Friday, 21 March 2014


                                ELECTIONS AND BLACK MONEY-GOOD ECONOMICS?

     Sometime back it was reported by an NGO tracking election expenditures that roughly Rs. 50000 crores of black money was spent on one round of Parliament/ State Assembly elections. To put the amount in perspective, this is equivalent to the combined annual expenditure of the two flagship schemes of the govt.-viz. MNREGA and Sarv Shiksha Abhiyan; to put it another way, it is almost twice the total annual budget of the Delhi govt., or twenty times the Plan budget of  Himachal. Its a fair estimate what with more than two thousand five hundred seats being contested, a minimum of five candidates per seat, and each candidate spending between five to ten crores. This reinforces the conventional wisdom that this scourge must be wiped out, that this is bad for the integrity of the democratic process and disastrous for the economy, that state funding of elections should be introduced to displace the black money currently utilised for the purpose. Now, the question as to why you and I should subsidise a bunch of crooks to grab power and make even more black money is a separate one, to which I hope to revert in the future. Right now, however, I propose to challenge the conventional wisdom and argue that black money in elections IS GOOD FOR THE COUNTRY AND THE ECONOMY and that we should stop beating our breasts and wailing about it.
    We must begin with the premise that Black Money, like Digvijay Singh or Mani Shankar Aiyar, exists-whether we like it( or them) or not, and will continue to exist even if it is eradicated from elections. Where does this money currently go? It is invested in real estate( where it drives up prices to unaffordable levels and has led to a housing shortage of more than 20 million units, most of it in the EWS category); in gold( leading to increased smuggling or/and imbalance in the Current Account Deficit) ; in money laundering ponzi type schemes like the staggering SAHARA ones ( where even the Supreme Court and SEBI have been unable to make them cough up the moneys); in Hawala operations or in Swiss bank accounts; or simply dumped in a locker or under a mattress where, I am told ( by erstwhile colleagues), it also induces a kind of Viagra-like effect. In other words black money either distorts the economy or simply lies around as an " unproductive asset", neither of which benefits anyone.
   Come the elections, however, and this same black money( or at least 50000 crores of it) is unlocked and productively injected into the economy. It use in elections is as diverse and ingenious as only an election in India can be. It is spent to employ " party workers" and hire crowds for rallies, to hire all manner of vehicles ranging from bullock carts to helicopters, to acquire publicity materials-banners, stickers, posters, caps, T-shirts, to fund arrangements for public meetings, to distribute liquor, to hand out cash as bribes to voters. True, some of these uses are illegal but that is not the point of my discussion. True, some of this expenditure is in white money and reported to the Election Commission, but every Indian knows that not even 10% of the expenditure is reported or accounted for. A recent report in the Hindustan Times stated that candidates generally reported such low expenditures that one CEC( now retired) had even proposed reducing the permissible expenditure cap! No sir, the life-blood of elections is black money and its not a bad thing at all.
    Here is just a short list of its undeniable benefits. It creates ( albeit for just a few months) millions of jobs. If even half of this Rs. 50000 crores is used for hiring people then ( assuming a daily wage of Rs.300/) the elections lead to creation of 833 MILLION man-days! The demand for various products and services would lead to the indirect creation of even more jobs and other downstream benefits for artisans, factory workers, drivers, caterers and so on. To cite just two examples: thanks to the trend set by the Aam Aadmi topi( cap) every major political party has now come out with its own version( and shade) of the Gandhi cap and a whole new industry has sprung up in the bylanes of Delhi, Kanpur and Bhopal churning out millions of these caps. The demand for( and prices of) brooms has gone up since Kejriwal took them to his bosom benefiting ultimately the poor village women who collect the material for them. Even the thousand rupee note given to the slum family in exchange for its votes is a productive use of black money.
   Elections, through the instrument of black money, achieve what most govt. policies have failed to do for the last fifty years- the redistribution of wealth from the rich to the not so well off. As long as the lucre was kept locked up it belonged to a fat cat, untaxed and unutilised. Its use in an election immediately transfers it to the working classes, without any protests from any one, or litigation: its a win-win situation because it is also the Holy Grail of all economic planning. Forget the legality of the matter, forget the Code of Conduct which is our own version of the Ten Commandments( and just as effective), and look at just the economics and you might just begin to agree with me. As Amar Singh said to Jayaprada: " If you can't beat 'em- join 'em!"
  PS--- Is it time to request the Election Commission to ban the use of White Money in elections?


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  2. While I am still toying with the idea of writing detailed comment on it, my immediate take is on 'unlocking the economic potential of black money' (phrase borrowed from World Bank), we should have frequent elections (LS, State and Panchayat) and by that extension the term of the House(s) should be reduced to one or two years. This will help exhaust the black money completely integrating it with the white money economy. Wouldn't that be great? Once the entire stock is brought out this way, we may choose to revert back to five year terms.