Q1 GDP: Even An Expensive Election Failed To Boost Growth
Typically, the spending in the run-up to general elections provides a boost to economic growth. Not this time.
Elections, particularly in a large democracy like India, are an expensive affair. Campaigning, travel, goodies doled out to voters all add to the spending in the economy near the time of elections.
In 2019, close to Rs 55,000 crore, or $8 billion, was spent, according to a report by the Centre for Media Studies, which termed the Lok Sabha elections as the world’s costliest.
Typically, the spending in the run-up to general elections provides a boost to economic growth. But not this time.
Data over the last five election cycles, including the recently concluded one, shows that with each cycle came a boost to growth in the quarter in which elections are held. Since general elections are typically held in the April-May period, it’s the June quarter which sees a spurt in growth.
During the 2014 election cycle, growth jumped to 8 percent in the April-June 2015 quarter from 5.3 percent in the preceding three months. In the cycle before that in 2009, growth gained to 5.9 percent in the April-June 2009 from a low 3.5 percent in the previous three months. The data used for each cycle is of the prevailing GDP series at the time as comparative data under the new series is not available for quarterly growth rates.
However, in the current cycle, growth slipped to 5 percent in the April-June 2019 quarter, when elections were held. This growth was sharply weaker than the 5.8 percent reported in the January-March 2018 quarter.
The elements normally seen in regular general elections were missing in this one, said Devendra Pant, chief economist at India Ratings and Research.
“Earlier, the nature of political spending in elections was such that the grassroots effect was more immediate. Now, political parties increasingly preferring to spend more on digital medium, may explain why increased spending did not push economic growth,” said Pant.
He added that government spending had indeed remained high during this period, providing some support to growth.
Government final consumption expenditure grew by 11.8 percent in the first quarter of FY20 compared to 9.9 percent in the fourth quarter of last fiscal.
The increased government spending, however, was not able to compensate for the weaker-than-expected private consumption and subdued private investment.
At a time when the economy is weak, it’s likely that even higher economic election related spending may not have been enough to offset the impact of the slowdown, said Madan Sabnavis, chief economist at CARE Ratings.
Sabnavis said it was difficult to establish a relationship between election-related spending and economic growth without being able to identify the magnitude of the money spent on contesting elections and the segments it was likely to have been spent on. While it can be assumed the increased spending may have been in the form of cash transfers and handouts, it may have impacted the unorganised sector more than the organised sector, he explained.