Poll stimulus to add 0.5% to GDP

India Inc may have hit the slowdown lane, but with ‘netas’ going on a spending drive to get to the winning post, elections have come as a ‘booster shot’ for the sluggish economy. The general elections could raise GDP growth by about 0.5%, estimates show. The total election spending could touch Rs 16,700 crore, bringing in a stimulus of Rs 25,100 crore or about 0.5% of GDP, an analysis by Kotak Institutional Equities shows. However, with parties vying with each other in coming out with populist programmes to woo the electorate, the gross fiscal deficit to GDP ratio could increase by 1-2.4% if promises are implemented. “The economy would be energised by the spending stimulus in the short run, which would raise GDP growth. But fiscal deficit would widen if the promises made by parties are implemented,’’ reckons Mridul Saggar, chief economist, Kotak Securities. Spending by candidates, estimated at around Rs 12,700 crore, would account for bulk of the expenditure. National parties are expected to spend Rs 700 crore in this election. Interestingly, this would be lower than the spending by regional parties, who are estimated to spend Rs 1,200 crore-an indication of the growing clout of smaller state-based parties. Though the Election Commission (EC) has capped spending by candidates in major states at Rs 25 lakh per constituency, serious contenders would end up spending Rs 7-8 crore. Officially, parties and candidates spent Rs 268.6 crore in the 2004 general elections. The intensity of the contest in many seats also means that poll expenditure would go up significantly. In all, 85 seats witnessed stiff triangular contests in the last general elections and the emergence of the third alternative in many states now is likely to result in a large increase in spending. The EC alone is estimated to spend around Rs 1,800 crore for the exercise, significantly higher than last election. Election spending has increased 5.3 times in real terms between 1980 and 2004—more than twice that of the increase in population, which grew 2 times in the period.