Impact of political and electoral business cycles on Indian economic policies

Abstract

The aim of this project was to test the existence of electoral and political business cycles in the Indian context. This objective was carried out in a systematic manner through a mix of literature survey and data analysis. The first phase of the project entailed a rigorous research of past work and literature on this subject in other countries such as the United States, European countries and some other developing countries. This study provided us insights on the key variables that governments across the world have considered to be important in order to make the masses get a favourable impression of the government?s performance. In the next stage of the project, we did a preliminary analysis on some factors such as fuel prices and development expenditure to check whether the governments over the years had indeed altered economic variables that are more closely tied to the daily lives of the common man. Once our hypothesis on the existence of political business cycles was proven correct by this preliminary analysis, we proceeded to a more detailed quantitative regression analysis of factors such as subsisdies, taxes, transfer payments and government expenditure with variables representing the timing of central and state elections, stability of the government and its nature as the independent variables. The outcome of this data analysis provided us confirmation on the political distortions on the economy. Following this, we completed a qualitative analysis of the various special schemes that are announced by the government and the proximity of these announcements to election timings. These were broadly classified under the opportunistic approach and partisan approaches to political business cycle theory. An analysis of the railway budget was also carried out to determine the trends, if any, in the capital and current expenditure as well as the passenger ticket fares over the years. The most significant trend that emerged from this analysis however was the state to which the Railway Ministed belonged to rather than any of these variables. The Railway Minister?s state always got more benefits in the railway budgets in terms of addition of new trains over the last decade since the time coalition governments have become the only viable form of government at the centre.