Research by Wiji Arulampalam, Sugato Dasgupta, Amrita Dhillon, and Bhaskar Dutta find hard evidence of “pork barrel politics” at work in India, where political considerations of elected officials hold sway over citizens’ needs.
One of us recently asked a local politician in a central Indian state how elected officials there allocated their tax revenues among different groups of voters. He replied that it was prioritised thus: the strongest emphasis goes to “swing” voters; then to loyal voters who vote for the party regardless; and last to voters who support other parties.
We find striking confirmation of this politician’s frank admission in a study analysing data on grants from the Indian central government to 14 state governments between 1975 and 1997.
Politicians allocate budgets to increase their chances of re-election, focusing more on swing voters than their core supporters.
Two factors determine how much money the central government allocates to a statestate. First, the alignment of the incumbent party at the central and state levels and, second, how “swing” (undecided among political parties) a state is predicted to be in a particular state election. A state that is both aligned and swing received 16 percent more in transfers than a state that was neither.
In India’s parliamentary democracy, parties want to win the largest number of state elections because winning in state elections is closely linked to winning in central elections.
State governments use grants to finance public goods – for example, road building, electrification of villages, telephone connectivity, water, or sanitation facilities in poor neighbourhoods. These projects build goodwill for the party that is credited with providing the grants.
If a state government is aligned with the central incumbent, then both levels of government benefit: voters will reward the party in the state-level election or the central election. But if the state incumbent party is not aligned, then the credit is shared between two different parties: this is why central governments limit the grants to states that are not aligned.
In swing states, a small increase in goodwill can lead to large gains in votes. Of course, the benefit only goes to the incumbent party at the centre if the state is an aligned one. Parties allocate expenditures to maximise their chances of getting re-elected, and this effect holds both for central and state-level elections.
In our data, the Congress party dominated central elections for most of the period. The Indian states that were electorally very important at the state level were Bihar, Kerala, and Uttar Pradesh.
Both Bihar and Uttar Pradesh had multi-party contests during the period 1975-97, where a small swing in favour of one party led to a large change in election results. In Kerala, two main alliances surfaced: one led by the Congress party and one led by the Communist party. Our measure of alignment in Bihar was high relative to other states, hence Bihar wound up being a favoured state.
A comparison of two states in our period of study underscores our findings: Rajasthan was both aligned with the central government and a swing state, while West Bengal was neither aligned nor swing.
Average per capita grants to Rajasthan were three times greater than those to West Bengal, as measured in 1980-81 prices. Rajasthan also happens to be marginally higher ranked than West Bengal in terms of per capita income.
This shows the problem of letting politics decide the allocation of grants: governments look less at whether a particular state is deserving or needy and more at how important it is for re-election.
Budgetary manipulation for political gain could be reduced by using formulae that allocate funds based on need and efficiency.
Similar studies from Argentina, Australia, and Spain have underscored the global span of the problem. In one example, Peter John, Hugh Ward, and Keith Dowding show that funding for local public and private bodies through the Single Regeneration Budget Programme in England was affected by whether a government whip’s constituency fell in that area, as well as the percentage of Westminster seats of the ruling party in the bid area.
Thus, robust evidence suggests that when budgets are being made, citizens’ needs often take a back seat to politicians’ re-election aims.
So what can be done? It is generally agreed that grants decided by India’s Finance Commission are less vulnerable to manipulation for political gains, because they are governed by formulae based on the needs of state governments.
A simple policy prescription from our study is to reduce the discretionary elements in grants and base them on economic considerations governed by formulae. Further research may answer the open question about which electoral systems provide the best incentives for parties to allocate funding in the most economically efficient way.
This article summarises “Electoral Goals and Center-State Transfers: A Theoretical Model and Empirical Evidence from India” by Wiji Arulampalam, Sugato Dasgupta, Amrita Dhillon, and Bhaskar Dutta, in the Journal of Development Economics 88:1 (January 2009). A preprint is available at http://ftp.iza.org/dp3376.pdf.