elections

There’s No Voter Apathy in India

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With 2019 Lok Sabha elections a few days away, I have been thinking of one question: what explains the voters’ confidence in Indian governments to provide them with guaranteed incomes, guaranteed pensions, or guaranteed work even when governments are terrible at doing what they must – fix market failures?

In other words, the Indian State’s performance on law and order, education, and public health, is poor. And yet there’s wide support whenever Indian governments and political parties promise new schemes to accomplish even grander things. What explains this paradox?

I have two hypotheses.

One, the political enthusiasm hypothesis. This is the reverse of the voter apathy idea. It means that the voters who have a disproportionate influence on setting the political agenda (read middle-income voters) were never apathetic to politics but only to government provision of public services.

They became apathetic towards government provision of public services because with rising incomes, they could substitute the missing services with their own private solutions. Having done that, politics became a means to achieve other outcomes – those unrelated to market failures. Voting apathy never meant political apathy.

See this from the Exit, Voice, Loyalty thesis. Loyalty makes exit difficult. So the median Indian voter never really exited from Indian politics and instead chose to voice concerns unrelated to government provision of basic services.

My second hypotheses is more charitable to the Indian voter. I call it the expanding moral arc thesis. It is based on the book The Moral Arc by Michael Shermer. The book argues that the moral arc is continuously expanding. A few decades ago, the arc excluded non-White men in large parts of the world. Today, it includes all humans and even animals.

The key insight for us is that Indian politics is being played out in the background of this rapidly increasing moral arc. This makes the Indian developmental challenge more moral but less fast. The demand for universal basic incomes in India is a reflection of this expanding moral arc. The government’s role in India is seen as a moral project not a utilitarian one and hence we are okay to give its record on fixing market failures a free pass.

Elections and Rupee Volatility

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The rupee has tumbled to the lowest point in the last 18 months, when it crossed the Rs68/$ mark this week. Analysts have posited multiple reasons for this occurrence – India’s sluggish export growth and an increasing import bill due to rising oil prices, the dollar strengthening, rising US interest rates, and the inflation differential between India and its main trading partners. However, one other reason could be elections – both the just concluded Karnataka election and the upcoming 2019 Lok Sabha elections.

A chart from 2013 that shows strong correlation between elections and rupee depreciation. Source: The Economist

There has been a historical relationship between elections and the exchange rate. Election time is usually associated with greater volatility of the rupee. Investors generally fret about populist schemes leading up to the elections. They are also afraid of policy uncertainty if a new government is elected. Chances of policy reversals or abandonment of certain policies can create jitters.

Post liberalisation in 1992, the rupee had a bout of weakness in 1997, and then, just after the 2004 elections, again in 2009 before the elections, and the biggest one in recent memory was in 2013. These have coincided with the elections and also major global macroeconomic shocks. There was the Asian crisis in 1997, the global financial crisis in 2009, and the episode of the taper-tantrum in 2013. It is hard to isolate these factors and establish causality between elections and rupee weakness, but there seems to be a strong correlation.

Episodes in other emerging economies can give a clue. Mexican Peso and elections have followed a similar pattern. The Economist explains:

Between 1976 and 1994 the peso regularly suffered a massive slump roughly every six years, around presidential elections—even though the country was effectively a one-party state at the time. Mexico tried to create stability by pegging the peso to the dollar in 1988, but by 1994 suffered a full-blown crisis. The pattern of boom and bust was broken only when authorities reverted to a freely-floating exchange rate—but also, crucially, put in place sound monetary and fiscal policies. There is a lesson there for India.

Election Manifestos and Cow Dung

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There seems to be no dearth of effort from the two national parties to woo the voters of Karnataka. Unfortunately, very little of it is geared towards long term growth strategies, employment creation, or raising the income levels. Can you identify the key differences between the two parties’ manifestos?

Spot the difference! From The Indian Express, found on Twitter.

As you can notice, there is actually not much of a difference between the two parties’ promises. Both the manifestos are ripe with populist schemes – from free laptops and smart phones, to Indira Canteens and gold and cash for marriages. Why does the government have to pay for ornaments and weddings, I will never understand.

To add to all of this, the BJP is also promising a farm loan waiver for loans up to 1 lakh. This follows a mini farm loan waiver done by the present Siddaramaiah government in 2017.  How many more times should we do farm loan waivers before the farmers are made better? The answer is not blowing in the wind. (Apologies to Nobel Laureate Mr. Dylan)

Finally, the BJP manifesto also proposed the launch ‘Gobar-dhana Yojane’ to help farmers monetise cow dung. Then, at least the cow dung will be worth more than these manifestos.

Closure of Bars on Election Day Reflects Failure of Democracy

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The Election Commission in Karnataka has been overzealous in enforcing the model code of conduct, with special regard to sale of alcohol. Election times are generally a pain for owners of liquor stores and bars, but this year seems to be a whole lot worse.

The EC has issued directives and guidelines for owners of bars and other establishments selling liquor. They must maintain diligent accounts of every sale of alcohol. The specific order that has many bar owners worried states: “If there is more than 10 per cent difference in sales compared to the previous year, such outlets will have to face inquiry”. This is ridiculous.

The 20th of April in 2018 was a Friday, when sales generally tend to be high and in 2017, the date fell on a Thursday. The discrepancy could easily be 10 percent.

There will also be a flying squad constituted by the excise department which will patrol the city. It can visit any shop at any time and ask the owners to produce the accounts and sale details. This makes it ripe for rent seeking and discretionary abuse of power. Consider this:

Till Tuesday afternoon, 303 excise licenses have been temporarily suspended in the city alone, and a total of 793 establishments have been temporarily shut till the polling day for various violations across the state.

Further, there has been a lot of seizure of alcohol stock by the excise department, the flying squads and the Election Commission’s vigilance units. In less than a month, these entities together have managed to seize a total of 3,65,388 litres of alcohol seized since March 27.

There are also restrictions on how much alcohol a retail store can sell to an individual: no individual can be sold more than 2.2 litres of beer, or 750 ml of hard liquor. Again, these limits are ridiculous. Is it impossible to imagine a person buying two full bottles of alcohol for a private party he is hosting at home?

Finally, the biggest problem I have with all of this is that it curbs economic freedom. How is it fair to restrict the business of one type of commercial establishment? How is it fair to close down bars and disrupt business on election days? The election day closures are a feeble compensation for state failure and on a larger scale, failure of our democracy. If people vote based on liquor they receive, the problem is not with whether bars are open or not. Finally, I would argue that it is on the election day and the day of results that I could really use a drink.