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$13bn stimulus in the offing:
Who benefits?
Sachchidanand Shukla Sr VP & Economist
[email protected] Tel: 9122 4325 1108
Shiv Nanda Asst VP - consumer
[email protected] Tel: 9122 4325 1124
2
USD 13 bn consumption ‘stimulus’ over 12 -14 months
Jammu &
Kashmir
Punjab
Haryana Delhi
Rajasthan
Gujarat Madhya Pradesh
Maharashtra
Goa
Kerala
Tamil Nadu
Orissa
West Bengal
Bihar Uttar Pradesh
Arunachal Pradesh
Meghalaya
Mizoram
Tripura
Assam Nagaland
Manipur
Uttaranchal
HP
Sikkim
Union State
No. of seats 543 ~1600
No. of candidates/ constituency 15 11
Avg. spend/ candidate (Rs mn) 30 11
Total (Rs b n) 240 195
Grand Total Rs 435 bn ($ 8bn)
Poll Stimulus of Rs 435 bn ($ 8bn)
Interest rate cuts from RBI
Direct cash transfers ($ 5bn)
Magnitude of cash
transfers ($ b n)
Eductaion, Child
development & Scholarship 3.3
Mass Housing 0.8
Pension 0.7
Insurance incl. health 0.2
Total 5.0
♦ No tax rate hikes in the budget ♦ Hike in Income tax exemption limits
Source: Election docs, Axis Capital
Consumption to get a boost from a huge poll stimulus and direct cash transfers. Falling interest rates and a pro-consumption budget will be additional tailwinds
Election states
30 Jan 2012
THEMATIC REPORT ECONOMY
Slide No.
1. Investment Summary 4
2. Magnitude of stimulus and consumption dynamics 7
3. Beneficiaries of the ‘stimulus’ 14
4. Macro findings 19
5. Appendix 23
♦ PFCE constituents: performance in pre-election years
♦ Election states – share of population & GDP
♦ Election timeline
♦ Higher spending improves win probability
♦ Discrepancy in poll expenditure and income
♦ Poll expenditure: Media clippings
3
TABLE OF CONTENTS 30 Jan 2012
THEMATIC REPORT ECONOMY
4
Investment Summary
♦ The Indian economy is likely to witness a ~USD 13 bn consumption stimulus over the next 12-14 months. Importantly, this has nothing to do with the upcoming Budget. This stimulus will be a result of:
– ~ USD 8 bn Poll ‘stimulus’: 13 states will witness assembly elections culminating into the General Election and ~2100 electoral seats will be up for grabs. This bunching of elections in a short span of time and the resultant poll spending by parties and candidates, will have important ramifications for consumption in FY14 even as the Fisc contracts
– ~USD 5 bn worth of Direct cash transfers: This scheme will cover 34 schemes as of now (ie LPG & kerosene subsidy, scholarships, old-age/ widow pensions, and MGNREGS) and cash would be credited directly to beneficiary bank accounts
♦ Who benefits? We expect Auto, Consumer products, Liquor, Media, Telecom and White goods segments to see an uptick in demand on account of this stimulus
♦ Companies that could be primary beneficiaries include:
– Auto – M&M, Maruti and Hero
– Consumer products – HUL, Marico, Britannia, Emami
– Liquor – Radico Khaitan and USL
– Media - DB Corp and Jagran Prakashan
– Telecom – Bharti, Idea
– White goods/ kitchenware – Havells, Bajaj Electricals and TTK Prestige
30 Jan 2012
THEMATIC REPORT ECONOMY
5
Sectoral takeaways
♦ Automobiles: Passenger cars show strong volume growth in pre-election years (exceptions being FY98 & FY09). Avg growth for cars during the period was ~20% (vs 20 year CAGR of 12%) and 10% for two wheelers, though motorcycles grew by 19%. We expect Industry leaders (Maruti, M&M and Hero) to gain market share as in the past cycles
♦ Financial Services: The entire financial services industry (banks, micro finance, micro-housing, gold loans, auto loans, money transfer, etc.) will likely benefit with money flowing to right hands without any leakage
– Overall CASA balance will rise with an increase in number of banking customers, which will support NIMs
– Increased lending to rural population / businesses will help in meeting priority sector targets (micro credit, kisan credit card, crop loans, etc.) and reduce dependence on RIDF investments (positive for NIMs)
– Cost to income ratio may rise initially with banks setting up physical infrastructure, which will take ~2 years to break-even
♦ FMCG: The sudden spurt in disposable income will flow towards high velocity and low price products (Low Unit Packs) categories such as biscuits, hair oils, shampoos, beverages, packed foods, balms and skin creams.
– We expect volume growth rates for HUL, Britannia, Emami and Marico to improve in FY14 due to the overall stimulus.
– Historically, such categories have shown a jump in demand during election year as indicated by biscuit volume growth of Britannia, hair oils for Marico and Personal Products for HUL
30 Jan 2012
THEMATIC REPORT ECONOMY
6
Macro implications
♦ Consumption spurt to GDP: India’s growth mix will still remain skewed towards Consumption due to the huge poll stimulus, injection of cash through Direct Cash Transfers, falling interest rates and a pro-consumption budget
♦ No need for over-the-top populism in the Budget: Cash transfers and the sizeable stimulus will obviate the need for a mega spending spree by the government. The budget will be a positive for consumption as it may leave some money in middle class pockets by raising Income Tax exemption limits and not burden consumers with increase in Tax rates
♦ Macro impact: Our analysis since 1991 shows that poll stimulus manifests in discernible changes in macro variables:
– Fiscal Deficit: Fiscal deficit tends to overshoot budget estimates by ~100 bps on an average. We do not expect a >50 bps contraction in FY14 Fiscal Deficit from FY13 levels.
– Inflation: As more money chases fewer goods on average, inflation in pre-election year is 150 bps higher than the preceding year . Given the huge potential ‘stimulus’, we expect FY14 Inflation to avg ~6.7%, limiting RBI’s rate cuts to ~100 bps through the year
– MSPs & Diesel prices: While MSPs do rise in pre-election years, the govt usually avoids Diesel price hikes in the run up to the General Elections. Hence, we expect Diesel price hikes to be front ended this year
30 Jan 2012
THEMATIC REPORT ECONOMY
♦ USD 13bn stimulus over the next 12-14 months
♦ Falling interest rates and a pro-consumption budget will be additional tailwinds
04 Sep 2012 / TYPE OF REPORT
COMPANY NAME SECTOR
Magnitude of stimulus and consumption dynamics
7
8
~USD 8 bn of ‘poll’ stimulus over the next 12-14 months
8
Source: Election docs, Axis Capital, # assumed 2% growth in candidates over 2009 *Average spend per candidate for elections is 6-7x of ceiling limit (i.e. Rs 1.6 mn for state assembly at Rs 4.5 mn for union elections)
Potential ‘poll’ stimulus of ~Rs 435 bn ($ 8 bn)
State Seats
Candidate
#(nos)
Candidates
p er seat
Avg sp end/
candidate*
(Rs mn)
Elec tion
sp end
(Rs b n)
FY14
Madhya Pradesh 230 3,179 14 11 36
Karnataka 224 2,315 10 11 26
Rajasthan 200 2,304 12 10 22
Delhi 70 918 13 15 14
Jharkhand 80 1,081 14 12 13
Chattisgarh 90 1,087 12 11 12
Tripura 60 320 5 11 4
Meghalaya 60 250 4 10 2
Nagaland 60 220 4 10 2
Mizoram 40 150 4 10 1
FY15
Andhra Pradesh 294 3,728 13 13 48
Odisha 147 1,400 10 10 13
Sikkim 32 195 6 10 2
States total - (A ) 1,587 17,148 11 11 195
Union e l ect ions - (B ) 543 8,000 15 30 240
Total e l ect ion (A+B ) 2,130 25,148 12 17 435
Studies by Centre for Media Studies and Association for Democratic Reforms etc. have cited that the actual spending per serious candidate ranges from Rs 50-80 mn (10-17x of ceiling) on a Lok Sabha seat and Rs 20-50 mn (8-20x of ceiling) for an Assembly seat. Incorporating these figures, we arrive at a similar magnitude of stimulus (Rs 385bn)
Union State
No. of seats 543 ~1,600
Serious candidates/ constituency 3 3
Avg. spend/ serious candidate 80 50
Total (Rs b n) 130 255
Grand Total Rs 385 ($ 7b n)
Bottom up check
30 Jan 2012
THEMATIC REPORT ECONOMY
9
Source: Axis Capital
Road transport expenses alone account for 100% of official election ceiling expenses!!
Estimated transport cost incurred by a state candidate
Scenario I Scenario I I
No of jeeps hired 15 20
No of days used 50 50
Distance travelled per day (km) 100 200
Total kms travelled ('000 km) 75 200
Diesel cost (Rs/litre) 48.5 48.5
Fuel efficiency (9 km/litre) 9 9
Fuel cost - A 404,167 1,077,778
Driver cost (Rs 1000 p er day) - B 50,000 50,000
Hire cost (Rs 500 p er day p er jeep ) - C 375,000 500,000
Total transp ort cost (A+B+C) 829,167 1,627,778
% of ceiling expenditure 52 102
This estimate does not include expenditure on air travel for candidates where the cost can be ~Rs 75,000 per
hour for a chartered flight
♦ Our bottom up calculation reveals that the ceiling limits on election spending ie Rs 4 mn for Lok Sabha & Rs 1.6 mn for assembly elections are unrealistically low.
♦ The cost of road transport alone, including fuel and hired vehicle charges for a candidate contesting the state elections, works out to 52-102% of the election spending limit.
♦ Combined expenditure on Media (posters, banners and television), rally expenses, office space and party workers which we are not accounting for is a much higher component of election expenses compared to transport expenses.
30 Jan 2012
THEMATIC REPORT ECONOMY
10
….with publicity/media expenses ~ 2x of transport expenses
♦ Publicity accounts for 40-60% of reported election expenditure with transport expenses at 25%
♦ Major parties like Congress and BJP spend bulk of publicity budget on electronic and print media while regional parties (like BSP) spend on cut outs, hoardings, banners, flags etc.
Expenditure composition of different political parties
5544 44 40
31
12
53
12
14
44
3
48
0
20
40
60
80
100
INC BJP SP BSP
(%)Publicity Travel Other expenses
Publicity: Expenditure composition
Source: Election accounts 2009 general elections
1 6 3
3456
66
21
0
5
7
53
2720
69
0
11 2 2
62
0
20
40
60
80
100
INC BJP SP BSP
(%)
Printed materials ElectronicVideo + audio films Print advertismentsOthers
Source: Election accounts 2009 general elections
30 Jan 2012
THEMATIC REPORT ECONOMY
11
~USD 5 bn from Direct cash transfers to add to the ‘stimulus’
♦ GoI has rolled out the ambitious direct cash transfer (DCT) programme utilizing the ‘Aadhaar’ platform. The scheme is expected to cover the entire country by April 2014. DCT encompasses delivery of benefits under various welfare schemes (i.e. MNREGS wages, pension etc.) and subsidy disbursements (food through PDS, Petroleum and Fertilizers)
– Subsidy is in pilot phase and thus we believe cash transfers will be limited to welfare schemes in the initial phase
– Lack of infra, banking access & low Aadhaar penetration (18%, < 10% in UP, TN, Raj, Bihar,
MP/CG) could be the key bottlenecks in implementing the welfare schemes on a country wide basis in the next 12 months.
– However, the government also plans to use the national population register to expedite the process
Welfare schemes under the ambit of direct cash transfers
Source: UIDAI
Primary wel fare schemes
FY12
exp enditure
($ b n)
Exp ected
Aadhaar
p enetration
Magnitude of
cash transfers
($ b n)
Education
- Sarv Saksharta Abhiyan 3.1 50 1.5
- Midday Meal 1.7 50 0.8
- Integrated Child Development
Centres
1.0 50 0.5
- Scholarships 0.8 50 0.4
Mass Housing 1.6 50 0.8
- Indira Awaas Yojana 1.6 50 0.8
Pensions 0.9 50 0.5
Insurance
- Janani Suraksha Yojana (JSY) 0.3 50 0.1
- Accredited Social health activists
(ASHA)
0.2 50 0.1
Total 10 5
This estimate does not include spending on
NREGS as it is in any case a cash dole out scheme
30 Jan 2012
THEMATIC REPORT ECONOMY
12
…and don’t forget the state level parties with their poll freebies
♦ AIADMK (Tamil Nadu state assembly elections 2011) manifesto: – Free houses of 300 sq. ft. each,
costing Rs 1.8 lakh, to 300,000 BPL families
– Free Laptop for all Higher Secondary Students and Art & Science college students
– 1 gm of gold for marriage of a girl
– 20 kg of free rice to BPL families
– Free Mixer, Grinder & Fan for all households
♦ Samajwadi Party (UP state assembly elections 2012) manifesto: – Free electricity to farmers and
weavers
– Waive farmer debt to the tune of Rs 50,000 per farmer
– Allowance of Rs 1,000 to unemployed youth above the age group of 25 years
Source: Media Sources
30 Jan 2012
THEMATIC REPORT ECONOMY
Importantly, RBI will be cutting rates aiding consumption
♦ There is a significant negative correlation between IIP consumer durables and lagged interest rates
♦ For every 100 bps decline in interest rates, IIP consumer durables growth increases by 200 bps
♦ We believe if RBI cuts interest rates, consumer durables would experience a substantial demand improvement
Consumption does well when interest rates are falling
Source: CMIE, Bloomberg
IIP consumer durables ♦ IIP consumer durables has seen a substantial growth uptick in all pre-election years. The growth momentum has also moved into the election year
8
10
12
14
16
-10
0
10
20
30
FY'9
4
FY'9
5
FY'9
6
FY'9
7
FY'9
8
FY'9
9
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
(YoY %) (%)Consumer durables growth SBI PLR (RHS)
IIP = 33 – 1.98SBI PLR
-10
0
10
20
30
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY %)
Source: CMIIE
Pre election year Election year
30 Jan 2012
THEMATIC REPORT ECONOMY
13
04 Sep 2012 / TYPE OF REPORT
COMPANY NAME SECTOR
♦ In our opinion, the magnitude of election expenditure and the pre-election revelry has positive implications on several consumption plays
♦ We expect Auto, Media, Telecom , Consumer products, Liquor and White goods to see an uptick in demand on account of the stimulus
14
Beneficiaries of the ‘stimulus’
15
Potential beneficiaries of the ~USD 13 bn consumption boost
♦ In our opinion, the magnitude of election expenditure and the pre-election revelry has positive implications on several consumption plays
♦ We expect Auto, Media, Telecom , Consumer products, Liquor and White goods to see an uptick in demand on account of the stimulus
Consumption segment and potential beneficiaries
Source: Axis Capital
30 Jan 2012
THEMATIC REPORT ECONOMY
Consump tion
segment Elec tion imp act Benefic iaries
AutoWith interest cut and election dole-outs, rural demand for tractors and 2 wheelers
could see an uptick M&M, Maruti and Hero
Consumer productsElection stimulus could lead to Increase in usage and up-trading in rural areas and
low income urban householdsHUL, Britannia, GCPL, Marico and Emami
Liquor Post election revelry could yield a demand boost USL, Radico Khaitan, Tilaknagar Inds.
Print media
Media expenditure accounts for a significant portion of election expenses. With 15
states up for elections in FY13E and FY14E, print promotions by parties will be
substantial
DB Corp, Jagran Prakashan
TelecomIncreased communication activity during elections and promotions through SMS
could improve ARPU's for telecom operators Bharti, Idea
White goodsHistorically there has been a substanital growth uptick in white goods during pre
election years Havells, Videocon, Bajaj Electricals
Kitchenware Rural consumers could up-trade in this category TTK Prestige
Certain FMCG products spurt in the Pre-election years
0
5
10
15
20
25
30
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
(YoY%)
0
5
10
15
20
25
30
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
(YoY%)
-20
0
20
40
60
80
100
120
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
(YoY%)
Biscuits revenue growth
Oil (Hair + Edible) revenue growth
Personal products
♦ Hair oils, Biscuits and personal products which are discretionary FMCG products tend to witness an improvement in growth trajectory in majority of pre election years
Source: Company, *Note: the data points represent growth in Britannia's biscuit revenues Source: Company, *Note: the data points represent growth in Hindustan Unilever’s personal product sales
Source: Company, *Note: the data points represent growth in Marico’s oil revenues (Edible & Hair)
30 Jan 2012
THEMATIC REPORT ECONOMY
16
Pre election year Election year
Consumer appliances, liquor and jewellery volumes pick up in pre election period
Jewellery (volume) growth
5%
6%
7%
8%
9%
10%
11%
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY)
Consumer appliances (volume) growth
15%
17%
19%
21%
23%
25%
27%
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY)
Liquor (volume) growth
8%
13%
18%
23%
28%
33%
38%
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY)
♦ Consumer appliances and Liquor show the most consistent rise in a pre-election year
♦ Jewellery volumes too rise more often than not
Source: Industry sources Source: Industry sources
Source: Industry sources
30 Jan 2012
THEMATIC REPORT ECONOMY
17
Cars: Money supply is more important than interest rates for demand
Passenger car sales spurt in pre-election years
Money supply and car demand – strong correlation
-40
-20
0
20
40
60
80
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY %)
Source: SIAM
Source: SIAM, CMIE, Axis Capital
♦ Car volumes pickup in pre-election years
♦ In fact, declining interest rates and improving money supply is the best combination for acceleration in car demand
♦ There is also a high correlation between demand and agri terms of trade (ATOT) since 2007
ATOT and cars
Source: SIAM, CMIE, Axis Capital
5
10
15
20
25
(20)
0
20
40
60
Dec
-94
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Cars LHS Money Supply (M1) PLR
-40
-20
0
20
40
60
80
0.90
0.95
1.00
1.05
1.10
1.15
1.20
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
(YoY %)(x)ATOT Cars (RHS)
30 Jan 2012
THEMATIC REPORT ECONOMY
18
♦ Fiscal Deficit: Growth in non-plan expenditure is usually high in a pre-election year which results in Central fiscal deficit overshooting
♦ Inflation: As more money chases goods & services, inflation increases (150 bps on average) in pre-election years
♦ MSPs and Diesel Prices: While MSPs do go up in pre-election years, Diesel prices are usually not tinkered around with
04 Sep 2012 / TYPE OF REPORT
COMPANY NAME SECTOR
19
Macro findings
Central fiscal deficit overshoots budget estimates by ~100 bps
Centre fiscal deficit over / (under) shoot
Non plan expenditure
-2
-1
0
1
2
3
4
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(%)
-10
0
10
20
30
40
50
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY %)
♦ In 4 of 5 pre-election years, the Centre fiscal deficit has overshot the budget estimates by a 100 bps on average
♦ Growth in non-plan expenditure is usually high in pre-election year
Source: Budget documents
Source: Budget documents
30 Jan 2012
THEMATIC REPORT ECONOMY
20
Agri credit improves during pre-election phases
Agriculture credit growth
0
10
20
30
40
50
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
(YoY%)
♦ Agriculture credit witnesses a sharp increase in growth trajectory during pre-election years
Source: RBI
Source: RBI
Inflation - WPI
0
4
8
12
16
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
( YoY %)
♦ As a result of more money chasing fewer goods, inflation also increases in a pre-election year.
♦ In 4 out of the 5 pre-election years, inflation has increased by 150 bps on average
30 Jan 2012
THEMATIC REPORT ECONOMY
21
MSPs do go up.. But diesel price hikes may be front-ended this time
MSP
Diesel price
0
5
10
15
20
25
30
35
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY %)
-4
0
4
8
12
16
20
24
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(YoY %)
♦ MSP increases have been a more recent phenomenon. But a tendency to raise MSPs in a pre-election is evident
♦ While the govt has“freed-up” diesel prices lately, the observed behaviour indicates reluctance to do so in a pre-election year. Thus, we believe that Diesel price hikes could be front-ended as against expectations of a continuous and linear hikes
Source: Department of agriculture Note: MSP for rice
Source: CMIE
30 Jan 2012
THEMATIC REPORT ECONOMY
22
♦ PFCE constituents: performance in pre-election years
♦ Election states – share of population & GDP
♦ Election timeline
♦ Higher spending improves win probability
♦ Discrepancy in poll expenditure and income
♦ Poll expenditure: Media clippings
04 Sep 2012 / TYPE OF REPORT
COMPANY NAME SECTOR
23
Appendix
24
Discretionary consumption segments outperform PFCE growth
♦ Segments that have shown a consistent positive growth differential in a pre-election year:
– Furniture & appliances
– Hotels & restaurants
– Transport & communication,
– Personal goods
♦ These segments account for ~25% of PFCE
Growth differential between PFCE and PFCE constituents in pre-election years
Source: CSO/ CMIE
PFCE constituents FY96 FY98 FY00 FY04 FY09
Category
s ize (USD b n)
Share of
PFCE (%)
Clothing & Footwear 4% 3% 5% -1% -6% 62 6
- Clothing 5% 3% 2% -1% -6% 52 5
Food b everages and tob acco -1% -5% -4% -3% -3% 319 33
Furniture, furnishing, ap p l iances and svcs 7% 0% 3% 1% 2% 35 4
- Glassware, tableware and utensils 8% 3% -5% 1% 10% 9 1
- Other goods 4% -1% -7% -1% -5% 8 1
- Refrigerator, cooking,washing appliances 16% -12% 3% 5% 4% 9 1
- Services(furnishing) 1% 5% 0% 2% 3% 5 1
Gross rent, fuel and p ower -7% 5% 4% -2% 3% 116 12
Hotels and restaurants 15% 7% 4% 2% -9% 19 2
Medical care and heal th serv ices 3% 15% 17% -4% -4% 34 3
Misc. goods and serv ices 9% 5% 15% 4% 16% 133 14
- Other miscellaneous services 22% 6% 29% 8% 22% 88 9
- Personal care and effects 1% 5% 0% -1% 5% 30 3
- Personal goods n.e.c 9% 3% 23% 3% 8% 15 2
Recreation, Education and cul tural svcs 3% 11% 3% 5% -2% 23 2
Transp ort & Communication 1% 6% 1% 6% -2% 150 15
- Communication 5% 10% -6% 12% 1% 15 2
- Operation of personal transport equipment 0% 4% -5% 13% -2% 47 5
- Personal transport equipment 23% -13% 20% 4% -5% 16 2
- Purchase of transport services -1% 9% 2% 2% -3% 71 7
PFCE total 979 100
PRE ELECTION YEARS
30 Jan 2012
THEMATIC REPORT ECONOMY
25
Election states a/c for ~35% of India’s popn & 32% of India’s GDP!
Election states – share of population and GDP
Election s tates Pop (mn p p l ) Share of country p op (%) GDP (USD b n) Share of India GDP (%)
Andhra Pradesh 85 7 117 8
Madhya Pradesh 73 6 53 4
Rajasthan 69 6 67 4
Karnataka 61 5 85 6
Odisha 42 3 41 3
Jharkhand 33 3 22 1
Chattisgarh 26 2 25 2
Delhi 22 2 57 4
Tripura 4 0 4 0
Meghalaya 3 0 3 0
Nagaland 2 0 2 0
Mizoram 1 0 1 0
Sikkim 1 0 1 0
Elec t ion s tates to tal 420 35 478 32
India to tal 1210 1,505
Source: Election Planning commission
30 Jan 2012
THEMATIC REPORT ECONOMY
Election timeline
March May Oct
2013
2014
Karnataka
Meghalaya
Nagaland
Tripura
MP
Chattisgarh Mizoram
Delhi Rajasthan
Andhra Pradesh
Sikkim
30 Jan 2012
THEMATIC REPORT ECONOMY
26
27
Higher spending improves win probability
♦ While political parties refute any linkage between election spend and wins, studies confirm that there is a positive linkage between a candidate’s election spend and chances of winning. As a result, actual spending far exceeds the official expense ceiling
Union election expenditure (1952-2004)
0
5
10
15
19
52
19
57
19
62
19
67
19
71
19
77
19
80
19
84
19
89
19
91
19
96
19
98
19
99
20
04
(Rs bn)
10% CAGR
Source: Election Commission of India
Higher election spending improves win probability
Value of assets*
No of
candidates No of winners Win ratio
Very high (> Rs 50 mn) 322 106 33
High (Rs 5 mn to 50 mn) 1,485 283 19
Medium (Rs 1-5 mn) 1,785 116 6
Low (<1 mn) 3,437 15 0
Total 7,029 520 7
Source: Election law journal; Note: * Value of assets is proxy for spending ability
30 Jan 2012
THEMATIC REPORT ECONOMY
♦ Union election expenditure has increased at 10% CAGR over 1952-2004
28
Vast discrepancy between reported expenditure and incomes
♦ Discrepancy: There is a huge divergence between the actual vs reported election expenditure.
– For eg BSP, contested from 500 constituencies incurring an expenditure of Rs 1 bn based on the average ceiling limit of ~Rs 2.0 mn. But its annual income for that fiscal was Rs 570 mn.
Pol it ical
p arty
Seats contested
in the 15th lok
sab ha elections
Avg. ceil ing
of Rs ~2 mn
p er candidate
(Rs b n)
Actual exp enditure
of Rs 20 mn p er
candidate (Rs b n)
FY10
declared
Income
(Rs b n)
BJP 433 0.9 8.7 0.5
INC 440 0.9 8.8 0.3
BSP 500 1.1 10.0 0.1
NCP 68 0.1 1.4 0.0
SP 95 0.2 1.9 0.0
CPI 82 0.2 1.6 0.1
AIADMK 23 0.0 0.5 0.0
Election exp enditure b ased on
Election states
Source: Media sources
♦ High dependence on Cash: As gleaned from declarations of contributions and donations, a majority of that money comes through cash contributions of under Rs. 20,000, where one doesn't have to declare the source.
30 Jan 2012
THEMATIC REPORT ECONOMY
♦ According to the election commission's observations, a Member of Parliament spends an average of Rs 70-100 mn on a Lok Sabha election while an MLA spends Rs 20-30 mn on a state assembly election. Corporators are not far behind. Sample this:
♦ Jan 2012: Cost of Mumbai municipal elections at Rs 5bn http://www.dnaindia.com/mumbai/report_the-cost-of-bmc-polls-rs500cr_1634039
♦ Jan 12, Pune: In the last civic election in Pune about 25 corporators across party lines spent over Rs 10 mn each !! Pune civic elections
♦ In Nagpur, for civic elections in Feb 12, 1233 candidates reported aggregate spending of ~Rs 20 mn ie Rs 16,733 per candidate vs official limit of Rs 400,000 (actual spending > Rs 10 mn by a few candidates each) Nagpur civic elections
Poll expenditure: Media clippings 30 Jan 2012
THEMATIC REPORT ECONOMY
29
30
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