Political irrelevance of Mainstream English Media

Is the English media relevant to Indian politics? Is it possible for a politician to succeed without the blessings and the support of this so called “powerful channel”. Is it true that English Mainstream media set the agenda for discussion in the Nation’s power circles? Is their endorsement a necessary requirement for political parties and leaders to reach out to the people?  Enough has been said and written about the partisanship of the mainstream English media in India Now for a potential PM candidate, how he/she can reach out to the greater Indian audience given the hostility towards the challenger and open support to the incumbent government by mainstream media.

But in terms of reach, English news channel is miniscule. According the TAM data, English news channels accounted for a negligible 0.4% of the National viewership. Then why are English news channel given so much prominence. The reasons are twofold, one it caters to the elite of the society. The political class at the centre, the bureaucratic class and Management class of the Indian firms are all viewers of English media and hence it caters to the audiences who have significant influence on future direction of the nation. Secondly, it is the trend setter for national and international news. Although regional news channel dominate the news spectrum, they generally lack national content. These channels focus on in depth analysis of regional news while expending little resources on national issues. Hence these channels focus narrowly on the top news segments that are trending in the English news media in their national news sections and segments. These two reasons enable the English media to assume a role greater than their actual capabilities and also have created the perception of their importance in setting the national agenda.

Now as I have written in the beginning, can someone succeed nationally without the help and support of English media? Can English media’s censure means political dead-end for parties and leaders who are considered by the English media as pariah. The answer to the above questions is a definite NO. English media can be easily sidestepped and bypassed to reach out to people and set the national agenda.

First of all, let me explain the importance of Television as a medium. According to recent TAM data, Out of 231 Mn households in India, 148 Mn (64%) households own a television out of which, 126 Mn (55%) have access to Cable or satellite connection. The penetration of Television in Urban India is even more significant, 69 Mn households have access to 78 Mn households in Urban India, amounting to 88% of the total household population with a further 63 Mn (81%) access to Cable or Satellite connection. Thus Television is increasingly playing a greater role in the life of ordinary Indian with an average Indian spending 1&1/2 hour each day watching Television. Hence Television is increasingly becoming a media with the widest reach and thus greater potential to influence and drive the thoughts and agenda of the common man. Therefore this perceived “monopoly” and hold by English media network needs to be countered to evolve the political discourse in India to a more mature and sensible discussion where all opinions and viewpoints are allowed to be aired without bias.

The approach to be followed is two pronged pincer strategy which involves the utilization of the social media and the increasing penetration and prominence of regional news media outlets (includes Hindi news channels and state specific channels). Starting with the regional news media outlets, in the past few years, a lot of regional news outlets have spawned catering to various political ideologies. According to TAM Data India has one of the highest numbers of news channels in the world with almost 150 channels in the genre. TAM data suggests the viewership share of regional news channels has grown by 15-20 per cent. Hindi and regional news channels account for 7.1% of the total viewership as compared to 0.4% of the English news channels.  Therefore regional news channel possess greater reach and also more relevant content which will enable them to wield potentially greater influence on their audience. This fact has been evident by the various anecdotal evidences that I have witnessed, where people are seen eagerly discussing such hypothetical events such as the end of the world, aliens and so on and so forth.

Hence it is necessary for parties to reach out to these regional news channels in order to present their viewpoints to large swathes of the common public. Here a potential PM candidate can establish himself in a manner; no English media outlet could do even if it campaigned for him/her 24x7. Simple gestures like being offered to be interviewed on the regional news channel are enough to create the buzz and the hype necessary to create the interest in the candidate. The news channel might not be politically inclined towards the candidate or the party, but any regional news channel will be willing to offer the candidate a fair chance of interview unlike the national English channels for the fear of losing the golden opportunity of interviewing national political leader to an opposing channel. Hence the pure drive for TRPs would allow the issue of political bias and driven agenda’s to be sidestepped. Secondly appearing on regional news network would enhance the credibility of the said candidate, since he/she would appear to be accessible and the local anchor will be able to raise the relevant local concerns in such a hypothetical interview, thus giving the candidate the opportunity to offer solutions to issues that are most relevant to the audience. Thirdly even if the regional news network is of opposing political ideology, it would still debate and discuss on the policies, success and shortcomings of the candidate. This would help in creating a healthy discussion among the public which would be beneficial for the candidate since it would bring into the fore his/her capabilities and weakness to the public. The candidate can wisely exploit the opportunity in his favor by playing on his strengths and admitting his weakness and promising to work on it. Though at the end how far he/she will be able to convince the public is different matter all together, the option of getting an opportunity to be presented is a far better one than where the candidate is entirely side stepped and undemocratically decided by the elite to be unfit before even the public even got an opportunity to think about him/her.

Coming to the second prong of the pincer strategy, social media has in the past few years made English media almost irrelevant in terms of reaching out to audiences. This can be seen in the global decline in the advertising spending on Television and the rapid growth of online ad spending by marketing agencies. India ranks 3^rd in terms of number of Facebook users in the world, with an estimated 61 Mn Facebook users accounting for 5.24% of the India’s population.  India also ranks 6^th in terms of twitter users with 1.08 Mn users accounting for 0.1% of India’s population. These statistics when compared with the reach that the English media in India possess (0.4% of the population), highlights the ease with which they can be by-passed, hence at the same time explaining the paranoia and the subtle attempts by the mainstream media to restrict and muzzle social media.  Facebook alone has a reach 12 times more than that of the English media, let alone other social media outlets, like twitter, blogging sites, etc.

Thus here lies the salvation for the current monopolies exercised by the media outlets. Political parties and leaders can easily utilize the growing reach of social media. Social media also demographically consists of significant population of the youth, who are critical for the establishment of long term relationships. Hence it is critical for political parties/candidates to establish significant presence in social media. There is also the growing credibility with regards to the content available in online forums, since any fictional posting is immediately repudiated by other members and also the speed with which information is being decimated makes them highly attractive for gaining information. All these factors would imply that social media in the near future would become a really powerful platform for shaping the course of national discussions and agenda, taking over this role from the elitist English media who currently exercise monopolistic power with regards to the same. Also in terms of the audience that caters to English media is similar in profile to the one that utilizes social media, in other words social media can easily replicated the platform offered by national English media. A potential candidate can easily leverage this to establish himself and create a brand with respect to him/her-self; the same logic would also apply for political formulations. Secondly social media is unregulated and hence can easily help in promotion of an unbiased profile of the candidate/party and viewers are presented with wide ranging choice of opinions, facts and analysis ranging from highly supportive arguments to highly negative ones. This encourages discussions and further churning about the topic bringing wider awareness about the policies, issues and context of the candidate and the party. This democratic form of publicizing also creates greater trust among the audience. Thus once again the candidate/party has (given that they are indeed apt and suitable for the responsibility that they are aspiring for) got a fair and unbiased chance of presenting themselves to public, which is anytime far better than complete vilification and admonition of them by Mainstream media.

Hence this two pronged strategy of reaching out to vast public through regional news network and social media can make the necessity of having favorable standing with the main stream media highly irrelevant one. Therefore the English media, who are highly biased and partisan in their coverage, can be easily be worked over by candidates/parties that are at the receiving end of such propaganda. A masterful use of these two alternate media coupled with an focused and targeted execution of presenting their views can not only counter the venomous propaganda driven against them but can also become a vital tool in ensuring their victory. These two media will increasingly shape the nature of the discussion in the nation and the way agenda’s are set.  Thus the future holds the capability to completely sidestep the mainstream media, which could force an introspection in them resulting in it becoming a more open and democratic platform. This would be ideal for the democratic process as a whole.

Electoral Impact of Cash Transfer scheme??

Much hype has been recently created around the apparent "game changer" scheme that UPA II is preparing to introduce. It is the Direct cash Transfer scheme, i.e., replacing fuel, food, fertilizers and other subsidies and directly depositing cash in the beneficiaries’ bank account. Now the scheme is being touted as a game changer, one which will be instrumental in the formation of UPA III. Cash in the bank accounts of potential voters, it is said, will create a lot of goodwill among the common man and this will result in them voting in droves for the present ruling dispensation and returning them back to power.

I would like clearly state that I am not against the Direct Cash Transfer scheme or do I argue against the potential benefits from the proper implementation of the scheme. In fact, it is my belief that the scheme is in the right direction of eliminating the leakage and inefficiencies present in the existing subsidy disbursement scheme.

My doubt is with regard to the electoral benefits the implementation of this scheme is supposed to bring. The present wisdom regarding the electoral benefits from the scheme goes like this. The scheme is supposed to result in deposit of Rs. 3200 every month for over 10 Crore poor families in India. If each of these families have 2 eligible voters, that amounts to over 20 crore grateful voters. Even if half of these actually vote for Congress, that would be more than suffice for UPA to come back to power, as in 2009 Congress bagged 206 seats with less than 12 crore votes. This is how the logic goes regarding UPA’s reelection chances.

I will presently, debunk this analysis. The crucial issue is of a simple financial one i.e. Working Capital management. First let me assume that UPA pays Rs. 3200 every month to each family, now currently the scheme envisages the beneficiaries buying food, fuel, fertilizers and other necessary items at market price and the government later depositing the difference between the subsidized price and MRP in the beneficiaries’ bank account. Thus the scheme assumes that these poor families will in fact be able to finance the additional cost initially and also bear the financing cost till the government reimburses them. Here in lies the catch; most of the families that are identified to be poor live on less than Rs. 27 per day or Rs. 3240 per family per month. Therefore assuming each family is eligible for Rs. 3200 per month as subsidy transferred to them. Each family needs to cough up a month’s salary upfront and wait for the government to refund the same at the end of the month. This is assuming that government sticks up to its commitment of clearing all the dues by the end of each month.

The problem is that the vast majority of the poor primarily depend on their daily earnings for their day to day living. Most of the time, they find it hard to meet the day’s ends meet, if they are not able to find work for the day. Hence it is unlikely they will be able to find the resources to buy goods at MRP and wait for a month for the government to refund the same. The more likely scenario will be that they will cut down on consumption and look for alternate sources. The pilot implementation of the scheme in Rajasthan speaks of drop in Kerosene sales by 70% because of persistent delays in the subsidy money reaching the villagers. One can only imagine when the scheme is implemented in its entirety, the confusions and the delays that will inevitably result. If pilot implementation of the scheme result in the delay of the order of several months, then the full scale implementation will definitely result in years of delay in the payment of the subsidy to the beneficiaries.

Secondly, the direct cash transfer scheme will only work for those with Aadhar cards, sadly, Aadhar cards have covered only 25 crore people, mostly in urban areas and Aadhar itself does not target more than 50% of the population by the end of 2014. This brings to the picture, how will the rest of the poor mostly living in the rural hinterlands benefit from the scheme. They will be forced to pay the market price since subsidized fuel and other items are supposed to be stopped once direct cash transfer scheme comes to vogue. The only alternative is for both the schemes to be implemented together which will give a lot of scope for corruption and embezzlement to take place. Hence this scheme in the initial days will create a lot of hardships to the very people it is supposed to help.

Thirdly, one must not forget the working capital requirements of the central government. Assuming Rs. 3200 per month for 10 crore families implies that the central government needs to fund Rs. 32,000 crore per month. The problem is that government receives most of its tax revenues at the end of the fiscal year while it needs to make payments every month. Currently, the government need not worry about providing subsidy since it can delay its payments to oil companies till the end of the year. Similarly it finances its working capital from merchants, contractors and other 3^rd party vendors who sell products or offer services to government by delaying the payments to them. While these people can bear the financing cost, poor people will not be able to do the same. Hence government needs to finance nearly 1.08 lakh Crores by some estimates upfront in order to ensure that beneficiaries get the subsidy due to them in time. This will surely impact the working capital requirements of the government, there are two options that are available to the government, one raise debt or bridge loans from the market to tide over the cash flow differentials or the most likely option of delaying the payments to the beneficiaries. Because one lakh crore rupees of additional debt accounting to 7.194% of the annual budget will play havoc with the governments Fiscal and Current account deficit.   

Thus my point is that, instead of creating grateful voters, it will create a lot of hardships and confusion among the intended beneficiaries. The government in its hurry to implement the scheme will not give adequate attention in order to fine tune and make the implementation of the scheme problem free. The impact on the poor who will be forced to cut down on their expenditure due to non availability of the resources to fund in the intermediate stage will result in widespread anger against the central government. Poor families would rather have a Kg of rice today than the money for the same a month later. This is the one important lesson the government needs to remember.

Finally, like any new project, it takes time for the success of the project to bear fruit and for the people to realize the same. NREGA was implemented in 2005 and UPA I had four whole years to get it right and create a favorable disposition among the beneficiaries of NREGA. Unfortunately, UPA II doesn’t have the luxury of time on their side, even if the implementation is forced to start in the mid of 2013, the time for benefits to kick in and for the families to realize the same will take 2/3 years by which 2014 elections would have taken place and hopefully a new government will be in place to reap the benefits of the scheme.

PS: I found this hilarious example of how Aadhar cards are already being misused.
http://www.dnaindia.com/india/report_coriander-s-o-pulao-aadhaar-no-499118665246_1707630
Courtesy of one of my friends

French Revolution and 2014 India

In one of my previous blog I have explained how economics affect the outcome of elections. but here I am going to digress a bit and see what exactly causes revolutions and what is that makes people raise up against status quo and demand change

French Revolution, when my high school History teacher asked us why the revolution occurred in France? We all replied back with usual bookish reasons like Feudalism, Societal inequality, Monarchical despotism, etc. But he replied back by asking why did it happen in France and not elsewhere in Europe. In 18th Century Europe, Eastern and Southern Europe were far more feudal than France, the plight of the commoner in Russia, Poland or in central European states was far worse than that of France. Then why did the revolution occur in France?

Now one might wonder what the French Revolution has got to do with the present situation in India. Why am I even bothered about some ancient piece of history that occurred in a place thousands of miles from India. But I'll take that up later, for now let us closely examine on why French revolution occurred, what were the major causes that were responsible for the downfall of Louis XVI regime.

France in 1785 was one of the richest and most powerful nations of Europe. France under the reign of Louis XIV had reached the pinnacle of its power in Europe, only later to be over shadowed by Napoleon's conquest. France was the dominant power in Europe. Economically also France in 1787, was one of the most economically capable nations of Europe. Here is what Wikipedia says about the economy of France on the eve of the revolution.

"The French population exceeded 28 million; of Europe's 178 to 188 millions, only Imperial Russia had a greater population. France was also among the most urbanized countries of Europe, the population of Paris was second only to that of London (approximately 500,000 v. 800,000), and six of Europe's thirty-five largest cities were French. Other measures confirm France's inherent strength. France had 5.3 million of Europe's approximately thirty million male peasants. Its area under cultivation, productivity per unit area, level of industrialization, and gross national product  (about 14% of the continental European product, excluding Russia, and 6–10 percent above the level elsewhere in Europe ) all placed France near the very top of the scale. In short, while it may have lagged slightly behind the Low Countries, and possibly Switzerland, in per capita wealth, the sheer size of the French economy made it the premier economic power of continental Europe."

 

Surprising isn't it, if the average Frenchmen was better off then majority of his European peers. What really made him raise up and revolt? To answer the question, we need to look at the real underlying cause for the revolution to occur in France. And it was that the rising aspirations of the emerging middle class consisting of tradesmen, merchants, artisans and prosperous farmers was being throttled and restricted by the rigid aristocratic regime that was ruling France. As the noted French historian Alexis de Tocqueville noted, people revolt not when the situation has become desperate but when things starts to look better. France on the eve of the revolution had seen tremendous improvement in the standard of living of Frenchmen, and resulted in increased economic mobility, but the regime was not ready to accept this and bring about the changes to emancipate social and political mobility. Rising urbanization and the new emerging middle class had created an aspirational class who were not ready to wait and suffer due to ineptitude of the ruling aristocracy. So when the debt crisis erupted in 1786, people were not ready to listen to the reforms and solutions that were being offered by the regime. They wanted a far more revolutionary change to be brought in line with their growing aspirations. When the French nobility failed to do so, the country erupted.

This might surprise some people who might hold the misconception that revolutions occur when a country is depraved and its citizen’s rise up when they no longer take the hardships. In fact this is generally not the case, rarely has any such repressive country witnessed an uprising. Russia just before World War 1 had seen a rise in Industrialization and growing economy. Russia witnessed similar urbanization with growing numbers of peasant villagers who migrated to and from industrial and urban environments, but also by the introduction of city culture into the village through material goods, the press, and word of mouth. Then again this created an aspirational class among the new inhabitants of the city, mainly industrial workers and also the slightly better off peasants. Their growing ambitions were not met fast enough by the ruling aristocratic regime. Then finally the disastrous WW1 campaign brought out the ineptitude of the Romanov regime, finally resulting in the Russian revolution and the creation of the Soviet Union.

 

But a even suitable example could be Tiananmen Square uprising in China. In the late 1970s, the Chinese leadership of Deng Xiaoping abandoned Maoist-style planned collectivist economics, and embraced market-oriented reforms.  The reforms started in 1970s had given the chinese a small taste of economic and social freedom. This had finally unleashed the hidden aspirations of the Chinese trampled for decades by Mao's brutal regime. But the pace of the reform was not fast enough to satisfy the ballooning ambitions of the growing chinese middle class. Due to the rapid pace of change, by the late 1980s, grievances over inflation, limited career prospects for students, and corruption of the party elite were growing rapidly.The prevalent corruption and lack of opportunity to the youth created widespread dissatisfaction among them which finally sparked into an uprising, which sadly was crushed by the regime.

We can see similar incidences throughout history, fall of Berlin wall and communism in Eastern Europe again can be correlated with stagnation of the Warsaw pact countries and people's dissatisfaction with the pace of the reforms that were being introduced by Gorbachev. 

There seems to exist a precedent in history, that when the people of a nation have witnessed improvement in their standard of living possibly after a long time of stagnation and deprivation, raises aspirations tremendously for upward social, economic and politically mobility. And when this improvement slows down or stops due to external or intrinsic factors. The unmet aspirations make the people impatient for the desired change to occur. If the existent establishment is not able to carry out the required reforms at a pace to satisfy the need for change by the people. Then generally, people raise up, either in a non-violent peaceful manner or in a violent brutish revolution.

Now coming to point about the relevance of the above historical precedent to India. India post independence was subject to a gruelingly slow rate of growth of around 3-4% called "Hindu rate of growth". The liberalization of 1991 removed some of the shackles on the economy and created a post liberalization boom in the economic development of the country. This created a growing middle class whose aspirations have ballooned in the past two decades. There is whole generation of Indians who have not witnessed the sense of helplessness that was faced by their parents. The part of population born post liberalization has come to believe that high economic growth is their legitimate right. 

But the present UPA regime with its dithering, corrupt governance and economic mismanagement has managed to stifle the economy. The subsidy regime utilized to dole out to bribe voters is the very anti-thesis of the reforms required for double digit economic growth. With the aspirations set high, people are impatient today for change.

The climate is very similar today in India, to what it was in 18th century France. If the ruling government cannot bring about the required change, revolution is bound to occur. The Anna Hazare movement is one of the manifestations of such a revolution. The revolution need not be of the violent kind; in fact revolution can be purely political in nature.

Hence it is my belief that Narendra Modi currently has the greatest chance to become the next PM of India contrary to popular perceptions. Because what people crave for is for the reformation of the system to remove the obstacles that are preventing their aspirations from being met. This would certainly entail the removal of the current "Establishment" from the governing heights of the system and would look for someone outside the "Establishment" to bring about the desired change. Narendra Modi perfectly fits the profile for such a person, Modi is outside the current corrupt political/business/media establishment in Delhi and Modi has a proven record of delivering the changes aspired by the people. Hence 2014 possibly presents the Best chance for Modi to become PM. if he doesn't exploit this opportunity, it would be tough for him to get such an opportunity again.

Because if people's desire for change can overcome oppressive and dictatorial regimes, then surely it can overcome such " imagined" barriers to elect the man who can bring about the change that is being so desired by them.

Note: I would like to add some caveats,
1. No one can predict the future and as Nassim Nicholas Taleb elaborates in Black swan, to base the future on the past is a futile exercise
2. Narendra Modi need not be the only person, anyone who can promise or make the masses believe that he/she can bring about the changes that the people desire, can certainly succeed in this endeavor
3. Finally even if the situation demands so, no one can ever know when the spark for the fire will be lighted or whether it will be lighted at all

Inflation & its Causes - Is the central government simply printing money to fund its brainless schemes?

In my previous blog, I have detailed out how the common man undergoes tremendous suffering due to persistently high inflation. Now I will try to present a case on why Inflation has been relatively high in the UPA regime.

We can clearly see that Inflation has been stubbornly high in UPA regime. The inflation during the last decade has been obtained from World bank database as I did in my previous blog.

Source: World bank

Inflation is primarily caused by two kinds of shocks, supply side shocks and demand side shocks. In simple economic terms, Price is determined by the balance between supply and demand for a product. Hence prices rise when a) Demand for a product increases (eg: Roses on Valentine's Day) or b) Supply for the product drastically reduces (eg: Food grains during a drought)

Now let us analyse, What is the primary cause for Inflation for the past 7/8 years in India. Is it due to supply side effects or demand side effects?

Lets look at the supply side first. If supply side was truly the cause for the prolonged period of high inflation. Then a drastic fall in production and supply of a basket of important products would have been the main cause for such an event. But was there any event in the last 7/8 years that would suggest such as shock?? No, though rising oil prices could be classified to fall in the category of a supply side shock to the Indian economy, it could at the most explain 20/30% of the rise in inflation rates. At the same time food inflation has been in double digits for most of the time period, but there are no supply side events to explain the same. Barring the drought in 2008, India has recorded bumper crops year on year. In fact food grain production has increased by annual rate of 3.8% or cumulatively by 25% in the period between 2005 and 2011. This comes as a surprise, if the food grain production has increased and that too with bumper crops, grains were stored in the open ground due to lack of storage space, why has the food inflation been stubbornly high. Clearly supply side economics cannot explain the causes for high inflation.

Hence we can clearly state that inflation has to be driven by demand side economics. But first let me explain on how macro-economic fundamentals are actually responsible for inflation. The main culprit for inflation is persistently high current account deficits run by the central government.

Source: World bank

We can clearly see that inflation seems to be inversely correlated with current account surplus, the more the deficit in an year, higher has been inflation in that year. In the year between 2001 to 2004, central government maintained a current account surplus and the inflation in the same period was well below 5%, Compare that, to the period between 2005 to 2010, deficits have progressively increased from -1.2% in 2005 to -3.1% in 2010, inflation has correspondingly increased from 6.1% to 8.9% in 2010. Clearly there seems to be a relation between current account deficits and inflation.

Now let me explain how, current account deficit creates inflation. I will explain the concept in simpler terms without using economic jargon's and technicalities. Current account deficit is the difference between what the government spends and what it earns. A current account deficit implies that government is spending more than what it earns and a surplus means that the government spending is well within what it earns.

If the government is spending more than what it earns, how does it bridge the gap. The government like any profligate individual, borrows money to cover the gap. In case of central government, it borrows from the public through a variety of mechanisms but primarily by issuing government bonds and selling it to PSU banks and other investors. But there is also one important buyer for government bonds and that is RBI. RBI is the lender of the last resort and also regularly buys and supports government bonds. If you are wondering how RBI  buys vast amounts of government bonds, well the answer is simple, it prints the money needed to buy the bond. Hence RBI finances the government by simple mechanism of printing more money. Though the actual mechanism of how government goes on about doing this is not quite simple. In fact, RBI need not print any extra money, but can achieve this by changing certain monetary policy mechanisms.

The government has utilized this extra money mainly for increasing the subsidy doled out to its electoral vote banks. Subsidy as share of total expense increased from 45% in 2004 to 60% in 2010. In naive sense, government has resorted to giving free money to people. The implication of this is very straight forward, as the money that people have increases, the demand for goods and services increases. Hence the rising dole outs increased the money supply to the common man, thus increasing the demand for all kinds of products and goods. Hence this clearly corroborates, how the present high inflation is purely demand side phenomenon driven by excessive spending by the central government.

If we need further proof for the same, foreign exchange market is clear indicator for the value of a currency. If the government increases the money supply, the value of the currency vis a vis other currency depreciates. The value of US dollar stood at INR 45 in 2004, while the value of US dollar stands at INR 52-53 today. The depreciation in the value of rupee w.r.t US dollar is a clear indicator of increased money supply.

Hence UPA government's excessive splurging in order to further it's own selfish interest of getting the "Prince" elected as PM and in pursuing pseudo socialistic policies has brazenly increased the money supply. By doling out money to garner votes, it has created a perception of creating wealth, while in reality UPA's macro-economic mismanagement has destroyed the wealth of majority of the people and only a few cronies have enriched themselves in last 8 years, all in the name of serving Aam Aadmi.

Can economics affect Indian election results - an analytical perspective

It is common knowledge in India, that elections are decided by more important factors of caste, regional and other identity based parameters. Does the state of the economy really matter when an ordinary voter is deciding on whom to vote?

The link between the economic performance of the government and the electoral performance of the ruling and opposition parties is a highly researched subject in the West, but till now the answer to the relation between elections and economics is still ambiguous in nature. But there is enough research literature to suggest that on a stand alone basis there is a high correlation between Real per capita GDP (RCGDP) growth rates and vote share of political parties.

Two papers with regard to the Indian context also hint at the existence of a similar correlation in India. A paper by Arvind Virmani (July 2004, ICRIER) on the 2004 National elections and another paper by Poonam Gupta and Arvind Panagariya (Columbia Program on Indian Economic Policies) on the 2009 National Elections do suggest that a part of anti and pro incumbency swings can be attributed to RCGDP growth rates.

Carrying on this interpretation, I have here tried to analyse how the present economic downturn in India will affect the fortunes of the ruling party.

I will elaborate on how I have calculated the relative swings that will manifest, when the elections are held in 2014.

The basic premise is that, electoral swings can be correlated with the relative swing in RCGDP growth rates during the incumbents reign in power.

Let us begin our analysis with the results of  the 2004 national elections. The weighted average RCGDP growth rate stands to be 4.10% for the period 1994-98 and 2.96% for the period 1999-2003. Hence the change in RCGDP growth rate is -1.14%. The electoral swings in 2004 national elections are given below,

 

NDA Swing	-3.76%
UPA Swing	7.10%
BJP Swing	-3.39%
Congress Swing	0.88%

Similarly, if we analyse the results of the 2009 national elections, the average RCGDP growth rates for the period 2004-2008 is 7.37%. The change in RCGDP turns out to be +4.40%. The electoral swings in 2009 national elections are given below,

NDA Swing	-4.88%
UPA Swing	3.96%
BJP Swing	-3.36%
Congress Swing	2.02%

We can clearly see that there is a correlation between the change in RCGDP growth rates and the electoral swings.

Now, let us forecast the possible electoral swings, when the national elections are held in 2014. I have utilized the latest IMF and World bank forecasts for the GDP growth rates in 2012 and 2013.

Year	2012	2013
GDP Growth Forecast	5%	6%

The Weighted average RCGDP growth rate for the period 2009-13 comes out to be 5.16%. This is a decline of -2.2% as compared to that of the previous period average of 7.37%.

If we were to forecast the probable swings based on these numbers, they turn out to be,

NDA Swing	1.68%
UPA Swing	-6.53%
BJP Swing	2.44%
Congress Swing	-7.25%

(I have skipped on how these numbers have been calculated, but they are based on simple mathematical ratio analysis)

The actual vote shares turn out to be

BJP	20.33%
Congress	22.60%
NDA	26.85%
UPA	30.62%

The recent India Today Mood of the Nation  opinion poll suggests similiar vote shares and electoral swings.

NDA Vote Share	27.50%
UPA Vote Share	30.30%
NDA Swing	1.80%
UPA Swing	-5.40%

Source: India Today

The accuracy of this mathematical model's forecast seems to be decent based on the opinion polls results. Even if the quantum of the changes turns out to be different in 2014, we can safely say, that economic factors do matter in Indian elections.

Now consider, if the economy continues to go downhill, and the GDP forecasts turns out to be optimistic. Then the reverse electoral swing faced by this government will truly be historic in nature. Time for the government to wake up.

	1998	2003	2008	2013
Weighted Avg RCGDP growth Rates	4.1%	3.0%	7.4%	5.4%
Change		-1.1%	+4.4%	-2.0%
NDA Swing		-3.8%	-4.9%	+1.7%
UPA Swing		+7.1%	+4.0%	-6.5%
BJP Swing		-3.4%	-3.4%	+2.4%
Congress Swing		+0.9%	+2.0%	-7.2%

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Inflation: The Real scam on the salaried and the deposit holder

The most important parameter of an economy that a common man senses is the inflation rate of the economy. Ask any household what is the one thing they worry about from a macro economic perspective, they would reply that it is inflation. But as with everything else the UPA led central government performance on tackling inflation has been dismal.

Source: World Bank

Inflation is a very corrosive element that slowly chips away real wealth from the population. Inflation affects almost the majority of the population and only a few really gain from high inflation. But two set of people are really affected badly by persistent high inflation, they are a) Salaried, b) Deposit holders. Now, of course Inflation affects traders and businessmen but since they play on the margins of their products and services, they can relatively better adjust to high inflation levels with losing out in terms of real wealth.

Effect on Salaried Class

Let me explain how Inflation corrodes the purchasing power of salaried class. Let us take the case of typical IT employee who has just graduated from an engineering college. His typical annual salary would be around the range of 200,000 INR to 300,000 INR. Let us take as an illustrative example take two brothers who have graduated from the same college and landed up with similar jobs. But the elder brother graduated in 2009 and the younger in 2012. Now if the starting salaries in nominal terms have remained the same at 300,000 INR annually. Then it might appear that they are receiving similar wages but in fact the younger brother is being under paid in real terms. This is because the due to inflation, prices of majority of commodities would have increased and hence the purchasing power of 1 Rupee would be lesser in 2012 as compared to 2009.

To find out how much exactly, we need to discount the salaries to a common year, let us take 2009 as the base year. Then their salaries in terms of 2009 value stands to be

Person	Salary	Inflation adjusted salary (Base:2009)
Elder brother	300,000	300,000
Younger Brother	300,000	207,348

These numbers have been calculated using the inflation rates that persisted in India between 2009 and 2012. The relative drop in wages of the younger brother is whopping -31%. Hence we can clearly see that Inflation has robbed the younger brother’s purchasing power by ~31%. Thus in real terms his wages have actually been reduced and he is being underpaid as compared to his elder brother. In simpler words, if on 2009 the elder brother could buy 3000 Kgs of tomatoes priced at INR 100 per Kg, the younger brother would find that he could buy only ~2000 Kgs of tomatoes with the same salary, as the price of tomatoes have risen 44% cumulatively. This is exactly how inflation corrodes purchasing power of salaried people. Hence the present UPA government has been the real bane for salaried class. It has economically exploited their earnings ability and in real terms has made them poorer than what they were in the beginning of the UPA term. The cumulative drop in purchasing power during the entire term of UPA I & II of a regular private sector salaried employee turns out to be a whopping 51%. So effectively, the central government has halved the income earning capacity of regular Indians in its eight years of mismanagement of the economy.

Effect on Deposit holders

Every bank deposit holder earns interest on his deposit. This interest is to compensate him for two factors i) to compensate him for the loss of value of money over time due to inflation and ii) the other to compensate him for partaking his money now and receiving it at a later time. The nominal interest rate, hence is equal to the sum of inflation rate over the period and the real interest rate for the same period.

R_n = I + R_r

But ordinary deposit holders are not aware of this fact. They primarily are taken by the returns offered by the nominal interest rate, while in reality they should be worrying about the real interest rate their deposits are earning.

Real Interest Rate R_r = Nominal Interest Rate R_n – Inflation rate I

Let us look at what depositors have really earned in the eight years of UPA government.

 Source: RBI, World Bank

In the above figure, I have plotted the real interest rates for 1-3, 3-5 & >5 year deposit rates derived from the Nominal interest rates in the respective years. I have also mentioned the average Real interest rates during the NDA, UPA I and UPA II periods.

	Average			Cumulative
	NDA	UPAI	UPAII	NDA	UPAI	UPAII
1-3yrs	3.9%	-1.9%	-1.2%	21%	-9%	-4%
3-5yrs	4.9%	-1.5%	-1.1%	27%	-7%	-3%
>5yrs	4.8%	-1.5%	-0.9%	26%	-7%	-3%

We can clearly see that the real interest rates, in the entire UPA tenure have been negative, while in the NDA regime, it was positive. The implication of this is that, if you had deposited INR 1, 00,000 in 1999, at the end of 2004, you would have earned INR 1,27,000 during the NDA regime. On the other hand, if you had deposited INR 1,00,000 in 2004, today the real value of the deposit would have been INR 90,000. In other words you would have suffered a loss of INR 10,000 (10% of the value of the initial deposit) during the eight years of UPA I&II rule. The contrast is stark, during the NDA regime, wealth is created while during the UPA regime, wealth is systematically destroyed.

I have obtained the total deposits in banks and other financial institutions during the period 2004-12. 

INR Bn	2004-05	2005-06	2006-07	2007-08	2008-09	2009-10	2010-11	2011-12
Demand	2870	4074	4776	5784	5887	7180	7229	7049
Term	15959	18931	23421	28620	35351	41134	48658	56250
Total	18829	23005	28197	34404	41238	48314	55886	63299

Source: RBI

Calculating the interest loss on these deposits based on the 1 year term deposit rates and prevailing Inflation rates, the cumulative loss on deposit holder in the UPA regimes comes out to be INR 3, 80,213 Crores. The loss in UPA I stand out to be INR 2, 67, 796 Crores and in UPA II, INR 1, 12, 417 Crores. This loss is bigger than the INR 1, 17, 000 Crores presumptive losses in 2G. Sadly no one seems to bother about this. The irony of the whole affair is that this loss on deposit holders is real, in terms of their wealth and income capacity while the loss in 2G and Coal-gate are nominal.

Hence the mismanagement the economy has really eroded the wealth of common citizen. Whatever the finance minister says, ordinary citizens have not gained from the so called economic growth witnessed in India. On the contrary, ordinary citizens have been at the receiving end of this corrupt and maligned government, whose sole purpose is to loot the wealth of the Nation through various scams and monetary dole outs to win elections. The loan waiver scheme is a prime example, where it solved nothing but only ensured UPA’s return to power. Hopefully people wake up, and rid themselves of this corrupt regime.