The Economics of India's Election Machine

The election campaign currently under way in India is not only the largest in history, it could also end up being the most expensive.
How much is a vote for Narendra Modi worth? Photographer: Prashanth Vishwanathan/Bloomberg

For a couple of years now, India's Congress-led coalition government has been in a tizzy trying to revive what Prime Minister Manmohan Singh called the "animal spirit" of the Indian economy. Even as annual growth slipped to below 5 percent, the lowest in a decade, and the current account deficit rose to alarming levels, causing the rupee to plunge against the dollar, the government pulled rabbit after rabbit out of its hat. It announced it was opening India's protected retail sector to foreign investment, tried to foist retrospective taxes upon multinational corporations, changed finance ministers, stopped subsidizing gasoline, and even pleaded with citizens to stop buying gold. None of these measures were fruitful in a time when what was needed was a measure that would reverberate through the entire economy.

Then, in March, the government gave the Indian economy the quasi-Keynesian boost it was looking for, rich with multiplier effects from boardroom to tea shop. In truth, it had no other choice.

It called the next general election.

The nine-phase, six-week election campaign currently under way in India is not only the largest election in history, it could also end up being the most expensive, beating the $7 billion estimated to have been spent during the last U.S. presidential campaign.

India's Center for Media Studies has estimated that total campaign spending during the election period will be around 300 billion rupees (about $5 billion), 10 times the amount spent on the general elections of 1996, less than two decades ago. (A graph of expenditures on Indian elections over the last 60 years can be found here.)

Of that sum, 35 billion rupees will be spent by India's Election Commission itself, in mobilizing 11 million permanent and temporary staff to make sure the election is well-refereed. A study by the Indian business lobbying group Assocham estimates the multiplier effect on the Indian economy to be nearly twice that figure.

Over the last month, hotels, restaurants, caterers, advertising agencies, gas stations, newspapers, public-relations companies, private taxi services, printers, banner makers, tent raisers, chartered plane and helicopter operators, soft drink and liquor manufacturers, singers, actors, poultry sellers, graphic designers, videographers and couriers, not to mention the millions of street vendors who dominate India's vast informal sector, have all seen a welcome spike in business as India's many national and regional political parties open their war chests for the investments that may, judiciously deployed, yield rich dividends for the next five years -- including capital to be saved up for the next election.

There's even income flowing in from abroad, in ways as varied as remittances from the prosperous Indian diaspora to the newly emergent sector of election tourism (such travel packages are not cheap, at $1,200 a person).

Simultaneously, all manner of middlemen, agents, messengers, mobilizers, spin doctors and strongmen have come crawling out of the woodwork, taking on the burdens of bypassing the formal economy of politics via funds circulated by a specialized class of money couriers called angadias. (These intrepid human cash cows charge a commission of 0.3 percent on the physical transfer of cash to state capitals and 0.5 percent on other centers.)

These diverse and never-ending expenses, always at risk of being surpassed by a rival in the many three- and four-cornered contests of this year's polls, mean that the candidate of almost any self-respecting political party is making a mockery of the Election Commission's expenditure limit of 7 million rupees (about $118,000) per candidate. A recent report featured a political worker who bragged that those sums are spent "just on cups of tea" on election days.

It's well worth looking at Indian election economics not just at the macro level, or in terms of the "white" and "black" economies, but also further down the chain, all the way from the impact on elections on specific sectors to election windfalls for individual voters and households, or what in India's rhyme-happy street language is called "note for vote."

As a recent paper by Devesh Kapur and Milan Vaishnav reveals, elections in India have a negative impact on the balance sheet of at least one prominent sector of the economy: real estate. That's because builders often help politicians launder funds, which are then pumped back in at election time; the loss of liquidity causes a temporary downturn in demand for raw materials in the construction industry, such as cement and steel.

It's fascinating when the demand curve of a single good can reveal something so striking about the nature of a political system.

A contrasting short-term spike in demand, meanwhile, is seen for alcohol as politicians open their crates to voters. (For a sense of how state governments are dependent on liquor barons and the vast sums involved, read the report on the recently assassinated liquor don Ponty Chadha.)

This election season, the Election Commission's law enforcement squad has already confiscated more than 13 million liters of alcohol, including plenty from Gujarat, the only state in India that still enforces prohibition and the home state of the politician most likely to become prime minister of the next government: teetotaler Narendra Modi. The Election Commission's resolve to crack down on politico-alcoholic malfeasance has also led it to classify specific alcohol shops in different cities and neighborhoods as "sensitive" -- that is, showing a liquor stock vastly in excess of that at the same time in the previous year.

Must the political class really resort to these elaborate bribes to draw in the undecided but bibulous voter? Couldn't he or she make merry on these offerings, then go ahead and vote for someone else anyway? Why don't some strategists take the matter to its logical conclusion and just pay cash for a vote? And if they do, what's the current price of a vote in India's democracy?

Well, if recent reports of vote-buying in the south Indian state of Tamil Nadu are to be believed, then it's currently 2,000 rupees ($33), though this could rise or fall depending on the intensity of the competition in a particular constituency or the resources of its candidates. In Tamil Nadu, the cash is delivered unobtrusively in a lunchbox, which would make it very hard for the sleuths of the Election Commission to pick it up, unless long hours on duty were to force one of them to nick someone else's lunch.

After results day on May 16, India's economy will witness what we might justifiably call an election hangover, a sense of weariness and economic exhaustion after the thrilling hijinks and gambles of the long electoral night -- or depression, as it becomes evident to some that the vast sums spent have led to nothing concrete at all, other than a rise in demand for cement. A new government, probably riding on a wave of popular anger against corruption in the last regime, will be tasked with finding a more durable frame for economic growth. Will that include an effort to pass more stringent campaign-finance laws and stronger deterrents to rule-breaking?

You bet not.

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