Whether the Elections would help our Economy?

Some may feel that an election and the subsequent change of government at a crucial time like this could be a disadvantage to the country. But with the Indian government’s finances stretched (thus crippling its ability to give out additional stimulus packages) the ongoing general elections might just turn out to be an inadvertent but effective substitute for the same.

Elections are putting lot of money in the hands of the people. No, I’m not talking about news reports mentioning about how much each party, especially the ruling party in Tamilnadu is ‘paying’ for each vote. This is about how elections are fuelling our economy putting money into the hands of common man (aam aadmi- is my Hindi pronunciation Correct?).

A Wall Street Journal report estimates that the spending by political parties and the electoral authorities for things such as transportation, materials and services such as banners, flags and advertising etc will give a boost of about Rs. 142 Billion to Rs. 364 Billion to our sputtering economy. Further, the fact that these funds would have been employed in a concentrated time frame and that it would reach till the grassroots level all over the country will ensure that it gives a much needed push to the economy.

Also in my earlier postings, I’ve mentioned about how the former RBI Governor Dr.Y.V.Reddy saved our banking system from not collapsing like their counterparts in U.S.A. He had the guts to put his foot down to our Harvard educated former finance minister when he was pushed to liberalise the banking & credit policies, which Reddy rightly felt India was not yet ready for. The only private sector bank in India (you know which one), which was very aggressive in lending and repeatedly did not follow the stricter guidelines went to the verge of collapse only to be saved by Dr.Reddy and his team whom they thought was ‘very conservative’.

I recently read that Reddy is optimistic that India can grow at 8% plus from 2011. It was always well known that the key to India’s scorching growth in the future will be ramping up of infrastructure, but sadly the same has been pushed to the back of the minds of policy makers. But when the former governor of RBI  stresses that India cannot sustain a high growth rate of 9-10% unless it develops adequate infrastructure in sectors like power, ports and roads, it is certainly time to sit up and take notice. As reported in the Economic Times, this is what Mr. Reddy had to say, “You should run at a speed that would strengthen your muscles and if you run too fast it will affect your health.”  We certainly hope so, Mr. Reddy!

(with inputs from Equitymaster)