Winning formula: Good economic policies help win elections, appeasement does not

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New Delhi | Updated: December 15, 2018 8:52:22 AM

Good economic policies like cash transfers help win elections. Appeasement of minorities and the majority hurts chances.

agriculture sector, agriculture industry, farmersIf a farmer did not bring the produce to market, he would not get any benefit.

The semi-final turned out to be a dream event for the Congress, and less than nightmarish for the BJP. Now, onwards to the real thing a few months hence, and the important question now is what are the messages from the various states for the practitioners of electoral politics. Some messages are straightforward, others come coded.

The age-old bad and corrupt policy of food distribution stands exposed as a big vote loser. Many (and I) have made this point for decades, and indeed the first one to highlight the corrupt nature was PM Rajiv Gandhi when he stated, in 1985, that only 15 paise of every rupee spent by the government actually reaches the poor. This policy reached its nadir with the Food Security Act (FSA) passage by the Sonia Gandhi led UPA-II in 2013. Ironic and sad, yes.

The policy of corrupt distribution of monies to the non-poor proceeds as follows. The government buys crops from farmers; sends it to the Food Corporation of India; which then sends it to godowns for storage; who then send it to the food ration shops for distribution; the poor (deserving “poor” assumed to be two-thirds of the population by the FSA!) go to the ration shop to claim their rations. Over the years, more than 50% of the quantity of the food is lost in translation (read, ending up in the pockets of corrupt middle-men and politicians). The big losers in all this—the farmer, and the public.
Raising the minimum support prices of crops, the time-tested practice of all governments, does precious little to change this corrupt game. And recommendations, like that of the Swaminathan committee report, that farmers should get 50% above the cost of production, are equally fallacious.

Amongst the many recommendations that the Modi government received in its February 2018 Budget was a policy of cash (direct benefit) transfer to the farmers for income deficiency when farm prices were low, and a DBT transfer to those consumers for purchase of foodgrains from the market. The latter is in control of state governments and the former in the hands of the Central government. Since the BJP rules in most of the states, it should have implemented cash transfer of food subsidies. It is still not too late.

Two states attempted to bring about DBT for farmers. Telangana did it the correct way—cash transfer of Rs 4,000/acre, twice a year, for every farmer. Madhya Pradesh did it the half-right, half Telangana way. Here the policy was that the government would make up the difference between MSP and market price for the farmers. If a farmer did not bring the produce to market, he would not get any benefit. Add on the fact that the farmer has an incentive to bring his home consumption food to the market which would bring the prices of produce down and hence increase the subsidy outgo of the government. Add to it the fact that farmers know many ways to game the system, as assiduously pointed out in many articles by Sunil Jain in the pages of the Financial Express, and “dump” produce in the market place and thereby extract a larger subsidy from the state.

What happened in the state elections? KC Rao and the TRS ran away with a 47% vote share in Telangana, to Congress’s 20%. In Madhya Pradesh, the vote was slightly higher for the BJP than for the Congress—we can imagine what would have happened if Shivraj Chouhan had adopted the Telangana model in full. The Congress did not recommend any forward looking economic policy—instead, it relied on the promise of bad policies like loan waivers in Telangana! Wonder when political parties, and their leaders, will realise that cash transfers work best and not attempts at crony socialism.

The Modi government has done many economic policies right, and begun major initiatives to improve the re-distribution mechanism of the state, i.e., efficient transfers to the poor and deserving. In a well-researched piece (bit.ly/2EoVebp) Harish Damodaran contends that while real incomes in the form of asset creation really occurred under the BJP watch, corresponding jobs and wage growth did not materialise, and hence the BJP lost in three key northern states. In my election forecast article (bit.ly/2RZdj3v), I had also contended that rural asset growth had happened in an unprecedented fashion and this would help BJP overcome anti-incumbency and win, albeit by much narrower margins than those obtained in 2013.

My election forecast models are not based on opinion or exit polls; rather they are based on historical trends in vote shares and their determinants.Towards this end, my forecasts of vote shares in Madhya Pradesh and Rajasthan were almost spot on (BJP ahead by 1 percentage point in MP, reality was that BJP were ahead by 0.1 percentage point; Rajasthan BJP ahead by 1 ppt, reality was INC were ahead by 0.5 percentage point). Where the model went drastically wrong was in Chhattisgarh, where INC was ahead of BJP by 10 percentage point, when it was expected (by me) to be behind by 1 ppt. In this state, the surprise (and error) was caused by the fact (likelihood) that Ajit Jogi took votes away from the BJP rather than the Congress.

Coming back to Damodaran’s thesis. Asset creation helped the BJP, but lack of job and wage growth overwhelmed the benefits of asset creation. How valid is Damodaran’s intriguing hypothesis? Nominal rural wages (ploughman) rose by 17.2% per annum between 2011/12 and 2013/14 and real wages increased by 7.7% per annum. But the UPA lost big in the 2014 election. Regarding job growth, between 2004/5 and 2009/10, employment increased by only 11 million or by only 2.2 million a year. Former RBI Governor Raghuram Rajan recently estimated that India needs 12 million jobs a year, a number not far from what several other economists have estimated. In a paper prepared for the Economic Advisory Council to the PM (bit.ly/2CczKN3), Tirtha Das and I estimate that between 2011/12 and 2017/18, India needed to create only 5.1 million jobs a year.

The correct number of jobs to be created is a debatable topic, and we will revisit that at a later date. The fact remains that job growth between 2004/5 and 2009/10 was the lowest created over any five-year period in India (at least since 1983). And rural wage growth? Agricultural wages declined at a -0.1% per annum between 2004/5 and 2008/9! On both counts—jobs and wage growth—the Congress performed miserably, but won the elections in a handsome fashion, increasing its Lok Sabha tally from 145 in 2004 to 209 seats in 2009.

What hurt the BJP in these elections (apart from not implementing cash transfers for either the poor farmers or the poor consumers)? There is another non-economic reason—the hard Hindutva and/or hard Indian nationalism is not a vote-getter. I have believed, over several decades, that appeasement of minorities does not help in getting votes, and neither does the opposite, e.g., temple politics (appeasement of the majority Hindus) or cow slaughter politics.

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