Electoral Bonds with a 2wist !
Energy, Environmental and Mineral Economist
Every Budget has its surprise, its climaxes and disappointments. This Jaitley Budget is no different. The Press says it is a good, fiscally-prudent budget, and so it must be, for the Press doesn’t ever lie. But this column is no diatribe over the Press’s freedom and its inclinations. Rather, its about an opportunity to leverage and further enhance a certain proposal in the Budget – the proposal to fund electoral campaigns by issuing Electoral Bonds. My read on the issue is that the RBI would issue Electoral (Bearer) Bonds through designated Banks to various entities – Individuals, Businesses, Foreign Institutions, who may then donate these Bonds anonymously to (a) Political Party/Parties of their choice. Parties may redeem these Bonds immediately through their registered Bank accounts. The proposal is, ostensibly or otherwise, meant to cleanse Electoral financing of black money, and bring about ‘transparent democracy’.
Now, the democracy that Indians vote for, is constituted of a ‘Political Government’ - a Government comprised of major political parties that runs the nation in a conclave with Bankers, Technology-providers, Domestic Capitalists and Foreign Institutions. The Government obtains the collective preferences of the Voter Group, manages the monetary and the fisc to engender an expansionary Real-Nominal economy. This Real Society-Nominal economy offers returns to Capitalists and Investors, while ensuring livelihood, security and lifestyle-quality to families, even as it expands its power base. Voters, Businesses and Foreign Entities could be deemed to seek a Compact with the Political within this socio-politico-economic context – a Compact that more clearly defines the exchanges between themselves and the Political Government. Whereas Voters seek Livelihood security and a safe, nurturing society (and by implication, reasonable returns to Parenting, Gold and Realty – their Wealth Repositories), domestic Businesses support the political in expectations of a Keynesian Nominal Cycle that is pareto with the Political Government and the Nominal Society. Foreign entities could be grouped together so they maximize a polar ‘ Millenial Development Goals-CC Principles-Nominal Profits’ objective. Given this context, Politicians juggle their options – Sovereign relations, Money supply, temporally and regionally-defined technological Opportunities, and FX compromises, to pursue a Real-Nominal economy that addresses the concerns and wishes of all sections of the society.
The proposed Electoral Bonds could be strategized within this contextual Compact. How’d one structure a strategy around the issue of Electoral Bonds that addressed the multi-party Compact? If Electoral Bonds, essentially non-enforceable Debt instruments issued by Political parties, are issued by the RBI, the same could be ‘supply-optimized’ by Political Parties at times, and in numbers consistent with their political situation, and prospective plans. Thus, and should elections be impending, prospective technological and economic opportunities abundant, businesses friendly, and public interest in the Political Government healthy, Political Parties might signal RBI issue Electoral Bonds incrementally. Conversely, they might suggest RBI delay issuing Bonds, or otherwise issue a limited number of Bonds if their ‘private’ finances are in good shape, Business confidence in the Political Government waning, technological and economic opportunities evanescent, or if GO ascendant in the masses. Upon indications from the Political Circle, the RBI, offers at its Political Bond Annexe, a variable number of Bonds at the ‘ordered auctions’. These auctions offer all Bonds available for the day/week to Voters first, domestic Businesses and Capitalists next, with the residual on offer to FIIs. Voters, offered a means to donate politically, seek to assure their livelihood security through donations of Electoral Bonds. Despite the absence of a formal compact with the favored party, they’d, rationally expect, at all times within the Political cycle, either, continued employment, alternative employment opportunities, or, salary-insurance for a length of time proportional the magnitude of their donations. Hopeful of livelihood security, Citizens, particularly those in the middle class, who must invest early in education and indenture themselves for a home loan, donate Electoral Bonds in return for informal livelihood/salary insurance within the (next) Political Cycle. Those who seek such insurance at higher salaries might have to contend with exponentially-increasing investment in Electoral Bonds. Between the imperative to assure the family a future, and an exponentially increasing ‘premium’ price to pay, the middle-class households find an optimum amount of Political Bonds to buy and donate. Post buying such assurance, middle-class householders, would exhibit an increasing propensity to consume as a group, ie, they’d be willing to save less and spend more. Infused with ‘Consumerist animal spirits’, households would spend more of their disposable income, stoke a consumer-centered economy, and assure the society a Keynesian plenty.
Domestic Businesses Houses, which plan to secure and expand their businesses across political cycles within a ‘Social Real-Keynesian Nominal’ framework, donate strategically and anonymously to the Political Circle. Their donations are in the form of AO Expectations around Subsidies, FX and Interest Rates in the short-run, and Competition and Capital Investments in the long. Parties receiving such donations would then be sympathetic to business concerns and accommodate them between the niche-oriented Political Compact and uncertainty-hedged Capital markets. Simultaneously, Businesses, fearing parties with full coffers which might yet yield to populist pressures, would limit their donations to ensure Political parties do not splurge in political returns and turn against them in a subsequent cycle. Between buying a Keynesian stimulus, and protecting their profits and rents, Domestic businesses find an optimum amount of Electoral Bonds to buy and commit to the Political.
A similar argument applies to the polar objectives of FIIs. Whereas they seek political sympathy with their client’s MDG agenda, and Global CC Conformance beyond returns to political foresight, entrepreneurship and alacrity-based arbitrage, they fear donations made with these objectives might tilt the scales in regional political spheres, and hence limit their participation to an equilibrium that balances the incentives and fears. The aggregation of (sequential) demands for Electoral bonds from Individuals, Businesses and FIIs, when faced with a supply of Bonds from the Political Circle, obtains an equilibrium in the Electoral Bond Annexe market, thus establishing a marginal price for the Bonds.
Now consider a public market for Bonds that trades beyond Electoral Bonds, Sovereign Bonds of various tenures, as well select Sovereign Bonds of neighbouring nations and major Trade partners. Electoral Bonds redeemed by Political parties end up in this market, and are traded alongside as yet ‘undonated’ Electoral Bonds against Sovereign Bonds of various affiliations. (One wouldn’t, normally, expect Political parties to buy Electoral Bonds in this market; however, they might do so on rare occasions for diplomatic and strategic political reasons). These trades reveal the political mood of the nation, the trade-offs between, on one hand, domestic politics and political expectations, and on the other, sovereign and trade relations with neighbouring countries. Trading reveals political, electoral, sovereign as well as trade opportunities, and threats that could be gainfully interpreted by psephologists, diplomats and policy makers. For example, trades in the Political Annexe of the Bond market might reveal how Businesses favoring a Right-wing party might quantitatively impact, post-elections, relations with neigbouring sovereigns, and relations with major trade partners. (Donations may be timed to coincide with, or any time after, upon ensuring social and political compatibility. Bond-holders may hold on to the Bonds and time their donations to political receptiveness. Political parties, funded by 3 significant economic constituencies, choose to accept donations such that they are, on one hand compatible with the Political Compact, and on the other, consistent with the donor aspirations).
This proposal has much to commend. First and by far, the most significant, the strategy of leveraging Electoral Bonds to serve as Livelihood Insurance is likely to induce a marked reduction in marginal propensity to save among the middle class, and thus engender an incrementally Consumerist society within a pareto political context. It is also conformable with Business incentives and fears, and offers a credible means to signal intentions to the Political. Third, the strategy provides foreign entities – whether multi-lateral institutions, or Capitalists, a public means to interact politically with a future Government whose agenda they’d like to influence to advantage. The facility to intervene in the Political Annexe of the Bond market permits the RBI - a proxy for the Sovereign Fiduciary, a hold upon Electoral/Campaign liquidity, and signal unacceptable threats to the Sovereign, or to the Trade economy.
The first step toward cleaner electoral politics has been taken by Jaitley. The proposal above could modestly, be deemed a second. The ball now lies in the public court to ensure these bonds serve the larger purpose of a sustainable society and a democratic politic..