$13bn stimulus in the offing: Who benefits?

Sr VP & Economist sachchidanand.shukla@axiscap.in Tel: 9122 4325 1108

Sachchidanand Shukla

Shiv Nanda Asst VP - consumer shiv.nanda@axiscap.in Tel: 9122 4325 1124

USD 13 bn consumption stimulus over 12 -14 months

30 Jan 2012
ECONOMY

THEMATIC REPORT

Poll Stimulus of Rs 435 bn ($

No. of seats No. of candidates/ constituency Avg. spend/ candidate (Rs mn) T o tal (R s b n)
Gr an d Tot al

8bn)
Unio n 543 15 30 24 0 S tate ~1600 11 11 195
Punjab Jammu & Kashmir HP

No tax rate hikes in the budget Hike in Income tax exemption limits

Rs 4 3 5 b n ($ 8 b n )

Haryana
Rajasthan

Uttaranchal Delhi Sikkim Uttar Pradesh Bihar West Bengal Orissa Arunachal Pradesh Assam Nagaland Manipur

Gujarat

Madhya Pradesh

Mizoram

Interest rate cuts from RBI

Tripura Meghalaya

Maharashtra

Direct cash transfers ($

5bn)
M agnitude o f c as h trans fers ($ b n)

Goa

Election states
Kerala

Tamil Nadu

Source: Election docs, Axis Capital

Eductaion, Child development & Scholarship Mass Housing Pension Insurance incl. health T o tal

3.3 0.8 0.7 0.2 5. 0

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
2

TABLE OF CONTENTS

30 Jan 2012
ECONOMY

THEMATIC REPORT

Slide No. 1. 2. 3. 4. 5. Investment Summary Magnitude of stimulus and consumption dynamics Beneficiaries of the stimulus Macro findings Appendix
PFCE constituents: performance in pre-election years Election states share of population & GDP Election timeline Higher spending improves win probability

4 7 14 19 23

Discrepancy in poll expenditure and income

Poll expenditure: Media clippings

Investment Summary

30 Jan 2012
ECONOMY

THEMATIC REPORT

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

Sectoral takeaways

30 Jan 2012
ECONOMY

THEMATIC REPORT

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

Macro implications

30 Jan 2012
ECONOMY

THEMATIC REPORT

Consumption spurt to GDP: Indias 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 RBIs 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

04 Sep 2012 / TYPE OF REPORT

COMPANY NAME
SECTOR

Magnitude of stimulus and consumption dynamics

USD 13bn stimulus over the next 12-14 months

Falling interest rates and a pro-consumption budget will be additional tailwinds

~USD 8 bn of poll stimulus over the next 12-14 months

30 Jan 2012
ECONOMY

THEMATIC REPORT

Potential poll stimulus of ~Rs 435 bn ($ 8 bn)

C andidate C andidates S eats #(no s) p er seat
230 224 200 70 80 90 60 60 60 40 294 147 32 1 ,5 8 7 543 2 ,1 3 0 3,179 2,315 2,304 918 1,081 1,087 320 250 220 150 3,728 1,400 195 1 7 ,1 4 8 8 ,0 0 0 2 5 ,1 4 8 14 10 12 13 14 12 5 4 4 4 13 10 6 11 15 12

Bottom up check
Av g sp end/ El ec tio n c andidate* sp end (R s mn) (R s b n)
11 11 10 15 12 11 11 10 10 10 13 10 10 11 30 17 36 26 22 14 13 12 4 2 2 1 48 13 2 195 240 435

Unio n No. of seats Serious candidates/ constituency Avg. spend/ serious candidate T o tal (R s b n) Grand T o tal 543 3 80 130

S tate ~1,600 3 50 255

S tate
FY 1 4 Madhya Pradesh Karnataka Rajasthan Delhi Jharkhand Chattisgarh Tripura Meghalaya Nagaland Mizoram FY 1 5 Andhra Pradesh Odisha Sikkim St at e s t ot al - (A ) U n i on e l e ct i on s - (B ) Tot al e l e ct i on (A + B )

R s 385 ($ 7b n)

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)

# 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)
Source: Election docs, Axis Capital,

8 8

Road transport expenses alone account for 100% of official election ceiling expenses!!

30 Jan 2012
ECONOMY

THEMATIC REPORT

Estimated transport cost incurred by a state candidate

S c enario I No of jeeps hired No of days used Distance travelled per day (km) Total kms travelled ('000 km) Diesel cost (Rs/litre) Fuel efficiency (9 km/litre) F uel c o st - A Driv er c o st (R s 1000 p er day) - B H ire c o st (R s 500 p er day p er jeep ) - C T o tal transp o rt c o st (A+B+C ) % of ceiling expenditure
Source: Axis Capital

S c enario II 20 50 200 200 48.5 9 1, 077, 778 50, 000 500, 000 1, 627, 778 102

15 50 100 75 48.5 9 4 04 , 167 50, 000 375, 000 829, 167 52

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.

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

.with publicity/media expenses ~ 2x of transport expenses

30 Jan 2012
ECONOMY

THEMATIC REPORT

Expenditure composition of different political parties

(%) 100 80
60 14

Publicity

Travel

Other expenses 3

31

44

53

48

40 20
0 55

12
44

12 44
40

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.

INC

BJP

SP

BSP

Source: Election accounts 2009 general elections

Publicity: Expenditure composition

Printed materials Video + audio films Others Electronic Print advertisments

100
80

(%)

11 27 5 56 1 INC

2 20 7 66
6 BJP

2
69 62

60 40
20

5 21 3 SP

0 3 0 34
BSP

Source: Election accounts 2009 general elections

10

~USD 5 bn from Direct cash transfers to add to the stimulus

30 Jan 2012
ECONOMY

THEMATIC REPORT

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

F Y12 Exp ec ted exp enditure Aadhaar ($ b n) p enetratio n 3.1 1.7 1.0 0.8 1.6 1.6 0. 9 0.3 0.2 10 50 50 50 50 50 50 50 50 50 M agnitude o f c ash transfers ($ b n) 1.5 0.8 0.5 0.4 0.8 0.8 0. 5 0.1 0.1 5

Primary wel fare sc hemes Educ atio n - Sarv Saksharta Abhiyan - Midday Meal - Integrated Child Development Centres - Scholarships M ass H o using - Indira Awaas Yojana Pensio ns Insuranc e - Janani Suraksha Yojana (JSY) - Accredited Social health activists (ASHA) T o tal
Source: UIDAI

This estimate does not include spending on NREGS as it is in any case a cash dole out scheme

11

and dont forget the state level parties with their poll freebies

30 Jan 2012
ECONOMY

THEMATIC REPORT

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 assembly manifesto:

Party (UP state elections 2012)

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

12

Importantly, RBI will be cutting rates aiding consumption

30 Jan 2012
ECONOMY

THEMATIC REPORT

Consumption does well when interest rates are falling

30

(YoY %)

Consumer durables growth

SBI PLR (RHS)

IIP = 33 1.98SBI PLR

(%)

There is a significant negative correlation between IIP consumer durables and lagged interest rates
16 14 12 10 8

20 10
0

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

-10
FY'95 FY'96 FY'97 FY'98 FY'99
FY'94

FY00

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY01

FY02

FY10

Source: CMIE, Bloomberg

FY11

IIP consumer durables

30

Pre election year

(YoY %)

Election year

IIP consumer durables has seen a substantial growth uptick in all pre-election years. The growth momentum has also moved into the election year

20 10 0 -10
FY94 FY95 FY97 FY98 FY00 FY01 FY02 FY04 FY05 FY07 FY08 FY10
FY96 FY99 FY03 FY06 FY09

Source: CMIIE

13

04 Sep 2012 / TYPE OF REPORT

COMPANY NAME
SECTOR

Beneficiaries of the stimulus

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

Potential beneficiaries of the ~USD 13 bn consumption boost

30 Jan 2012
ECONOMY

THEMATIC REPORT

Consumption segment and potential beneficiaries

C o nsump tio n segment Auto Consumer products Liquor Print media Telecom White goods Kitchenware
Source: Axis Capital

El ec tio n imp ac t With interest cut and election dole-outs, rural demand for tractors and 2 wheelers could see an uptick Election stimulus could lead to Increase in usage and up-trading in rural areas and low income urban households Post election revelry could yield a demand boost 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 Increased communication activity during elections and promotions through SMS could improve ARPU's for telecom operators Historically there has been a substanital growth uptick in white goods during pre election years Rural consumers could up-trade in this category

Benefic iaries M&M, Maruti and Hero HUL, Britannia, GCPL, Marico and Emami USL, Radico Khaitan, Tilaknagar Inds. DB Corp, Jagran Prakashan Bharti, Idea Havells, Videocon, Bajaj Electricals TTK Prestige

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

15

Certain FMCG products spurt in the Pre-election years

30 Jan 2012
ECONOMY

THEMATIC REPORT

Oil (Hair + Edible) revenue growth

30
25

(YoY%)

Pre election year

Election year

20
15

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

10
5

0
FY96 FY98 FY99 FY01 FY02 FY04 FY05 FY07 FY08 FY10 FY11
FY97 FY00 FY03 FY06 FY09 FY12

Source: Company, *Note: the data points represent growth in Maricos oil revenues (Edible & Hair)

Biscuits revenue growth

30
25

Personal products
120
100 (YoY%)

(YoY%)

20
15

80 60
40

10
5

20
0

FY96

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY09

FY10

FY96

FY98

FY99

FY01

FY02

FY04

FY05

FY07

FY08

FY10

FY11

FY97

FY00

FY03

FY06

FY09

Source: Company, *Note: the data points represent growth in Britannia's biscuit revenues

FY12

Source: Company, *Note: the data points represent growth in Hindustan Unilevers personal product sales

16

FY12

FY97

FY08

FY11

-20

Consumer appliances, liquor and jewellery volumes pick up in pre election period

30 Jan 2012
ECONOMY

THEMATIC REPORT

Consumer appliances (volume) growth

27%

(YoY)

Consumer appliances and Liquor show the most consistent rise in a pre-election year Jewellery volumes too rise more often than not

25%
23%

21% 19%
17%

15%
FY00 FY01 FY02 FY03 FY04 FY06 FY08 FY10
FY05 FY07 FY09

Source: Industry sources

Jewellery (volume) growth

11% (YoY)

Liquor (volume) growth

38% 33%

(YoY)

10% 9% 8% 7% 6% 5%
FY00 FY01 FY02 FY03 FY04 FY06 FY08 FY10
FY05 FY07 FY09

28% 23% 18% 13%

8%

FY00

FY01

FY02

FY03

FY04

FY06

FY08

Source: Industry sources

Source: Industry sources

FY10

FY05

FY07

FY09

17

Cars: Money supply is more important than interest rates for demand

30 Jan 2012
ECONOMY

THEMATIC REPORT

Passenger car sales spurt in pre-election years

80 60
40

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

(YoY %)

20 0
-20 -40

FY93

FY94

FY96

FY97

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

Source: SIAM

Money supply and car demand strong correlation

Cars LHS 60 40 20 0 (20) Money Supply (M1) PLR 25 20 15 10 5

FY10

FY92

FY95

FY98

ATOT and cars

1.20 1.15 1.10 1.05 1.00 0.95 0.90
Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12

(x)

ATOT

Cars (RHS)

(YoY %)

80 60 40 20 0 -20 -40

Dec-97

Dec-09

Dec-94

Dec-95

Dec-96

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-10

Dec-11

Jan-96

Jan-98

Jan-99

Jan-01

Jan-02

Jan-04

Jan-05

Jan-07

Jan-08

Jan-10

Source: SIAM, CMIE, Axis Capital

Source: SIAM, CMIE, Axis Capital

Jan-11

18

04 Sep 2012 / TYPE OF REPORT

COMPANY NAME
SECTOR

Macro findings
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

19

Central fiscal deficit overshoots budget estimates by ~100 bps

30 Jan 2012
ECONOMY

THEMATIC REPORT

Centre fiscal deficit over / (under) shoot

4

3 2 1 0 -1 -2
FY96

(%)

In 4 of 5 pre-election years, the Centre fiscal deficit has overshot the budget estimates by a 100 bps on average

FY98

FY99

FY00

FY01

FY04

FY05

FY06

FY09

Source: Budget documents

FY10

FY97

FY02

FY03

FY07

FY08

Non plan expenditure

50

Growth in non-plan expenditure is usually high in pre-election year

(YoY %)

40
30

20
10

0
-10

FY97

FY99

FY00

FY01

FY02

FY04

FY05

FY06

FY07

Source: Budget documents

FY10

FY98

FY03

FY08

FY09

20

Agri credit improves during pre-election phases

30 Jan 2012
ECONOMY

THEMATIC REPORT

Inflation - WPI
16 12 8 4
0

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

( YoY %)

FY94

FY95

FY96

FY99

FY00

FY01

FY04

FY05

FY06

FY07

FY09

Source: RBI

FY10

FY92

FY93

FY97

FY98

FY02

FY03

FY08

Agriculture credit growth

50 40 30 20 10 0
FY92 FY94 FY95 FY96 FY97 FY99 FY00 FY01 FY03 FY04 FY05 FY07 FY08 FY09
FY93 FY98 FY02 FY06

(YoY%)

Agriculture credit witnesses a sharp increase in growth trajectory during pre-election years

Source: RBI

21

MSPs do go up.. But diesel price hikes may be front-ended this time

30 Jan 2012
ECONOMY

THEMATIC REPORT

MSP
35 30 25 (YoY %)

MSP increases have been a more recent phenomenon. But a tendency to raise MSPs in a pre-election is evident

20 15 10
5 0

FY99

FY00

FY02

FY03

FY04

FY06

FY07

FY09

Source: Department of agriculture Note: MSP for rice

FY10

FY01

FY05

FY08

Diesel price
24

20 16
12

(YoY %)

While the govt hasfreed-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

8
4

0 -4
FY05 FY06 FY07 FY08 FY09 FY10
FY04
Source: CMIE

22

04 Sep 2012 / TYPE OF REPORT

COMPANY NAME
SECTOR

Appendix
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

23

Discretionary consumption segments outperform PFCE growth

30 Jan 2012
ECONOMY

THEMATIC REPORT

Growth differential between PFCE and PFCE constituents in pre-election years

PR E EL EC T ION YEAR S PF C E c o nstituents C l o thing & F o o twear - Clothing F o o d b ev erages and to b ac c o F urniture, furnishing, ap p l ianc es and sv c s - Glassware, tableware and utensils - Other goods - Refrigerator, cooking,washing appliances - Services(furnishing) Gro ss rent, fuel and p o wer H o tel s and restaurants M edic al c are and heal th serv ic es M isc . go o ds and serv ic es - Other miscellaneous services - Personal care and effects - Personal goods n.e.c R ec reatio n, Educ atio n and c ul tural sv c s T ransp o rt & C o mmunic atio n - Communication - Operation of personal transport equipment - Personal transport equipment - Purchase of transport services PF C E to tal
Source: CSO/ CMIE

F Y96 4% 5% - 1% 7% 8% 4% 16% 1% - 7% 15% 3% 9% 22% 1% 9% 3% 1% 5% 0% 23% -1%

F Y98 3% 3% - 5% 0% 3% -1% -12% 5% 5% 7% 15% 5% 6% 5% 3% 11% 6% 10% 4% -13% 9%

F Y00 5% 2% -4% 3% -5% -7% 3% 0% 4% 4% 17% 15% 29% 0% 23% 3% 1% -6% -5% 20% 2%

F Y04 - 1% -1% - 3% 1% 1% -1% 5% 2% - 2% 2% -4% 4% 8% -1% 3% 5% 6% 12% 13% 4% 2%

C atego ry F Y09 size (US D b n) - 6% -6% - 3% 2% 10% -5% 4% 3% 3% - 9% -4% 16% 22% 5% 8% - 2% - 2% 1% -2% -5% -3% 62 52 319 35 9 8 9 5 116 19 34 133 88 30 15 23 150 15 47 16 71 979

S hare o f PF C E (% ) 6 5 33 4 1 1 1 1 12 2 3 14 9 3 2 2 15 2 5 2 7 100

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

24

Election states a/c for ~35% of Indias popn & 32% of Indias GDP!

30 Jan 2012
ECONOMY

THEMATIC REPORT

Election states share of population and GDP

El ec tio n states Andhra Pradesh Madhya Pradesh Rajasthan Karnataka Odisha Jharkhand Chattisgarh Delhi Tripura Meghalaya Nagaland Mizoram Sikkim El ec tio n states to tal India to tal
Source: Election Planning commission

Po p (mn p p l ) 85 73 69 61 42 33 26 22 4 3 2 1 1 4 20 1210

S hare o f c o untry p o p (% ) 7 6 6 5 3 3 2 2 0 0 0 0 0 35

GDP (US D b n) 117 53 67 85 41 22 25 57 4 3 2 1 1 4 78 1, 505

S hare o f India GDP (% ) 8 4 4 6 3 1 2 4 0 0 0 0 0 32

25

Election timeline

30 Jan 2012
ECONOMY

THEMATIC REPORT

March

May

Oct

Meghalaya Nagaland Rajasthan MP Tripura Karnataka

Delhi

2013

Chattisgarh Mizoram

Sikkim

2014
Andhra Pradesh

26

Higher spending improves win probability

30 Jan 2012
ECONOMY

THEMATIC REPORT

Higher election spending improves win probability

Val ue o f assets* Very high (> R s 50 mn) High (Rs 5 mn to 50 mn) Medium (Rs 1-5 mn) Low (<1 mn) T o tal
Source: Election law journal;

No o f c andidates 322 1,485 1,785 3,437 7, 029

No o f winners 106 283 116 15 520

Win ratio 33 19 6 0 7

Union election expenditure has increased at 10% CAGR over 1952-2004

Union election expenditure (1952-2004)
15

(Rs bn)

10

Note: * Value of assets is proxy for spending ability

10% CAGR

While political parties refute any linkage between election spend and wins, studies confirm that there is a positive linkage between a candidates election spend and chances of winning. As a result, actual spending far exceeds the official expense ceiling

1957

1962

1971

1977

1984

1989

1996

1998

Source: Election Commission of India

27

2004

1952

1967

1980

1991

1999

Vast discrepancy between reported expenditure and incomes

30 Jan 2012
ECONOMY

THEMATIC REPORT

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.

Election states
El ec tio n exp enditure b ased o n Av g. c eil ing F Y10 S eats c o ntested o f R s ~ 2 mn Ac tual exp enditure dec l ared in the 15th l o k p er c andidate o f R s 20 mn p er Inc o me sab ha el ec tio ns (R s b n) c andidate (R s b n) (R s b n) 433 440 500 68 95 82 23 0.9 0.9 1.1 0.1 0.2 0.2 0.0 8.7 8.8 10.0 1.4 1.9 1.6 0.5 0.5 0.3 0.1 0.0 0.0 0.1 0.0

Po l itic al p arty BJP INC BSP NCP SP CPI AIADMK

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.

28

Poll expenditure: Media clippings

30 Jan 2012
ECONOMY

THEMATIC REPORT

According to the election commission's observations, a Member of Parliament spends an average of Rs 70100 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-costof-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

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