates
First, let us take the election spending estimates at face value. At $16 billion, which is the Economist figure, and similarly to predictions made by CMS India, the amount translates into a miniscule 0.4% of India’s current GDP. This is obviously not enough to influence annual growth rates in a meaningful way. In fact, the figure is way lower than what the central and state governments spend annually on freebies, subsidies, and welfare schemes for the poor and marginalised. It is far easier for ruling regimes to sway voters legitimately, and consistently, if they manage to remain in power for five years.
A single central scheme accounts for half of the Rs 135,000 crore touted by CMS India. According to a government press release, which was posted in February 2024, PM KISAN SAMMAN NIDHI, one of the largest direct benefit transfer programs in the world, “crossed a new milestone.” As Modi released the sixteenth instalment of Rs 2,000, out of an annual total of Rs 6,000 each to 11 crore farmers, the government claimed that it had disbursed a mouth-watering Rs 300,000 crore, of which Rs 175,000 crore was transferred during Covid, “when they (beneficiary farmers) needed direct cash benefits the most.”
In yearly terms, given the number of beneficiaries, the central regime spends Rs 66,000 crore. And that too in cash, directly into the farmers’ bank accounts. This is almost half the amount that is likely to be spent on this year’s election. Add to this the free food, other forms of direct benefit transfer, and some states’ policies to woo women from cradle to the grave, and one gets an idea of how much money is spent each year to woo the voters, and keep them committed. There can be no substitute for large welfare schemes. But it is also true that only ruling parties can resort to these monetary tactics.
ECI’s restrictions on campaigns, especially election posters and rallies, has reduced the expenditure on paper, printing, and fuel. Instead of diesel and petrol, candidates possibly spend large amounts on aviation fuel, as they zip from one part of the country to another in private jets
Now, let us question the estimates related to election funding, and spending. CMS India’s numbers translate into an average of Rs 250 crore spent per Lok Sabha constituency. Although this is spent by all the candidates and political parties, one can assume that in most seats, the fight is either two-cornered, or possibly three-cornered. This implies that each candidate spends an average of Rs 80-125 crore. Many current MPs, and those who lost in the 2019 national elections, contest these numbers. They categorically state that such figures are grossly exaggerated, and hyperbolic in nature.
“Though the number of voters in a constituency are in a range, 1.5 million to just over two million, the election expenses differ vastly. In a smaller state, say Uttarakhand, one can get away with Rs 10-15 crore. In a larger state, say Uttar Pradesh, it can be twice this figure. In some states, like Tamil Nadu, a candidate may need to spend upwards of Rs 50 crore,” reveals a candidate, who lost the national elections in 2019. But everyone that we spoke to said that the top number was Rs 100 crore per candidate, and that too in a few Lok Sabha constituencies. In a majority of the seats, it was less than Rs 50 crore per candidate.
By this logic, the total spending on Lok Sabha elections can be averaged to Rs 100 crore per constituency, or just under Rs 55,000 crore. A third candidate in most seats will invariably spend much less than the main contestants. Add to this the spending by the ECI and government, which is perceived to be less than 25% of the total. This brings the total to less than Rs 75,000 crore. This is a conservative estimate, possibly on the higher side. And it implies that the CMS India and Economist numbers are overstated by 40% or higher.
GDP Does Not Lie
One cannot doubt that if the estimates by CMS India are correct, and even they comprise less than 0.5% of India’s annual GDP, there must be a positive impact during election years, especially if they are held in the first half of the year. Since the 1960s, there is no such evidence. In some election years, the GDP growth went up, compared to the previous year. In others, the effect was negative, as the growth rate slumped. In a few years, the base effect was crucial – if growth in the pre-election year was low due to internal or external factors, it shot up in the next year, as the economy limped back to normalcy.
Let us study the three trends. In 2019, the results of the national elections were announced in May, and the percentage change in growth rate was a negative 2.6%, as the GDP fell from nearly 6.5% in 2018 to below 4% in 2019. In 2014, the results came out in May, and the percentage change in GDP during the year was modestly positive at 1%. In 2009, GDP grew to nearly 8%, up from 3%, and the percentage change was unusually high at almost 5%. This was due to the base effect, as the Global Financial Crisis of 2008 pulled down growth from a healthy 7.66% in 2007, and over 8% in 2006.
Similar was the case with the earlier decades. In 1991, for instance, the growth rate was just over 1%, a steady and steep decline from more than 9.6% in 1988. But this was due to the ongoing foreign exchange crisis, and unstable politics (1989-91). In 1996, when the Congress lost the general elections, the growth rate, at 7.55%, was almost the same as the figure in 1995. And a similar trend repeated in 2004, when the NDA lost unexpectedly, and the growth rate, at 7.92%, was just a wee bit higher than 7.86% in 2003.
In 1971, the results came out in March, and the GDP grew at a lower clip of 1.64%, compared to over 5% in 1970, and more than 6.5% in 1969. In 1972, like the Covid year of 2020, India witnessed a negative growth rate. In 1977, when the Congress was booted out due to Emergency excesses, the GDP went up from 1.66% in 1976 to 7.25%. Was the base effect also at work here? In 1984, when Rajiv Gandhi rode the sympathy wave due to his mother’s brutal death, and won a huge majority, the GDP slumped from over 7% to below 4%.
There are two reasons that can account for the lack of evidence to show that election spending, if as large as imagined, influences GDP. The first is that black money spent during elections does not change its colour. It remains in the realm of grey. The reason: most of it is distributed as largesse in cash to select sections of voters, and they spend the cash in unaccounted deals. In addition, most of the benefits in kind, like free booze and free food, are purchased by parties and candidates from vendors and contractors, who evade taxes.
Second, over the decades, the rules of election spending have changed. Although the legal and illegal donors are still businesses, the political parties manage the money vastly differently than before. ECI’s restrictions on campaigns, especially election posters and rallies, has reduced the expenditure on paper, printing, and fuel. Instead of diesel and petrol, candidates possibly spend large amounts on aviation fuel, as they zip from one part of the country to another in private jets. The use of social media, especially in the last three national elections, has made costs more efficient, even cheap in some cases.
One hears of huge expenses incurred on social media campaigns, especially to attract young and first-time voters. The second part of the analysis is true – social media is more important to reach out to voters. The first part is iffy. In most cases, social media campaigns generate a momentum that is cost effective, even free. Ami Shah, who works on brand creation, wrote a paper for Harvard Business Publishing in 2017, which focused on BJP’s social media campaign in the Maharashtra assembly elections. It was largely based on word-of-mouth and viral marketing strategies, via the use of technology.
“Jiten Gajaria, the convenor of the social media cell of the Bharatiya Janata Party (BJP) Maharashtra, implemented a marketing transformation program for his political party…. He gained consumer insights, calibrated market segments, devised communication strategy, recruited and managed human resources, designed campaign implementation processes, and developed capabilities to execute it,” says the paper’s abstract. “It can serve as a classic example of devising a cost-effective customer outreach program where total marketing expense was reduced by about 199%,” adds Ami Shah.
As Shah revealed, most of the social media activities were outsourced to local and loyal party workers, who were encouraged to form groups on social media comprising family members and friends. For example, only 1,000 party workers, each with a group of 100, could reach lakh voters. Friends and families were nudged to share the messages, and the reach could exponentially grow to a million. Given that each assembly seat had around a million voters in 2017, this strategy could reach almost everyone. It was also totally free. The loyalists bent over backwards, and with enthusiasm, to become part of the grand plan.
Thus, the calculations of election spending, tracing the funding sources, and analysing the impact on the economy need to be nuanced and layered. Simply plucking a figure out of the air, or theorising about the economic influence is wasteful and irrelevant. The fact is that in today’s world, as India’s GDP grows really fast, and is likely to cross the five-trillion-dollar mark in a few years, election spending has minimal, even zero, effect on the overall economy, and black money.
