Little economic basis to ‘One nation one election’

It is tempting to take a somewhat contrarian view on how the economy gets affected by the ‘One Nation One Election’ report. The report does extol the economic benefits arising from simultaneous (or near simultaneous) elections for all the four layers of the government: Centre, State, municipalities and panchayats.

The conclusions are based on data that has been used to compare economic parameters when there were simultaneous elections, with those held at different points of time. The problem is that there have not been too many such cases to do a meaningful statistical analysis. Further, economic performance is driven by a variety of forces and hence the conclusions on the basis of any single parameter could seem off target. Can we really believe that GDP growth next year will be an additional 1 per cent higher or inflation lower by 1 per cent if all elections were held in May?

First, there are strong reasons to believe that GDP growth is enhanced when there are separate elections. One is aware of the spending that takes place when elections are held. This has strong backward linkages to the SME sector when food, shamianas, furniture, vehicles, etc., are involved and used which adds to overall spending. In a way it is just like having simultaneous World Cup 50 overs and 20 overs at the same time, when teams play different tournaments within the span of 45 days! But if spread over different time periods, spending increases even more and adds to GDP.

Economies in spending

In fact, having simultaneous elections definitely brings in economies in spending for sure and the Election Commission will be better off. But these savings also mean less spending and lower GDP growth. Hence there is reason to believe that having elections for different bodies at different points of time leads to higher GDP than holding them all at once.

Second, the report also talks of having lower inflation with simultaneous elections. This can be contested. It is one thing to say that if spending for all four elections were to take place simultaneously, it would not lead to a 4x rise in spending where x is the amount spent on a single election. But it does not follow that prices will necessarily rise less, as the prices of rentals of chairs, vehicles, volunteers and speakers could increase.

As for the government dropping prices before elections, as it has done just now with respect to fuel, these acts will increase if the elections are held separately. So separate elections are likely to be less inflationary. When they are held simultaneously it becomes hard for the voter to ascertain which layer of government provided the benefit.

Third, the report talks of how fiscal order is better when there is a single election. Here again it can be argued that with the FRBM firmly in place, every government is managing the budget within the rules. Notwithstanding the talk around ‘freebies’, the FRBM has ensured that there is nothing much given out of the ordinary.

Fourth, the report argues that capital formation increases when there are simultaneous elections. Governments anyway tend to impress with higher capex allocations before elections, whether or not elections are held separately or simultaneously. Their capex is driven by fiscal space.

The argument that the private sector does not invest unless the election outcomes are known, has never been proved. Companies are not short-sighted to look only at elections when investing. India has already seen some very strong policy reforms across all sectors which are the guiding signals for investment.

The pertinent point, however, made by the report is the disruption caused on the education front where government schools and teachers are used multiple times. But if one does evaluate the number of days involved for each of these elections, it may not be very significant. Often, the classes are extended as every Board of Education does insist on a fixed number of days of classes.

Hence, the economic rationale for simultaneous elections is less than convincing.

The writer is Chief Economist, Bank of Baroda. Views are personal

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