India’s $5 billion elections

India’s 2014 elections are path-breaking because growth and governance have become the core issue for the first time, instead of subsidies and sops to the weaker sections.  

The biggest democratic exercise in history, it is reckoned that $5 billion could have been spent on campaigning alone by the politicians. This makes it the second-most expensive campaign in history, trumped only by the 2012 US Presidential election estimated at $7 billion. Such high spending by political parties is certain to provide a temporary boost to the economy as consumption will increase. With 150 million new voters, the electorate have become more demanding as well as tech savvy. Advertising costs have more than tripled from 2009, with $300 million being spent this year compared with $83 million last time. Political parties are making forays in to digital advertising and social media to capture the public’s imagination.

The niche market of chartered jets is also having a field day, as politicians fly rally to rally to address the masses. The average hourly cost of these planes ranges from $1,250 to $3,000. Companies have leased out their aircrafts till the end of the election period and even conservative estimates point to $900,000 being spent daily. Facilities provided at rallies have also had to be improved, with better seats and refreshments needed to draw crowds.

The cost to the Exchequer is expected to be Rs 3,500 crore, up from Rs 1,400 crore in 2009. Though inflation has played a part in increasing costs, initiatives by EC to promote voter awareness, digitising electoral rolls and training officials make up a large part of the cost. To get a sense of scale, bear in mind the first ever elections in India in 1952 cost Rs 10 crore. Security will further add to the expenditure, the Ministry of Home Affairs has deployed 200,000 personnel (175,000 paramilitary forces and 25,000 state police officers) to ensure the elections go on smoothly. The majority have been stationed in six states – Jharkhand, Chhattisgarh, Maharashtra, Odisha, Andhra Pradesh and Bihar – as the government fears Maoist insurgency to interrupt polling.

It’s not at all costs, however; markets have been bullish in the anticipation of a raft of changes once the new government is in power. Despite only one IPO this financial year, the Sensex has hit an all-time high. Foreign Institutional Investments (FIIs) have flooded the Indian market, with a net investment of $558.16 million recorded at the end of March. This is an amount large not just for India, but emerging markets as a whole. The rupee has also recovered slightly from the hammering it took against the dollar last year and is at a 3-month high. The current account deficit has decreased and exports are up. It is important to note however that over-reliance on FIIs can have catastrophic consequences since investors have the option of taking their money out whenever they please.

While India’s economy has had a disappointing few years, investors as well as the common man expect things to improve following the elections. The markets have always been volatile near the election period so it is difficult to make a prediction for the future. The boost provided by these elections could prove to be a false dawn unless the new government takes the necessary steps to put the country back on a path of sustainable growth. Things are looking better but are by no means certain.