Delhi State Election Results

The Delhi State election results, which swept the AAP to an unprecedented win in the Delhi State election are extremely interesting and can be interpreted at different levels:

(1) BJP's vote share was 32-33% around the same as in earlier State elections, but possibly on a mildly declining trajectory, while AAP jumped to an unprecedented 50-55%. This means that the vote bank of the Congress, BSP & other small parties switched en mass to it. Exit polls suggest that this switch was greatest among low income voters of the non-BJP parties.

(2) The common thread among AAP voters seemed to be disgust with conventional parties who were seen as part of an arrogant, corrupt, unresponsive local administrative system. Despite any other failings (that political/economic pundits often harped on) they hoped that a completely new party like the AAP would change the system, reducing corruption and force administration to serve the people instead of lording it over them.

(3) Though pundits focused on the negatives of the AAPs 49 day rule, the non-BJP voters focused on the signs of helpfulness that AAP workers had demonstrated at that time, on corruption related administrative problems. This impression may have been strengthened in low income areas if AAP workers continued to be helpful after it demitted office(as reported in the Hindu). The Delhi public is quite aware that all parties (including the AAP) promise all kinds of goodies and these promises have to be taken with a large pinch of salt. This applies to both the positive benefits and the negative side-effects of such "give-aways." Neither the potential beneficiaries nor the potential sufferers (higher cross tax-subsidies) gave this issue the importance that some analysts were giving  it (and continue to give it).

(4) Mr Kejriwal who turned from a very humble man to an arrogant one in nine months of 2013, when the pre (central) election pols projected 50-100 seats for AAP and the media crowned him a Prime Ministerial candidate, seemed to have learned his lesson from the CG election disaster. He appeared to have re-discovered his humility. This also helped restore his credibility with (temporarily) dis-illusioned potential voters. In my judgement (a high minded) arrogance also contributed in the rout of the Congress as it delayed corrective economic measures till it was too late and therefore provides a lesson to the leadership of all parties, including the BJP.

(5) Delhi voters have an idea of the difference between what the Central Govt. can do (macro economy, jobs opportunities across country etc.) and what State & local Govt. can do at the local level (public amenities, permissions and certificates). Thus the image of the Delhi BJP and its past performance (indifferent) was much more important than the performance or non-performance of the Central Govt., Though Shrimati Kiran Bedi was seen by some as an anti-corruption crusader, others saw her as a part of the high handed (rather than high minded) police fraternity of Delhi. So any potential advantage was negated.

(6) One interesting puzzle is what happened to 10-15% additional vote that Shri Narendra Modi added, during the General Election of 2014, to the core vote of the BJP in Delhi?  Though the point made at (5) above is part of the explanation, it is not sufficient. The second part has to be the unease created by what these swing voters believed to be disturbing manifestations of the (so called) "Sangh Parivars" social agenda. Many of these voters ("Right Liberals") support the economic program of the PM but not what they percieve to be the social agenda of the RSS/"Sangh Parivar". They are actively opposed to any use of violence and coercion to achieve social objectives and to an undermining of the economic agenda through divisive statements. The PM was unable to convey to these swing voters that he did not support such statements and actions. His credibility on this issue was therefore a factor that affected the swing voter, who had voted for him in the General election.

(7) The Delhi media helped greatly in conveying and magnifying these impressions and helped form firm judgment that brought people out to vote (when many may have been unsure and afraid to take a risky bet and stayed home). This included a general impression that the Congress was at least temporarily finished in the State and that the AAP could successfully challenge BJP in Delhi State to form a stable government. The prominence given to extremist voices in the Sangh Parivar and the violence of some fringe outfits under the Parivar umbrella played a role in helping consolidate the non-BJP vote behind AAP.  

          It is unclear whether the Delhi media (especially the English language media) has much influence outside the Delhi metropolitan region, even in parts of neighboring States like Haryana that lie beyond the Metro region.

(8) The above analysis throws up several lessons for the major political parties. How much of an effect is felt beyond Delhi will depend on how these parties learn the right or wrong lessons from it. For instance Delhi is a City State with the highest per capita income, low poverty, high average education & media exposure, and very high average growth rate (city of opportunity), but poor governance like every other City in India. Any implications drawn for the rural areas and for poor States and less educated regions are likely to be wrong. 

Per Capita GDP growth and Vote Share

Introduction

    In 2004 the BJP lost the general election, despite their belief that the Indian economy's performance was outstanding and the 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 Admi / Aurat” who voted against the BJP.  As a contrarian I argued that the economic performance was in fact worse than during the previous regime and the voters had in fact punished the government for poor economic  outcomes (Virmani(2004))[i].

     Last week 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 election again. Unfortunately he is making a mistake very similar to the one made by the BJP.  The actual performance that matters to the “Aam Admi / Aurat” voter, is much worse than the performance benchmark (as per the model developed by the author). The outcome is therefore likely to be equally disappointing for the Congress party.

The Model

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

   Reduced to the barest essentials, there are three economic indicators that in our view matter to the independent/swing/marginal voter.  These are Economic Growth, Public Goods and Services (popularly referred to as “Bijli, Pani, Sadak”) and transfers/subsidies net of taxes (“populist giveaways”).  The growth of per capita income determines not only the change in living standards of the average voter but also the employment opportunities (job or self-employment) created and available to the average person.  Public goods include a range of local & municipal services such as roads, drinking water, sewage, sanitation, drainage, public health and basic education. An improvement (worsening) in the quality and/or volume of such services would tend to have a positive (negative) impact on the voter and thus tend to increase (reduce) the ruling party’s vote share.  A change in net transfers (subsidy - taxes) would be similarly associated with a change in vote shares. It must be kept in mind that it is not the paper laws, verbal announcements or budgetary allocations (expenditures or subsidies) that matter to the Aam Aurat, but the actual delivery of services at the ground levels and the delivery experience. The quality of governance and the degree of corruption & harassment are a very important element of the Aam Aurat’s judgment about improvement or deterioration in delivery . 

   In this note we focus on the growth of per capita GDP as an indicator of the improvement or worsening of economic conditions for the average of marginal voter: Thus, if the rate of growth of per capita income has increased (decreased) the vote share of the ruling party is likely to increase (decline).

Past Elections

       Given this hypothesis, let us look briefly at the past two elections. The NDA government was in power from 1999-2000 to 2004-5 when the general elections were held. During this tenure the Per Capita GDP at factor cost grew at an average of 4.1% per year compared to an average of 4.5% per year in the previous five years. Thus average per capita growth during the NDA government's tenure was 0.4 per cent points per year (9%) lower than during the previous five years making a reduction in BJP-NDAs vote share likely.  It appears that the “India Shinning” campaign may have jarred with the reality as seen by the more aware/better informed urban voters and thus exaggerated the relatively small decline in per capita growth. Another potential factor may have been that new highway programs and Gram Sadak Yojna (very important "public goods") had not yet produced results that the Aam Admi could feel in the small towns and villages of India. The result was a reduction in the BJP’s vote share by 6.7 per cent points from 23.8% to 22.2%

      The Cong 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 per cent points (69%) to 6.8 per cent per year.  As predicted by our model this 69% acceleration in the rate of growth of per capita income, resulted in an increase in the vote share of the Congress party, leading to a sweeping victory in the 2009 general election. This growth acceleration had such a large impact on the "Aam Aadmi/ Aurat" that the effect of other infrastructure & social programs was completely overshadowed.  The vote share increased by only 7.9% to 28.6% (from 26.5% in 2004).
       As is apparent from the varying results of different pols, the translation of votes shares into seat shares is a very difficult exercise. It depends on the distribution of victory margins, the number of serious parties (two or more) in the States as well as on alliances.  Consequently in 2009, the increase in the proportion of seats won by the Congress was much higher (49%) than the increase in the vote share..   

2014 General Election

   What does the model say about the forthcoming general election?  During the tenure of the current government (UPA2) 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 per cent points or 21% relative to the growth rate during the previous five years. Thus (ipso facto) the fall in Cong vote share in the 2014 general election is likely to be greater than that of the BJP in the 2004-5 election but less than the gains of the Cong in the 2004 election. This suggests a decline in vote share between 6.5% and 7.5%.
   Two questions have been raised with respect to this model's predictions for the next election. One is whether the fact that part of the decline in growth is due to global factors matter?  In my view, what matters to the "Aam Admi/Aurat" is what they feel and see on the ground, not the data and analysis that financially sophisticated people spend so much time reading and discussing. The Second question is how important is economic performance during the most recent period, say the last 6 to 18 months, to the voters judgement?  We know that in a sophisticated economy and highly educated polity like the USA, the recent period is overwhelmingly important.  It is therefore likely that economic performance in the last few years (2-3) has a greater weight in the decisions of  highly educated, well informed, urban Indian voter.  However, what happens during the past 4-5 years is still much more relevant to the "Aam Aadmi."

Conclusion

     The slowdown in per capita income growth during 2009-10 to 2013-14, relative to the average per capita growth during 2004-5 to 2008-9, will have a substantial negative effect on the Congress party’s vote share in the general election.  In addition, the issue of Central government corruption and governance will also affect voter behavior as it is directly related to the quality and volume of public goods and services supplied by the government, as well as to the effectiveness & efficiency of welfare transfers.  Both these will have a further adverse effect on Congress party’s vote share, thus offsetting any positive effect of programs like NAREGA.  The "rights laws" and increased petroleum, fertilizer and electricity subsidies will have little or no effect on vote shares in the general election.

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A version of this article appeared on the editorial page of The Indian Express, on January 16, 2014, under the Banner, "The GDP Poll."   https://www.blogger.com/blogger.g?blogID=767588630765354778#editor/target=post;postID=7024682515623021753 

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[i] Arvind Virmani, “Economic Growth, Governance And Voting Behaviour: An Application to Indian Elections,” Working Paper No. 138, ICRIER, July 2004. http://www.icrier.org/page.asp?MenuID=24&SubCatId=175&SubSubCatId=233 .

Will Political Uncertainty Gut Economic Reforms?

The withdrawal of the DMK from the UPA coalition government has raised questions in the public mind about the longevity of the government and the effect on the chances of passage of Economic reform legislation.   My tentative answer is possibly, but it could paradoxically also help in expediting some (real) reforms if managed skillfully.

Early Election?

The first question on everyone’s mind is whether the DMK withdrawal heralds an early election.  It does not appear to be in the interest of the DMK and the BSP to have an early election, because their opponents, the AIDMK and the Samajwadi Party (SP) respectively recently swept the State elections and are likely to win the corresponding Lok Sabha seats.  Thus an early National election increases likelihood of the DMK and BSP loosing many of the Lok Sabha seats they currently hold.  Given that the serious corruption charges against former Telecom minister A Raja(of DMK) and others in the DMK are still fresh, it is in their interest to give time for them to fade from public memory. 

The puzzle is, however, why the SP has not tried to pull down the UPA Govt. and why the TMC has become hesitant?  A few possible explanations come to mind.  One, that they need more time to recoup their State election costs and generate enough funds to fight the National election. Two, that this period of uncertainty could be used to extract concessions on legal cases and prosecutions. Three, that they need fiscal indulgence from the center and fear the next government may be less forthcoming.  The first two perhaps apply more to the SP and the last to the TMC.  On balance therefore, the DMK withdrawal, does not per se affect either the calculus of these parties or the probability of an early election.

End of Policy Reforms?

What about the effect on economic reform legislation?  The conventional wisdom on economic reforms is that political uncertainty slows down reforms, as opposition parties oppose any action that they can project to potential voters as “ant-people”. This argument, perhaps applies to expenditure (subsidy) policy reform but less to issues where old ideas or ideology play a role. If parties are looking to parley a positive vote on a bill, for favors for their leader, party or State, the government may also have greater opportunities for bargaining to pass reform bills. The current political uncertainty could be used to accelerate genuine economic reform (i.e. reform that restores growth and improves the efficiency of welfare delivery).  The likelihood of Narendra Modi becoming the BJP/NDAs candidate for PM has created uncertainty for its current and potential allies.  For instance Nitesh Kumar’s, JD(U)s public feelers to the Congress regarding ‘Special category status for Bihar,’ and Mulayam Singh’s hints that he could do business with an L. K. Advani led BJP (NDA PM) are indicators of this flux.  If handled skillfully, this could provide the Congress a counter opportunity to accelerate the reforms.

         The Congress led UPA government has repeatedly stated that it has a majority and will remain in power till the due date of the 2014 election.  Despite the optimistic GDP projections in the Economic Survey and in the 2013-14 budget, growth is likely to be around 6% (+/- 0.5%) in terms of GDPFC and between 5% and 6% in terms of GDPMP.  Thus it is critically important for the Congress to end its current term with an uptrend in growth that is visible and credible, and this is only possible if there is another spurt of reforms over the next six months.  The FMs recent statement about formulating and accelerating next generation reforms is an indication.  However, most of the financial sector reform legislation as well as the GST and perhaps even the DTC depends critically on BJP concurrence if not support.

Finding Convergence

        Why should the BJP support this legislation?    First, it gives the BJP an opportunity to redeem itself in the eyes of former and potential Urban BJP voters who were thoroughly disillusioned by the BJP’s unthinking opposition to economic reforms that support investment and growth.  A BJP spokesperson has stated that the country is now in an election mode.  Earlier BJP leaders have asserted that Congress would be thrown out of office during the next election. If the BJP truly believes in these two statements, then it is in its interest to expedite reform legislation in Parliament and vote to pass it.  There are two reasons for this.  Firstly, these reforms are critical to India growing at 8% during the tenure of the next government (whether it is Congress led or BJP led or a third front) and second that Congress is likely to oppose the same reforms if the BJP in power, just as the BJP in opposition has opposed reforms that it introduced when it was in power. 

Bold 

     As both parties need some time to consolidate their support base and organize their aprties (under the leadership of Narendra Modi and Rahul Gandhi respectively), they have enough time to co-operatively pass such legislation before getting into a full-fledged election fighting mode. The Parliamentary affairs minister therefore has two important tasks before him: Get the budget and the finance bill approved and work out with the BJP leadership the changes in reform legislation needed to get their immediate approval.

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A version of this article appeared as Op Ed in the Times of India on March 26, 2013.