How much growth in a political candidate’s assets is too much?

 

With the process for filing of nominations for the forthcoming Lok Sabha election having been initiated, one of the matters of interest for the media is the candidates’ declaration of assets and liabilities. Most media reports of candidates filing nominations are accompanied by a summary of their assets and liabilities and criminal records (the disclosure of these became mandatory from the 2004 election onward). If the candidate had also contested in the 2009 election, a standard reporting practice is to compare his/her current declared assets and liabilities to the numbers mentioned in 2009, and look at the increase.

In this edition of Election Metrics, we will see what a reasonable increase in the assets of a politician is, and what is the ratio (of current net worth to net worth in 2009) beyond which it makes sense to be outraged

There are two ways in which a person’s assets can grow—income and asset valuation. Income refers to the money that the person has made in the given time period by way of supplying goods and services. Asset growth refers to the increase in net worth as a consequence of increase in the value of assets held. For example, if I own an item that was worth Rs.1 five years ago, and it is worth Rs.5 now, it represents an increase in net worth of Rs.4.

Now, let us estimate to what extent the increase in a candidate’s assets between March 2009 and now is realistic. We can assume that the balance increase in assets is due to the person’s income in this time period, and based on how “reasonable” this income for the five-year period is, we can make a decision on whether to be outraged

First of all, let us divide assets into four broad asset classes, which are representative of ways in which most Indians save—stocks, gold, real estate and agricultural land. Other assets owned by candidates such as automobiles are generally depreciating assets (that is, assets whose values decline as time goes by) and we can safely assume that any increase in the value of these assets is due to the income effect

Data from the Reserve Bank of India (RBI) show that gold traded at Rs.1,289 per gram in 2008-09. Gold currently trades at Rs.2,948 per gram, representing an increase in asset price by 129%. Unlike stocks, note that gold by itself doesn’t give dividends. Hence, we can say that a candidate who held all his assets in the form of gold in 2009 can see an increase in asset value by 129%

The last category, agricultural land, is the trickiest. The market is highly illiquid (thanks to restrictions on purchase and sale), and highly prone to political intervention (acquisition for industrial and infrastructure projects, change of land use notifications etc.). It is nigh impossible to get credible “index-like” data for prices of agricultural land. The Economic Times, however, conducted a study last year to study the increase in prices of agricultural land in various states. This survey finds that while in some cases the value of agricultural land grew by a factor of 3 between 2000 and 2013, in other cases, the increase was by a factor of 100. The survey estimates that the compounded annual growth rate (CAGR) of prices of agricultural land can vary between 9.6% and 55%. Extrapolating from this, we can estimate that the value of agricultural land could have increased by anywhere between 60% and 800% over the five years

RANJAY KUMAR,

PGDM 2nd SEM