The GDP poll

In 2004, the BJP lost the general election, despite its belief that the Indian economy’s performance had been outstanding and voters would reward it for this performance. Many analysts and most opposition parties accepted the contention that the economy was performing very well, but the fruits of this growth had not reached the “aam aadmi” who voted against the BJP. As a contrarian, I argued that the economic performance had been, in fact, worse than during the previous regime and voters had punished the government for poor economic outcomes.

Earlier this month, the prime minister gave a press conference to assert that the economic performance of his government had been outstanding and the Congress party was therefore likely to win the elections again. Unfortunately, he is making a mistake very similar to the one made by the BJP. The actual performance, which matters to the aam aadmi voter, is much worse than the performance benchmark (as per the model developed by me). The outcome is therefore likely to be equally disappointing for the Congress party.

Under normal circumstances, elections are held every five years. At the end of the five years, the simplest way for the aam aadmi to judge a government’s performance is to see how he and his family, his friends, neighbours and acquaintances have done during those five years and compare this with what happened during the previous five years (with an earlier government). If the performance is better/ worse than in the benchmark years there would be an increased/ reduced likelihood of him voting for the party in power.

Pared down to the barest essentials, there are three economic indicators that, in our view, matter to the independent, swing or marginal voter. These are economic growth, public goods and services (popularly referred to as “bijli, paani, sadak”) and transfers or subsidies net of taxes. The growth of per capita income determines not only the change in the living standards of the average voter but also the employment opportunities (in jobs or self-employment) created and available to her. Public goods include a range of local or municipal services such as roads, drinking water, sewage, sanitation, drainage, public health and basic education. An improvement (or worsening) in the quality and/ or volume of such services would tend to have a positive (or negative) impact on the voter and thus tend to increase (or reduce) the ruling party’s vote share.

A change in net transfers or subsidy-taxes would similarly be associated with a change in vote share. The quality of governance and the degree of corruption are as, if not more, important than the paper or budgetary expenditures (actual delivery/ outcomes matter) and notional tax collection (harassment and under-the-table costs matter). Here, we focus on the growth of per capita GDP as an indicator of the improvement or worsening of the lot of the average marginal voter. Thus, if the rate of growth of per capita income has increased or decreased, the vote share of the ruling party is likely to show a corresponding increase or decline.
Given this hypothesis, let us look briefly at the past two elections.

The NDA government had been in power from 1999-2000 to 2004-5 when the general elections were held. During its tenure, the average per capita GDP at factor cost grew at 4.1 per cent per annum, compared to an average of 4.5 per cent per annum in the previous five years. Thus, average per capita growth was 0.4 percentage points (9 per cent) lower than during the previous five years, making a reduction in the BJP-NDA’s vote share highly likely. It appears that the “India Shining” campaign may have jarred with the reality seen by the more aware or better informed urban voters, and thus exaggerated the relatively small decline in per capita growth.

The Congress party consequently came into power in 2004-5 and ran the government as part of the UPA till 2008-9. During this period, the growth of per capita GDP accelerated by an incredible 2.7 percentage points (69 per cent) to 6.8 per cent per annum. As predicted by our model, this 69 per cent acceleration in the rate of growth of per capita income led to a dramatic increase in the vote share of the Congress party, leading to a sweeping victory in the 2009 general election. The scale of the victory surprised both partisan politicians and objective analysts, but it is completely consistent with our model.

What does the model say about the forthcoming general election? During the tenure of the current government, UPA 2, which spans from 2009-10 to 2013-14, per capita GDP growth is likely to average about 5.4 per cent per annum. This is a decline of 1.4 percentage points or 21 per cent from the growth rate during the previous five years. Thus, ipso facto, the fall in the Congress vote share in the 2014 general election is likely to be greater than that of the BJP in the 2004 election but less than the gains of the Congress in the same election.

The issues of corruption and governance will also affect voter behaviour as they are directly related to the quality and volume of public goods and services supplied by the government as well as the effectiveness and efficiency of welfare transfers. Both of these will have a further adverse effect on Congress party’s vote share.

The author is former chief economic advisor, ministry of finance, and currently heads the think tank ChintanLive.org 
express@expressindia.com.