How NREGA won UPA its Second Term

Now ever since UPA won the 2009 elections, A lot of political commentators have speculated on the possible reasons that would have persuaded the electorate to vote them back to power. Everything from Rahul’s new paradigm in politics to matured leadership of Manmohan Singh was perceived to be the main factor behind UPA’s re-election in 2009.But one of the major contributing factor for congress victory that most political observers agreed was NREGA scheme.

In this short post, I try to rationally analyze whether NREGA indeed help UPA in the pro-incumbency wave seen in the election. 2009 national elections was in-fact not a single issue based election and multiple issues interplayed at both regional and local level to effect the outcome of the election. Hence it is very difficult to single out an issue and extract the impact of that issue on the final voting preference of the electorate. Hence it would be very difficult to analyze the impact of NREGA scheme on 2009 elections at India level analytically. Therefore I have tried to take a sample state which ideally would be bereft of any local or regional issue during the 2009 elections.  

Starting from the 28 states in India, we can easily rule out the smaller states of Goa, North East, since electorally they are relatively insignificant. Ideally we would want a state which is a bipolar contest between BJP and Congress (the two national parties, since these would relatively have lesser prominence to local issues). Among the states where there is a straight contest between BJP and congress, Madhya Pradesh stands out. In 2008 assembly elections BJP had just won a 2^nd term to rule the state with near 2/3 majority 143 out of 230 seats.^[1] So BJP was expected to win a majority of the parliamentary seats in 2009.^[2] Most opinion and exit polls predicted a BJP sweep of around 20-25 seats out of the 29 seats in total. But surprisingly Congress managed to win 12 seats with BJP winning 16 seats and BSP the remaining seat.^[3] This was surprising and almost a matched performance by the Congress especially with the fact that the same party had got a thrashing in the assembly elections held just 6 months back.^[1] In the case of the other states where elections were held along with that of Madhya Pradesh in 2008, the results in 2009 parliamentary elections broadly followed the assembly elections results. In Delhi and Rajasthan Congress swept the states with 7/7 and 20/25 seats respectively and in Chhattisgarh BJP won resoundingly 10/11 seats in the state^[4]. Hence when all these states are considered, Madhya Pradesh clearly stands out.

So how was Congress able to win so many seats in Madhya Pradesh? In 2009 elections there were not many dominant local issues that dominated the discussion. Hence it is safe to assume that National issues with local bearings had major role to play. Now the question arises, which ones? Was it the matured leadership of the PM that enabled to the voters to trust Congress or was it Rahul’s magic?.

So when we deep dive into the 2009 results, we can clearly see a pattern that when taken in context explains the underlying factor behind congress better than expected performance.  I was able to procure assembly level voting shares for each of the party in 2009 elections from the election commissioner website. ^[5] I correlated this with the no of blocks in each of the assembly segments designated as Rural or urban by the election commission. By broadly using the share of polling booths classified as Rural vs. Urban and with an assumption that each of the polling booth would cater to nearly equal number of voting population. I was able to approximate the share of Rural and Urban electoral population in each of the assembly segment. Refer the link below for reference.

When the assembly seat population characteristics are correlated with the voting pattern in 2009 elections, a clear trend emerges. Rural segments have voted fairly evenly between Congress and BJP while the urban segments have in majority of the cases voted decisively for the BJP.

The below table illustrates the voting pattern that emerges

Rural Share	INC	BJP	Total Votes cast	Weights	No of assembly segments	BJP	INC	BSP
95-100%	40.1%	39.7%	5551853	29%	63	27	32	4
90-95%	40.4%	41.9%	4303994	22%	52	27	23	2
80-90%	39.8%	43.9%	3891963	20%	47	25	21	1
70-80%	36.8%	46.4%	1624213	8%	20	11	9	0
50-70%	42.7%	47.8%	1378412	7%	16	9	7	0
25-50%	43.3%	43.6%	924128	5%	11	8	3	0
0-25%	40.1%	51.9%	1796309	9%	21	16	5	0
Total	40.2%	43.5%	19470872	100%	230	123	100	7

As we can see from the above table, Congress has in fact performed better than BJP in predominantly rural seats (95-100% share of rural polling booths) with a total vote share of 40.1% against 39.7% of the BJP. In terms of assembly segments, Congress had leads in 32 out of a total of 63 seats with predominance of rural population as against 27 for the BJP. As we go further into urbanized assembly segments we find BJP’s vote share difference vis a vis Congress improving and eventually dominating. At a broad level the Voting share of Congress and BJP in seats with more than 70% rural population stands at ~40% and ~42% respectively. At an assembly seat level this translates into 85 and 90 seats in which the respective parties had leads out of 182 seats in this category. In seats with significant urban population (30-50% of Urban polling booth share), we can clearly see BJP having a significant advantage with ~48% vote share as against ~43% of the Congress. In terms of assembly segments BJP lead in 16 seats as against 9 seats by the Congress out of a total of 25 seats. And finally in Urban majority seats, BJP is the clear winner with whopping 8% lead in vote share with ~49% as against voter share of ~41% for the congress. BJP had leads in 24 of the 32 assembly segments vis a vis 8 for the congress.

Clearly the major reason for the better than expected of the Congress is due to its on par performance in the rural segments of the Madhya Pradesh state. It is here that NREGA comes into picture. NREGA has been reported to have been successfully implemented in Madhya Pradesh. NREGA is rural focused scheme and benefits only the rural population by guaranteeing 100 days of work for eligible adults. The successful implementation would have resulted in the creation of enormous goodwill among its beneficiaries which could have resulted in proportionate impact on the voting trends of the beneficiaries in 2009 elections. We can clearly state that NREGA indeed had a positive impact on the electoral prospect of the UPA government. The on par performance of UPA in rural segments can only be attributed to the NREGA scheme and nothing else, since there existed no anti incumbency against the state government; there were no regional parties and also no significant regional issues that were course of the discussion. And significantly Congress performed equally well across the state with wins coming from both East, West, South and Northern parts of Madhya Pradesh and hence negating the possibility of local cluster level issues or performance linked to pockets of influence of leaders. With the elimination of most of the issues that could have had a broad level impact across the state, clearly NREGA is the only factor left and hence NREGA is the winning factor by elimination.

What will be the implication of this analysis on 2013/14 elections. Rural voters are still significant even if there is a growing clout of urban neo middle class. So even though after the recent protests in Delhi, everyone seems to talking about these new segments, the rural population cannot be ignored. Therefore the politics of handouts and giveaways will still compete in the near future. Also significantly Congress and the UPA have an edge over this segment which always has been the traditional vote constituency of the congress. Even though the electoral impact of the Direct cash scheme is questionable as I have argued in the previous post. Still, the many other schemes of the present regime will create favorable dispensation. But there is also the drought that has affected India in 2012 coupled with stagnation in the Market prices for farmers and the growing input costs of labor and other farm inputs could create adverse opinion. And finally for the BJP and especially Narendra Modi, they have to come up with a credible idea that would entice this voting segment. Development and Industrialization cannot be easily sold to this segment unlike the technology savvy neo middle class. Also for Modi especially communicating his vision to this segment will be the most challenging prospect if he were to promote himself as the PM candidate from the BJP. The way the vision is articulated and communicated is crucial. But the growing reach of Television and Mobile phone connectivity with nearly 25-35% (33.4% at all India level) of the rural population across the states with access to TV and 50-60% (55% at all India level) with access to Telephone network can be the critical enablers for the above communication.

Therefore the analysis clearly indicates the importance of this important electoral segment which no party or PM candidate can ignore or take it for granted and the key to winning 2014 would crucially lie with the party or candidate who can gain significant share of this huge electoral pie. But the crucial challenge will remain in connecting and communicating one’s vision to this key segment.

PS -
For the detailed Data and analysis
Please refer to
https://docs.google.com/spreadsheet/ccc?key=0AvxmEFR9ZNZKdEdSUDZvNzIwTWlDYXRtZTdPci04anc#gid=1

Lessons from Neville Chamberlain

On January 8^th, two of our Jawans were killed by Pakistan, their bodies were mutilated and one of the Jawan's head was carried back as a trophy. In any Nation, one could expect outrage over this gruesome and brutal act, but not in India. In India, today we see News anchors and so called “intellectuals” lecturing us on how we should not do anything but accept the “situation” and that we should continue with talks. Their argument is as follows, that any action would escalate into a nuclear war between the two nations annihilating both the nations, hence it is prudent for India to continue with the “Peace process” a.k.a Aman ki Asha. This line of reasoning appears to me however highly defeatist in nature and more importantly if pursued would result in dire consequences.

Here, I believe that one should take note of History and especially learn from chapter that has come to define the word appeasement.

“Appeasement is a diplomatic policy aimed at avoiding war by making concessions to an aggressor.” – Wikipedia

In the 1930s France and especially Britain were keen to avoid another World war with Germany at all costs. Hence they went to great extent to appease Hitler in the hope that each time they agree to his demands, he would be satisfied and would eventually result in Peace. So each time Hitler and Nazi Germany indulged undertook aggressive measures, retaliation or retribution from the western powers was not undertaken for the fear that it would result in the escalation of the conflict into a World war. When Hitler annexed Saar region with a force of just 3000 soldiers, a single division of Allied armies would have been enough to stop him. And the ensuing defeat in such a conflict would have led to his removal as the German chancellor. But Britain and France were too afraid of starting a world war. Der Spiegel in an article explains the French and British thinking at the time –

When French Chief of Staff Maurice Gamelin, choosing his words carefully, told the cabinet that a French advance would likely encounter the greatest German resistance, probably leading to war, and that France was not prepared for an offensive campaign, the cabinet members nodded approvingly and decided to leave the next move up to the British. Only if they joined in would the French take an active role, they concluded.

But London wasn't about to play along. If the French were unwilling to make a move, why should Britain send its sons to risk their lives?

But the person who is most associated with the failed appeasement policy is British Prime Minister Neville Chamberlain. He is regarded in history as the person who gave up the most to Hitler and who is blamed the most by the general public at large for failing to stand up against Hitler.

Der Speigel again writes

Chamberlain, the conservative product of a family of politicians, was part of a large faction that sought to appease Germany by fulfilling its wishes, provided they appeared legitimate and were not enforced with violence Appeasement was a policy that fed on emotions as well as intellect, at least with Chamberlain. The British prime minister had lost his beloved cousin in World War I. From then on, he advocated the basic principle of all pacifists: Wars have no winners, only losers. The worst-case scenarios being painted by British and French experts played into the hands of those politicians who wanted to avoid war at all costs

Neville Chamberlain was under the perception that he was a great diplomat and that he will be able to deal with Hitler and bring about lasting peace. He believed that Hitler was a gentleman who will hold to his promises. This deranged and delusional belief resulted in the direst of consequences to global turn of events.

Hitler was able to take advantage of this objective of the appeasers to avoid war at all costs. He was able to threaten and annex the sudentan land from Czechoslovakia and finally Czechoslovakia itself. This made him believe that the western powers would tolerate any of his intransigence which finally led to the invasion of Poland on 1^st September 1939 and the start of World War II.

Sadly, had Britain and France acted as early as 1936, World War II could have been prevented and Hitler deposed. But both the western powers were too weary of another global conflict. Hence they were desperately seeking it avoid it. However Britain and France failed to realize that Hitler had no intention of peace. Anyone who had read Mein Kempf could easily realize what Hitler’s true intentions were. But the mirage of achieving lasting peace fooled the leaders of Britain and France into believing that Hitler also sought for peace. They were ready to forget his intransigence and aggressive actions taken, each time hoping that it will be the last and justifying each of Hitler’s action that it is inevitable and starting a conflict for avoiding the same is meaningless.

The surprising fact is that anyone who reads the above account of the policy of appeasement followed by Britain and France can easily observe the eerie similarity with the present appeasement policy followed by Manmohan Singh and the Indian government. Manmohan Singh like Neville Chamberlain believed that he possesses diplomatic skills that would enable him to deal with Pakistan. There is also his unwavering and near delusional belief that he will be able to reform Pakistan and bring about lasting peace between the two nations. Hence every taunt and aggressive maneuver by Pakistan is sidestepped with a faint and timid warning that this will be the last Lakshmana Rekha that Pakistan will cross, in the hope that it will be indeed so.

Teaming with Prime Minister, is a bunch of Media and Government elite, who also believe in their God given destiny to bring about peace with Pakistan in the hope that they could get more Veena Mallik’s to India and have Gala dinners with their Pakistani counterparts. Hence you have initiatives such as “Aman ki Asha” which have so far achieved nothing but some useless debates and discussions and few cricket matches. The so called people to people initiatives are a farce since for such thing to succeed you need more than few cocktail dinners and cricket matches. But that doesn’t prevent media pundits explaining to the Nation why we must continue pursuing talks with Pakistan even after repeated instances of brutality, cowardice and aggression by other side. Their often quoted reason is that “war is not an option” and any tactical retribution would immediately escalate into a nuclear holocaust. This is entirely ridiculous at the least. Though I completely agree that fighting a war with Pakistan is unacceptable, surely there are enough ways to tackle the issue rather than having useless “Aman ki Tamasha” debates.

What Manmohan Singh and Media pundits do not understand from History is that such appeasement policies never work. Pakistan like Hitler doesn’t really want peace with India. Maybe some of the matured and liberal elements do, but the Army who are the actual rulers of Pakistan do not desire peace with India, Hence like the Western powers in the 1930s, all compromises undertaken by India in the hope that it’ll be the last time and that the other side will reform are truly mistaken. It’ll only further strengthen the other side and make them believe that they can get away with anything; In 1939 Hitler was so convinced that Britain and France will do nothing that he decided to invade Poland starting World War II. Similarly, today repeated inaction by the Indian government has bolstered the radical elements in Pakistan that they can continue with their aggressive posturing with India and that all their actions will go unpunished. Like in the case of Nazi Germany, this appeasement policy ironically pushes elements in Pakistan to undertake even more aggressive and bold measures against India. My fear is that a day may come when one of the radicals can explode a nuclear bomb in India pushing both of us to a nuclear conflict. Though this might today seem highly exaggerated, the continuation of the current policy has great probability of leading India to a tragic destiny.

Surely, the solution to this impending crisis is the discontinuation of the present policy which is fraught with so much danger. There are many viable options, not of all of them leading to a nuclear war with Pakistan. In my next article, I’ll try to elaborate on a few of them. And finally Manmohan Singh and Media Pundits need to revisit history and read elaborately about the decade before WWII to understand just how dangerous their present policy of appeasement is. And all of need to get rid of this defeatist mindset that nothing is possible, surely if mankind can find cures to plagues, find ways to travel to the moon and invent and innovate in unimaginable ways, then a solution to “Pakistan Problem” is not a daunting one and which can be found given enough intellect and determination is applied to solving it.

PS - Der Speigel Illustrates by Maps how appeasement policies resulted in German dominance of Europe in the 1940 from a diplomatically and militarily vulnerable position in the beginning of the 1930s

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