Lok Sabha elections 2019: The rise and rise of the rational Indian voter

With countries that championed democratic ideals now confronting secular stagnation and political hara-kiri, it is almost expected (and acceptable) for democracies to throw-up sub-optimal outcomes. However, evidence from the last two General Elections (GEs) in India in fact suggests that economic performance of the incumbent Government plays a ‘material’ role in influencing voting patterns in India. Most encouragingly, we found that the importance of these economic indicators in driving voting decisions has been rising systematically over the noughties.

Whilst Indian voters are clearly not immune to inefficiencies like identity politics, there is clear evidence that suggests the incumbent political party tends to suffer higher-than-average voteshare losses in states where GDP growth decelerates in the run-up to a GE and vice versa. The other macro variable that appears to have a tangible impact on voting patterns appears to be rural wage growth. Whilst the incumbent is not necessarily rewarded for delivering acceleration in this variable, the incumbent is almost always punished for poor performance.

For instance in the final two years leading up to the 2009 elections, GDP growth decelerated by 200bps  as India too was affected by the Global Financial Crisis. However rural wage inflation accelerated meaningfully in the run up to the CY09 elections from 4% over FY05-07 to 9% over FY08-09. Consequently this General Election saw the incumbent i.e. the Congress retain power and gain voteshare by 2.1%. Additionally, in states where the Congress’s economic performance suffered more than the national average, the decline in voteshare was greater than what was seen at the national level. For instance, the Congress lost voteshare to the tune of 4.2% in Maharashtra as GDP growth in this Services-oriented state decelerated by a whopping +500bps.

Then in the run up to the CY14 when both GDP growth and rural wage inflation decelerated by about 250bps each, the incumbent who was again the Congress ended up losing an eye-watering 9.1% voteshare. At the State level, the Congress experienced a voteshare loss of a shocking 18.8% in Haryana as rural wage growth decelerated by 500bps in this state.

Even as we are yet to test this hypothesis (of economic performance affecting voting patterns) at State elections, it is clear to see that the BJP lost voteshare to the tune of 6.4% and 3.9% respectively at the recently held Assembly Elections in Rajasthan and Madhya Pradesh where rural wage inflation slowed by 190bps and 440bps respectively.

Even as a common Indian voter may not be tracking economic parameters like GDP growth or rural wage inflation actively, these two variables clearly are sensitive to an improvement or deterioration in the economic well-being of the median Indian voter. 

Given the fairly compelling evidence pointing to the correlation between economic performances and voting patterns at General Elections, two things become very clear. Firstly, given that both GDP growth and rural wage growth are set to decelerate by 80bps each over FY18-19 (as compared to FY15-17) and given the patterns seen over the last two General Elections, it appears like the BJP which is the incumbent is likely to lose voteshare from the levels recorded in 2014. Secondly, irrespective of what combination of political parties come together to form the national Government in India in June 2019, they will have no choice but to improve economic outcomes in urban as well as rural India.

In fact it is worth noting that every successive decade in India since the 1990s has experienced an acceleration in India’s GDP growth rate. The nineties marked the beginning of the rise of true political competition in India as the grand old party of India i.e. the Congress could no longer be certain of retaining power endlessly. Simultaneously, GDP growth in India rose from an average of 5.5% over FY90-99, to 6.4% over FY00-09 and then 7.1% over FY10-19. 

Even as the risk of competitive populism taking hold of the fiscal narrative in India today is real, it is also worth noting that every successive decade in India since the nineties has seen the Central fiscal deficit move downwards.  For instance, the Central Government’s fiscal deficit as share of GDP fell from an average of 5.9% over FY90-99, to 4.7% over FY00-09 and then 4.5% over FY10-19. 

Thus even as GDP growth in the year FY20 may disappoint (Ambit estimates GDP growth at 6.1%) and rural wage inflation too may remain lackluster; from a five year perspective any subsequent Government will have no choice but to implement some policy changes that improve the economic well-being of the median Indian voter - who is surprisingly rational. 

Ritika Mankar Mukherjee, CFA is the Senior Economist and Sumit Shekhar is the Economist at Ambit Capital