2022 Uttar Pradesh Assembly Elections: Economic Implications

Fighting is ablaze in Ukraine. Rupee is at an all-time low. Oil and gas prices are charting off faster than a memecoin. And believe it or not, COVID numbers are spiking (again!) in parts of China and New Zealand.

True, untold events of global importance are occurring right now. But the one thing that stands to draw out attention from all of them is an election. Coincidentally, India has several of them happening at once.

Come Thursday, the whole country is likely to forget all about the woes in Ukraine and tune in their TVs to the poll results of the Assembly Elections in five states — Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur.

Having said that, the one state which stands out from the rest is Uttar Pradesh (UP). With a population bigger than that of the UK, France and Germany combined, the state has often been designated as the historic and political heartland of India. It sends 80 representatives to the 543-member Lok Sabha (lower house of the Parliament) which is twice as many as most other states. Therefore, how the residents of UP vote is of particular importance in Indian politics.

With that in mind, let’s look at what has been the crowing call of election rallies in the state recently and what lies at stake, particularly, for the economy, as a consequence of these polls.

The UP-ward Journey

Resting at the foot of the Himalayas and in the arms of the fertile gangetic plains, the state of UP prides itself as an agricultural hotspot. It is the largest producer of food grain in the country and leads the national produce in several crops — wheat, barley, sugarcane, potato, lentils etc. With close to 59% of its workforce engaged in agriculture, the state has quite high stakes in the framing of macro agricultural policies.

Take the Farm Bills, for instance. Owing to the effects of the pandemic and many issues in contract farming emerging in the state, many experts had warned that the state was heading towards a “low-intensity crisis” towards the end of 2020. This was perhaps one of the reasons that stayed the Government’s hand in expedited implementation of the Bills which had become widely controversial by then.

In fact, even though farmers from the neighbouring states of Punjab, Haryana etc. exhibited a more visible resistance to the farm bills, it was the incident in Lakhimpur, UP which acted as a tipping point in popular outcry that eventually led to the repeal of the laws.

However, with all that heft in hand, the state still grudgingly lags behind in growth. At $991 nominal GDP per person, UP accounts for less than half of India’s average. A pandemic-battered economy facing widespread inflation and unemployment, therefore, have emerged as the key issues in focus during this election.

The Other Famous Yogi

When the present Chief Minister Yogi Adityanath came to power five years ago, growth was at the top of his electoral mandate. Recently, he claimed to have fulfilled an overwhelming part of this mandate. Let’s verify that by looking at some chief economic indicators:

1. Adityanath claims that UP is now #2 in India in terms of GDP and that per capita income has doubled in the last five years. Yes, real GDP growth has risen quickly from 2.6% to 6.2% during his term. However, UP’s per capita income (₹41,023 ($533)) was half the national average (₹86,659 ($1,127)) in 2019–20.

2. The unemployment rate in the state has fallen to 5.41% in May-August 2021 from more than 17% from the levels during the previous government. But here’s the thing. As per CMIE data, the unemployment rate in 2017 (i.e. the previous government) was 3.75%, much lower than the May-August 2021 level.

3. As per the 2020–21 National Economic Survey, before the pandemic struck with full force, UP’s net state domestic product (NSDP)growth nearly halved from 14.8% in 2018–19 to 7.5% in 2019–20 which hints at stagnation.

4. UP’s investment climate has grown decidedly warmer with approximately ₹1.8trn ($23.4bn) worth inbound investments over the past three years. Despite that, the RBI ranks UP at #12 in the ease of doing business index.

To be fair, the pandemic’s overhang had a major effect on most of these indicators, especially fundamental ones like unemployment and per capita income which witnessed massive declines owing to country-wide lockdowns.

But one must also remember that given the drawing out of the War in Ukraine and the incipient rates of economic recovery post-pandemic, UP’s fate seems unlikely to change in the near term, especially as far as claims like “UP will be the largest economy if BJP wins” are concerned.

Economic Disenchantment vis-a-vis Disenfranchisement

Voting is a largely emotive issue in India. Most voters understand neither economic data nor jargon. What they do understand, however, is how quickly food and fuel prices are rising or how many people they have to compete with for jobs.

UP has a bigger young demography than the population of many countries. Hence, job creation remains a prime agenda for any successive government in the state where an average of 2 million applications are received for 7,000 positions in mid-level clerical jobs.

This is where the test of industrialisation becomes important. Because as big as UP’s agricultural economy is, it isn’t big enough to absorb the majority of its workforce.

But here’s some good news. UP has a 90 lakh-strong MSME base — the highest in the country. Given the right incentives and policy boost, they could churn out a sizable number of jobs and industrial output in the state.

This is tough to achieve, however. Especially at a time when fuel prices are soaring and consumer prices are scaling new highs in a largely overheating economy. Offering state incentives like tax cuts and import subsidies in this climate could further decimate Government coffers.

There is also the question of affordable electricity, something that has become a key electoral promise during these elections. But with the War uncertainties upending fuel market economics on a daily basis, how the parties intend to keep the promise of distributing affordable power to the MSMEs is anybody’s guess.

On the contrary, it doesn’t take much to guess why retail fuel prices in India haven’t soared in the last 13 days (since the Ukraine War officially began) despite crude oil touching new peaks every day. Come the poll results day, we won’t need to guess anymore.

Considering that the UP elections are sort of a test drive for the upcoming General Elections in 2024, a lot depends on the results on March 10th. If exit polls are to be believed, incumbency is set to prevail and the ruling party is expected to keep the power.

But democracies, much like the beautiful game of cricket, must live to aspire towards the same miracle — cricket cannot be told until the last ball is bowled and elections cannot be called until the last vote is polled.