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Quiz Society SRCC

The Economics Of Elections

Voting is seen as a civic duty and looking it through an economic lens makes it quite intriguing to analyse.

Paradox of Voting:

Complying with the 3rd Principle of economics i.e Rational people think at the margin, we weigh the Marginal Costs and Benefits.

As a voter, we incur costs when we decide to vote: the cost of petrol it takes to drive to a polling station or cost of time and wasted productivity. Interestingly, when we decide to vote, the odds that our vote will actually affect the outcome of a given election are quite slim.

Behavioural economics studies show that people vote to identify themselves with a certain group. The “bandwagon effect” affects the results of the election, as people choose to vote for the candidates most likely to succeed. People not disillusioned with the political systems get pride by exercising their democratic right of voting.

It has been observed that the economy of country like India slows down before the polls while populist government exercises opportunism just ahead of elections.

Some reasons of the same are:

National Debt

Elections are marked by the introduction of policies that are economic disasters but have political benefits. The rollout of welfare schemes that will become unsustainable in the long run is a ploy which is used to woo the voters. All this causes increase in national debt.For instance, if we look at the manifestos of political parties in recent 2021 state elections,many welfare schemes were proposed to capture the votebanks at the cost of taxpayer’s money:

  • BJP in its West Bengal state election manifesto claimed to provide each refugee family Rs 10,000 per year.Moreover apart from a special Rs 50,000 bond for families with a girl child, manifesto announced Rs,1lakh to women from SC,ST and economically weaker sections at time of their wedding.

  • LDF in its manifesto for Kerala’s election announced a 50% hike in farm wages .

  • TMC in its manifesto claimed to construct Netaji Subhas Chandra Bose memorial to honour his contribution towards nation-building.Moreover TMC proposed to set up to examine and propose OBC status to all the communities who are not currently recognised as OBCs but were propsed in Mandal commission.

These measures can be broken in 3 categories

  • unilateral transfers resulting in no value addition to economy: Instead schemes that aim to provide work and upskilling could have been rolled out that would have served a twin benefit of giving livelihood with dignity as well as helped the economy by increasing employment and GDP contribution.

  • wasteful expenditures in building monuments ..Such expenditure should be strategically incurred towards infrastructural development and other areas of due importance.

  • Proposing schemes to encourage reservation hamper yet the holistic development of nation by non homogeneity in opportunities of livelihood ,education, jobs wherein the non-reserved counterparts have also become vulnerable due to prolonged implementation of nation-dividing schemes of reservation.

All this shows our weak institutional framework where elections are won by ideologies of caste,belief and religion in contrast to prudent policies for development.They wreck the economy by such highly unsustainable welfare schemes that maybe beneficial at micro level but are disasters at macro level.

Reduced Taxes

The introduction of / increase in taxes is enough to make a government unpopular. So pre-election budgets are often marked by tax breaks for the masses leading to low govt-receipts and causing budget deficits.

Business Expectations

Industrialists avoid taking business decisions during an election year. This is because a change in the government may mean a change in the existing policies concerning them. This has a negative impact on the economy since the economic output, and the jobs which could have been created are postponed.

According to a recent paper by Devesh Kapur ( Director of Asia Programs and Starr Foundation Professor of South Asian Studies at The Johns Hopkins University School of Advanced International Studiesreveals) ,elections in India have a negative impact on the balance sheet of at a prominent sector of the economy: real estate. Its because builders help politicians launder funds, which are 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.

Lesser Credit Growth

Since industrialists undertake lesser projects, banks don’t lend out too much money. This slows down the rate of credit growth which affects the economy .Instead, candidates pull out their money from banks to make unilateral transfers to citizens in exchange for votes.Dampening of investment opportunities hinders GDP growth.

Heightened Inflation

Since many political parties start spending lots of money and start giving out cash transfers , this leads to sudden demand of goods and services leading to high prices and temporary inflation.All these factors eventually lead to slow economic growth.

It’s well worth looking at Indian election economics not just at the macro level, but also further down the chain, all the way from the impact of elections on specific sectors to election windfalls for individual voters and households.


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