The
knee-jerk reaction to an announcement of elections in India is typically
regarding the amount of money that will be wasted. Estimates range from high
hundreds of crores to low to medium four figure crores of rupees.
I
want to stop this knee-jerk.
As
has been made clear by many an economist, including Adam Smith and Paul
Krugman, if there is no national outgo of money in any transaction, it is a zero-sum
game within the economy. What is one man’s expense is income for another. The
money stays in the economy.
Most
of the expense for election is confined within the shores of the nation. Indeed,
given the likelihood of one-way cross border flows on this count, the income
may have a significant component of foreign monies and that cannot be bad for
the economy. It may be a different matter that the outgo is from the government
and parties, and income is for the most part to the election entrepreneurs.
The
above must not matter as the circulation of money is what is of concern. The
national economic activity gets a boost, not a whole lot different than what
happens during war time. Therefore, I believe proper reckoning of election
effect on the economics of the country will show a sudden spike in growth
numbers!
But,
I conveniently skipped another aspect. The moment shadows of an election appear
on the horizon, all government procurement activities come to a grinding halt
given the uncertainties of the future political dispensations. Shadows of the
Election Commission also loom over every decision of the executive. Even on-going
projects suffer severe slow down, particularly when, as in the current
instance, elections are scheduled not too far from the beginning of a budget
cycle. Vote on accounts or interim budgets do not inspire confidence in the
bureaucracy. This is economic slowdown, of a predictable kind.
Combine
the two and considering the fact that government procurement is orders of magnitude
larger than election expenses, what you get is negative growth in the
circulation of monies in the economy. This state of affairs continues for about
2 months before elections, the one month long process and another month for
things to settle down. That is, one third of the year is lost.
It
is for this reason frequent elections are bad and not on the fact that each
election entails much spending.
One
last thought. All of the above are nothing but unsubstantiated thoughts coming from
an economics illiterate. Take them for whatever they are worth, if anything at
all.
Raghuram
Ekambaram
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