Arvind Virmani: It's the economy stupid

Though we are not in the business of forecasting elections, what this article attempts to do is to relate standard economic analysis of consumer utility to voting behaviour.

It goes on to authenticate (not test) the results against the results of recent elections but at this stage, it remains a hypothesis, perhaps a useful starting point for more refined and perhaps even much better models of voter behaviour.

A short article is not the place to give detailed specifications of the model (for the full text, visit www.icrier.res.in/wp138.pdf), but broadly speaking, the model assumes an improvement/worsening of economic conditions can increase/decrease the probability of voting for the party perceived to be responsible for the change, that voters vote for the incumbent if they are happy with the quality/supply of public goods, that they tend to vote in favour of parties that lower tax rates, among others.

Since income taxes or transfers (like subsidies) received by the voter are generally a very small fraction of a voter's total income, the change in income growth will usually have a far more significant impact on voter behaviour.

While voting behaviour is influenced by the quality of public services like electricity, when these are privatised and still continue to remain poor, voters tend to blame the private firms and not the government.

While the economy grew at 5.6 per cent annually during the National Democratic Alliance (NDA) government's tenure, this was lower than the 6.7 per cent in the previous five years.

In terms of per capita income, the NDA clocked 3.8 per cent versus 4.7 per cent of the previous five years. Not only was the NDA's economic performance poorer than the United Front's, the India Shining campaign served to highlight to the voter the gap between what was being projected and what had actually been achieved. Not surprisingly, the NDA was voted out in the elections.

Election results in Rajasthan, Madhya Pradesh, and Punjab are all in keeping with what the model suggests.

Economic growth during Digvijay Singh's last tenure fell to around 60 per cent of the 5.4 per cent achieved during the 1994-95 to 1998-99 period (per capita income growth fell from 3.1 per cent to 0.5 per cent per year), and so Singh lost the assembly elections.

Since GDP performance slowed in Rajasthan (per capita collapsed from 6.7 per cent between 1994-95 and 1998-99 to 0.5 per cent between 1999-00 and 2003-04), the government there fell as well.

What of Bihar? Surprise, Surprise! Bihar's economic performance has actually improved under Lalu Prasad's last tenure. While GDP grew by 4.8 per cent per annum during the 1994-95 to 1998-99 period it grew by 7.7 per cent during the 1999-00 to 2003-04 period and per capita income galloped from 1.9 per cent to 5.4 per cent.

Indeed, even agricultural growth in Lalu's last tenure in Bihar was much higher than in the previous five years, and this was a reason for why voters voted for him once again.

The "simple" economic analysis fails in Delhi since Sheila Dikshit won the election despite economic growth falling (per capita growth fell from 5.5 per cent to 4.2 per cent)?

A more "complicated" analysis could be that growth in Delhi was still among the highest in India and comparable to the best in the world and that the relatively better educated/informed electorate in Delhi were also convinced that the incumbent (Dikshit) was sincerely trying to improve governance, including through privatisation of electricity distribution.

While there was only a marginal fall in Andhra's GDP growth, and none in per capita income growth during the two periods, Chandrababu Naidu's defeat can be explained by the high expectations that Chandrababu had aroused.

Naveen Patnaik's win in Orissa despite virtually no change in growth, on the other hand, can be explained away by the argument that his low key style lowered expectations and so he came out smelling of roses.

The Godhra riots, helped the BJP win the Gujarat assembly elections despite the sharp slowdown in economic growth (GDP growth fell from 7.4 per cent per annum to 3.1 per cent between the two periods), but within a year of Narendra Modi coming back to power the NDA lost the election at the centre since people realised the impact of Godhra on investment and so in the general elections the growth factor seems to have re-asserted itself.

The purpose of the paper is not to do forecasting in the manner that psephologists do, but to explain the role played by economic factors.

(The author is Director and Chief Executive, ICRIER and the views expressed are personal)