By N Chandra Mohan
Political temperatures are fast rising in line with the soaring early summer heat ahead of India’s national elections this month and in May. Seeking a third term, the Bharatiya Janata Party (BJP)-led National Democratic Alliance regime together with the opposition is in election mode to bolster their chances at the hustings. This event has been billed as the most expensive ever at `1.2 trillion (or $14.4 billion) according to the Centre for Media Studies, despite the scrapping of the electoral bonds scheme by the apex court. This obviously entails a vast amount of spending in cash—the sources of which are neither clean nor transparent—and in fact, is double of what was incurred during the previous general elections in the country five years ago.
India’s enormous poll expenditures are several times greater than the sums raised through electoral bonds, which provided a legal and anonymous channel for donations to political parties. Prior to the national elections in 2019, the funds raised through electoral bonds amounted to only 5% of the `60,000 crore (or $7.2 billion) estimated poll spending by political parties. The ruling dispensation’s spends accounted for 45% of the total expenditure. From 2018 to January 2024, `16,518 crore (or $2 billion) of bonds were sold. More than a half of the proceeds went to the BJP. With this scheme declared “unconstitutional”, the spotlight is back on unaccounted money to finance the national elections.
The big question is whether there have been signs of unusual cash demand of late. Perhaps, a clue lies in the observations of the then-RBI governor, Raghuram Rajan, in April 2016. He saw a rise in currency in circulation to be associated with polls or spending during a festive season: “Around election time, cash with the public does normally increase. You can guess as to the reasons why, we can also guess.” To be sure, there has indeed been an uptick in cash with the public in the run-up to the national elections, up by `1.3 trillion to `33.8 trillion on March 8 from `32.5 trillion in end-December 2023. This spike was observed also in the run-up to national elections in 2019.
Arguably, there could be other explanations for the surge in cash with the public, like for instance, procuring the rabi wheat crop in Punjab and Haryana ahead of the Baisakhi harvest festival. But these events occur every year without causing any abnormal increase in demand. There is also a suggestion that cash is king with the public during periods of uncertainty, as happened during the Covid-19 pandemic. That sustained demand for cash stems from precautionary and store-of-value motives. Prima facie, the months ahead of this year’s elections cannot be characterised as periods of uncertainty as the economy is growing and incomes are improving. The cash demand is far from precautionary.
The rise in currency with the public ahead of polls has been observed in the states.
Rajan’s observations in fact pertained to the assembly elections for Assam, West Bengal, Tamil Nadu and Puducherry that saw a substantial increase in money with the public of `50,000 to `60,000 crore, which was much higher than what the central bank had estimated for that time of the year. He added that this was observed not just in the state going to elections but also in the neighbouring states and therefore needed to be analysed in detail. These statements led the then chief election commissioner to indicate that the commission would engage with the RBI on this important matter.
More recently, important assembly elections were held in November 2023 in Mizoram, Madhya Pradesh, Chhattisgarh, Rajasthan and Telangana. In these cases as well, cash with the public rose by a massive `53,000 crore between October—when the polls were announced on the 9th—and November. Indicative of the role of unaccounted money in these poll-bound states were the record seizures of cash, liquor and other valuables of over `1,760 crore, which were more than seven times (`239.15 crore) the seizures made in the previous assembly elections in these states in 2018, according to a press release of the Election Commission of India (ECI).
The ECI has rolled out an Election Seizure Management System, which is a unique technology platform where around 20 enforcement agencies have come together to share information of their activities pertaining to elections in real time. The true test for the ESMS will be the national elections, as the scale and magnitude of unaccounted money is expected to reach record levels. For perspective, the estimated poll spend expected to be incurred in the US presidential polls is in the ballpark of $10-16 billion. The advantage is with the ruling dispensation, which has a huge war chest, while the political opposition is hobbled by probes by investigative agencies and the arrest of a sitting chief minister. The candid admission of the Union finance minister that she does not have the money to fight the elections is a telling commentary on how expensive it has become. The lack of a level playing field ought to dictate policy attention to state funding of polls.
N Chandra Mohan, The author is an economic and business commentator based in New Delhi. Views are personal
