Thursday, 28 March 2013

The economics of an election

My state is coming into election time. The politics of it - who will win; who will lose, etc is beyond the purview of this blog. But this blog will certainly muse on the economics behind it.

I am foxed as to why anybody wants to stand for any election - for the economics behind this is akin to a Las Vegas casino. On a conservative estimate, each candidate would spend about Rs 15 crores in each assembly seat ( see this speech as evidence of such numbers). More than three quarters of it is not for campaigning, but to bribe the voters (shame on you and me). Traditionally it used to be just cash and liquor.  But apparently now even water drums, watches, sarees and T shirts feature, as evidenced by this photograph and this article from The Hindu today.

The number of assembly constituencies in Karnataka is 224. There are four political formations in the fray. So that makes for 900 serious candidates. At Rs 15 crores per candidate, that amounts to an expenditure of Rs 13,500 crores .  Karnataka's GDP is about Rs 4,60,000 crores. So, something like 3% of GDP will be spent by candidates - that by any stretch of imagination is a staggering sum.

As JP Narayan, says in the video I refer to earlier, you have to spend this money to stand a chance. Spending it does not guarantee victory, but not spending it guarantees defeat. So, if you stand, you have to spend.

Consider for a moment, the ability to have a sum of Rs 13500 crores created for spending. Since much of the spending is illegal, the money has also to be generated by questionable means. It is actually not so easy to siphon away 3% of GDP - even corruption has its limits. Add the problem of keeping Rs 13500 crores in cash. If it is all packed in Rs 500 notes, each crore weighs 34 kgs. So Rs 13,500 crores weighs 460 tonnes - that is 46 lorry loads. You can't brazenly transport 46 lorry loads around - some will be stolen, some will be seized by the Election Commission officials, etc etc. And consider the logistics of buying so much liquor (and water drums). Its a mammoth logistics exercise and all has to be done surreptitiously.

And there can be only one winner in each constituency. What about the three blokes who lost. They have washed Rs 45 crores down the drain. They will virtually be bankrupted, for there is no way to earn it back until the next elections and , even then, only if they win. For the winner, he has to recoup a decent return on his investment - let us say he must make Rs 60 crores - to recoup a return on his investment and to create the capital for the next election. That is also not easy -  each winner to make Rs 60 crores is not an easy task.  A few can make that, but for everybody to make this sort of an amount is a tall order, however brazen the corruption is. And this alone is not enough, for each of his hangers on wants to make money as well. 

If you put your money in a bank deposit you can make 50% in 5 years, virtually risk free. With a little more luck, in the stock market or in gold, you can double it in 5 years. So, why take such wild risks for relatively meager returns and the possibility of losing it all. Obviously economics is not the strong point of those who stand for elections.

Many of the citizens are disgusted with those who would like to be our elected representatives. The best way to give them a big knock on their head is to vote such that the government will fall every year and elections are needed. Three elections in three years is enough to bankrupt them all. And then, maybe fresh air will emerge.


Sriram Khé said...

hmmmm .... a sex cam spam comment beat me to this post ... what a penetrating insight from a very excited robot all the way from the beginning to the big finish ... must not be hard to mount such assaults in the blogosphere where everybody seem to be always standing up ready for action and ready to pound on the keyboards!

Ok, enough with the double entendre and back to the regular program ... hehe ;)

Your post on the elections and monies being spent is very depressing, Ramesh. The last few days I have been reading news items after news items on the acute water shortage in various parts of India, including Bangalore. It is unfortunate that so much money can be thrown on elections, but comparably next to nothing is invested on critical aspects like water and sanitation.
Maybe I should simply stop thinking about these issues and follow up on those sexcams instead :(

Ramesh said...

@sriram - They come faster than I can delete them :( Ha Ha Ha on your puns. You should be half journalist and half Prof !!

Oh - Bangalore, and Karnataka has lots of problems. Water is a problem everywhere in India. Actually quite a lot is spent on infrastructure (it took a German to show a disbelieving me that), but its always 10 years too late.

On elections, this is a worldwide problem. The amounts of money spent everywhere are staggering. Except that in India, it is not spent on campaigning. It is spent on outright bribery of voters. Citizens who accept this should be disenfranchised. Since it is so widespread, I am not even sure if we collectively deserve a democracy - for democracy is not just a right but also an obligation.

Anonymous said...

LOL!!! I wish the solution was simple but with parties like the UPA that has siphoned of lakhs of crores they can fight elections for many more years without a thought about where the money would come from!!!!! that truly is the sad state of affairs... so too with many regional parties... why do u think they are all ready to team up to ensure that Modi does not come to the helm or BJP to power?

Ramesh said...

@Shy - Thanks for visiting and commenting. Yes, the popular perception is that the UPA government has siphoned off lakhs of crores, but I happen to believe that the "winnings" were actually much smaller. Its actually not so easy these days to filch such a large amount - there are too many watchdogs looking on. Take the 2G "scam". All sots of amounts have been bandied about. You can argue whether the policy was right or not, but the money made by politicians out of that deal, would have been much much smaller (even if anything significant at all). I am of the opinion that politics is a mugs game when it comes to making money - most people lose and only a few make a lot. Somewhat like how Las Vegas is.

Sandhya Sriram said...

No Business man invests money without a business case. and return is a mix of risk undertaken.

and if 900 shrewd and serious people are investing 13500 crores, just imagine teh size of teh parallel economy.

You must once in a while spend some time in any registration office for property. you will see the scale of the economy there.

No wonder, corruption can never be eradicated from India.

Ramesh said...

@sriraqm - That is true - no businessman invests without a business case, but I am questioning now whether politicians are more gamblers than businessmen.

The size of the parallel economy is indeed huge. And you are absolutely right - the biggest component of the parallel economy (and crime, corruption and degradation of values) is property.

Sriram Khé said...

I knew Ramesh would trip over my name and Sandhya's name, all because of the "Sriram" that is my first name, which is also Sandhya's last name. You are getting old, man. Next thing you know, you will start drooling if sitting for more than five minutes, and ten minutes in you will be napping too ;)

Ramesh said...

@sriram (the Khe this time) - Aggghhh - But then I am already drooling and nodding away :):)

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