Opinion: The economic case for simultaneous elections in India

Capital expenditure, a key component of our GDP helps generate several jobs and has second-order effects in stimulating the economy.

The Cabinet recently approved bills to move a step ahead in the objective of holding simultaneous elections to Lok Sabha and State Assemblies. Earlier in September, the Cabinet had accepted the recommendations of the High-Level Committee on Simultaneous Elections led by former President Ram Nath Kovind. The legislations, whenever they come to the Parliament will certainly elicit diverse views from across parties in both the Houses. However, one area where there must be serious introspection is the economic implications of holding simultaneous polls as against the present system of running a perennial election cycle.

Since the High-Level Committee published its report, we have gone through a long phase of general elections to the Lok Sabha and elections to various state legislatures. Some of the forecasts and observations made in the High-Level committee’s report have unfolded in recent months. This evidence must force us to seriously consider the cost the common citizen pays when the governance system takes a brief pause owing to the Model Code of Conduct (MCC).

The first half of the Financial Year 2024-25 saw a lower-than-expected growth rate in GDP. One of the primary reasons attributed to this lower growth was due to the impact of lower government expenditure. The imposition of MCC during the general elections also reduces the scope of spending and policy implementation. It takes some time for a newly elected government to get the expenditure cycle running.

Capital expenditure, a key component of our GDP helps generate several jobs and has second-order effects in stimulating the economy. In the previous financial year (FY 24) the government fulfilled its estimated allocation on capital expenditure which has slowed down in the present year. However, the delays owing to polls not only impact the growth but also deeply affect the lives of the common man. It is now a common consensus that economic growth is the only way to lift crores out of poverty in a shorter period. This evidence is already evident with nearly 25 crore people lifted out of multi-dimensional poverty in the last decade.

Even those critical of other aspects of simultaneous polls cannot ignore the sharp economic impact of living in a perennial election cycle. It is this challenge that the High-Level Committee sought to examine and publish valuable insights. The paper cited in the report (Macroeconomic Impact of Harmonizing Electoral Cycles) observed that real GDP growth is higher following episodes of simultaneous elections, while there is a decrease post the non-simultaneous elections measuring up to 1.5% of the GDP that accounts for Rs. 4.5 lakh crores. The paper further observed that frequent polls also cause uncertainty among investors and also influence health and education outcomes.

While the general elections and the associated Model Code of Conduct are bound to impose certain restrictions, is there a need to replicate these restrictions throughout the year in some or the other parts of the country? A difference of 1.5% of GDP cited in the paper must not be seen as mere academic calculation but also receive more serious consideration among political parties about their impact on the country’s growth.

Each state election and the associated restrictions in policy implementation further impact the expenditure priorities. While the media focus is on national policy announcements and budget numbers, the actual impact of expenditure can be seen at the state level. They are not just responsible for a range of welfare expenses, but in recent years there has been more emphasis by the Union Government to incentivise states to increase their capital expenditure.

The expenditures of states too fluctuate in different parts owing to the MCC. Moreover, frequent polls create more incentives for indulging in irrational expenditures for immediate gains. This feature is visible in a rush to announce cash transfer schemes in recent years alongside other freebies. This is a moral hazard that focuses on the short term at the expense of long-term growth.

On average there are five state elections every year. The frequent cycle of polls also creates an atmosphere of tension among political parties and confrontational stances spill beyond poll speeches. Parties are under pressure for immediate electoral gains in some or other states during a frequent election cycle. Instead, the country would be served well if we had a longer duration of governance with occasional polls. As the High-Level Committee has noted, frequent elections ‘embeds the seeds of disharmony and builds passions for actions, retributions, or commotions, which spill over beyond the period of elections themselves.’ Further, a large number of administrative and armed defence personnel are diverted throughout the year to execute these elections.

In his book India@100 K. Subramanian, Executive Director at the IMF argued that if the States in India carried out the necessary reforms, it can add 1% to our national GDP. When the cost efficiency that can be achieved by simultaneous polls and reforms at state level are accounted together, there is a potential opportunity to add 2.5% to the nation’s economy. This is no small number. There was an era post-independence where many years saw less than 3% growth which was termed by a Marxist Economist Raj Krishna as ‘Hindu Rate of Growth’. Today, India is growing at a significantly higher rate year after year. We must not take our growth for granted. Our political community must stay committed to economic growth in an uncertain world.

Every attempt must be made to optimize the efficiency of the governance set-up. In the era of climate change, fast-paced technological shifts, and a range of geopolitical tensions, India’s journey towards a developed nation has several challenges ahead. However, we can certainly address many of the domestic factors to build a strong foundation for growth. Therefore, a serious conversation on the economic impact of simultaneous polls is necessary among the political community beyond party lines.