New Delhi: Whenever elections approach, there is often a noticeable shift in the behaviour of political leaders. Traditionally reserved or pragmatic in their policies, many suddenly become lavish with promises and gifts, a phenomenon akin to electoral Santa Clauses. This pre-election generosity includes a range of freebies and populist measures aimed at garnering votes. This behavior resonates with the narrative of Ashok Chakradhar’s Hindi poem ‘Ek Nanha Memana’, where animals in a jungle display unusual kindness as elections near. In the poem, a lion, instead of preying on a kid and its mother goat, blesses them with longevity and prosperity, an act that bewilders the goats, hinting at the lion’s ulterior motive of winning favour in the upcoming jungle election.
This electoral behaviour of politicians mirrors the concept of political budget cycles. Political Budget Cycles (PBCs) are a significant phenomenon in the field of political economy, where governments manipulate fiscal policy to influence electoral outcomes. This concept draws heavily from the seminal work of Nordhaus (1975), who posited that incumbents, aiming to maximise their expected vote share, adopt expansionary fiscal policies in the latter years of their term. This theory hinges on the assumption that the electorate is backward-looking, evaluating governments based on past performance. Nordhaus’ foundational model suggested that irrespective of their ideological leanings, governments would engage in such opportunistic behaviour to enhance their re-election prospects.
However, advancements in the understanding of PBCs have led to more nuanced interpretations. Later models, such as those discussed by Persson and Tabellini (2002), and Shi and Svensson (2006), shift focus to the signaling of politicians’ competence. In these models, the electorate is seen as partly informed and partly uninformed. The actions of the government, especially in terms of fiscal policy, serve as signals to the electorate about the competence of the incumbents. This signaling model, as delineated in the standard political competition framework of Shi and Svensson, implies that incumbents may adopt opportunistic fiscal policies even when most voters are aware of these tactics, simply because a significant portion of the electorate remains uninformed (Persson & Tabellini, 2002; Shi & Svensson, 2006).
Empirical investigations into PBCs have also evolved, with several studies utilising local election data to assess the impact of fiscal policy on electoral outcomes. For example, Drazen and Eslava (2010) provide evidence from Colombian municipalities, showing that expansionary fiscal policies, particularly those involving targeted expenditures, can indeed bolster the incumbent’s re-election chances. These findings suggest that voters may perceive increased government spending, especially if it’s directed towards specific groups, as a sign of an incumbent’s capability, thereby enhancing their probability of re-election. This perspective aligns with the notion that voters may prioritize short-term benefits, like lower taxes or specific expenditures, over long-term fiscal responsibility (Drazen & Eslava, 2010).
The Indian political landscape provides a fertile ground for examining PBCs, particularly under the United Progressive Alliance (UPA) government. Studies focusing on India, such as by Kapur and Vaishnav (2011), have highlighted how the UPA government engaged in expansionary fiscal policies during election years. This aligns with the broader PBC theory that governments increase spending or cut taxes to influence voter perception and maximise their chances of re-election. The UPA’s tenure, marked by significant increases in public expenditure around election periods, serves as a practical example of this theory in action.
Further expanding the literature on PBCs, studies like Schuknecht (1996) and Brender and Drazen (2005) have explored the subject in different national contexts. Schuknecht’s work provides a comparative analysis of election year fiscal policies in several countries, underscoring the universality of this phenomenon. Brender and Drazen’s study delves into the subtleties of PBCs, examining how the economic literacy of a populace can influence the government’s ability to employ such tactics effectively. They argue that in countries where voters are more aware of the long-term consequences of fiscal manipulation, governments are less likely to engage in PBCs, or at least do so less blatantly.
In the Indian context, the UPA’s fiscal strategies also brought to light the dual-edged nature of such policies. On the one hand, increased spending can stimulate short-term economic growth and provide immediate benefits to targeted voter groups, thereby enhancing the government’s popularity. On the other hand, such policies can lead to long-term economic challenges, including fiscal deficits and inflationary pressures, as noted by economists like Patnaik and Shah (2010). This dilemma highlights a critical tension in the practice of PBCs: the trade-off between short-term electoral gains and long-term economic stability.
In fact, very recently, in Karnataka, pre-election promises by the Congress party of extensive freebies, including electricity, monthly stipends to women, bus travel, milk, and LPG for BPL families, have escalated to a ₹58,000 crore financial commitment. This has exerted strain on the state’s finances, compounded by post-COVID economic recovery efforts and existing debts. The Chief Minister’s economic advisor has conceded the fiscal strain these guarantees have imposed, prompting a reassessment of their feasibility and funding strategies. This highlights the inherent tension between electoral pledges and their fiscal impact.
However, the proponents of the PBC would be surprised from seeing how the union government is defying this theory. The Union Government of India has embraced a path of fiscal prudence, particularly noticeable in the past decade, which is in stark contrast to the populist and often fiscally irresponsible measures commonly seen during election times. The administration has abstained from the allure of electoral populism that hinges on promises of excessive spending, which can lead to unsustainable financial positions for the state. Instead, the focus has been steadfastly on the longer horizon, with the implementation of systematic and strategic welfare programs designed to elevate the standard of living across the country. Investments in large-scale infrastructure projects, such as highways and digital networks, alongside the promotion of welfare schemes like the PMJAY, Jal Jeevan Mission, and the PM Ujjwala Yojana etc, have been key. This restrained fiscal approach has aimed at balancing the budget without compromising on growth or the delivery of essential services.
Over the past decade, the Union Government of India has placed a significant emphasis on empowering citizens, rather than relying on dole-outs. The government has made concerted efforts to ensure that people have the capabilities to become self-reliant. A cornerstone of this initiative has been the PM SVANidhi Scheme, which was launched in June 2020 and has since provided micro-credit to street vendors, fostering entrepreneurship and self-sufficiency. This scheme has also been a vehicle for financial inclusion, offering collateral-free loans to vendors to help them re-establish their livelihoods post the COVID-19 disruptions.
The focus on financial inclusion is evident in the government’s push for a centralised banking system, ensuring that every household has at least one bank account. This has not only promoted financial literacy among the unbanked poor but has also protected them from potential risks. The Aadhar-enabled payment system and the Pradhan Mantri Jan-Dhan Yojana have been pivotal in this regard, with Aadhar enrolments covering a significant portion of the population and PMJDY accounts receiving substantial deposits. Additionally, the UMANG app and Fintech innovations have also contributed to changing the landscape of India’s financial structure, providing a variety of services including cashless spending and P2P lending.
In the realm of healthcare, the government’s investments have been geared towards creating a robust infrastructure, as exemplified by the Ayushman Bharat Health Infrastructure Mission. The aim is to develop a complete ecosystem from treatment to critical research across the country.
Education has also been a priority, with initiatives to improve access to quality education across various levels. The government understands that a well-educated population is essential for the development and growth of the nation, and this is reflected in their policies and programs aimed at enhancing the educational infrastructure and opportunities for all citizens.
These multifaceted efforts highlight the government’s dedication to long-term development and the welfare of the people, steering away from short-lived electoral gains and instead laying down the foundations for a self-reliant and inclusive society.
Thus, contrary to the principles of the Political Business Cycle theory, India’s union government has shown a trend of avoiding such short-term manipulations that risk long-term fiscal health. This adherence to fiscal discipline, especially in times when populism could easily sway electoral results, reflects a commitment to economic stability and sustainable development, rather than succumbing to the tempting cycles of fiscal loosening and tightening aligned with election timings. This divergence from the PBC theory has been a crucial aspect of the government’s economic governance, emphasising responsible fiscal management over the cyclical patterns of political expedience.
(The author is OSD, Research, Economic Advisory Council to the Prime Minister. Views are personal)
(Disclaimer: The views expressed in this article are those of the author’s alone. The opinions and facts in this article do not represent the stand of News9.)
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Rami G Khouri
Mort Laitner
Donald Low
Ali Fathollah-Nejad
Nikkei Editorial
visit website
