Elections as a fiscal stimulus!

Any fiscal stimulus to be effective has to be timely, well targeted and temporary. If we go by this test, one of the most effective fiscal stimulus options is elections, especially in an Indian context!

Even with the most conservative estimates, election spending by both the political parties and the government runs into several thousands of crores of rupees. Unlike the conventional government fiscal stimulus, most of this spending will be in the unorganized sector and informal black economy, and will thereby impact the lives of millions of people in the most direct manner. Here is a list of the major election-related expenditure streams.

1. It is an open secret that a candidate spends anywhere between Rs 5 to 10 Cr for fighting a Parlaiment seat. This includes the payout to get the party nomination from the constituency to the actual election campaigning expenditure. For the 543 Parliament seats, assuming just two parties, and the lower bound of Rs 5 Cr, the total spending on Parliamentary elections alone works out to Rs 5430 Cr.

2. Add in assembly elections in a few states, say 1000 assembly seats. At Rs 3 Cr, and two candidates, this spending will work out to about Rs 6000 Cr.

3. It is estimated that the Election Commission will employ more than 4 million people to conduct the elections. Polling personnel at the rate of about 200 polling stations per Parliamentary constituency, 4 persons per polling station will have to be employed to conduct the poll. The payments to them and other officials, including the massive police and paramilitary personnel, involved in election process will be in the range of Rs 3000 - 5000 Cr. These payouts can be considered the equivalent of tax credit checks paid out to stimulate the economy.

4. The additional spending by way of procurement and logistics for election related activitities will be atleast Rs 2000 Cr.

The total spending on all these counts, at its most conservative estimate, will be a handsome Rs 15000 - 20000 Cr. A more realistic figure could be almost double this, a significant enough amount. Most of the campaign and election related spending will be on items which are produced and consumed locally. The multiplier effect on such spending is likely to be substantial and the benefits of the spending will accrue mainly to those most in need of the same. Further, the handouts will go to the hands of those who are more likely to spend rather than save it.

Finally, elections are a one-off event, and hence there is an inherent sunset provision to election spending. In the circumstances, the immediate need of the hour is - early elections!

Update 1 (28/101/2010)

The US Congressional elections in 2010 appears to have all the trappings of a fiscal stimulus. A new class of super-wealthy, self-funding candidates appears eager to spend their heirs' fortunes in the (often fruitless) search for thankless public office. The spending prowess of candidates like Meg Whitman in California and Mike Bloomberg in New York, have contributed substantially to stimulating the economy.