Political instability has become a key concern for voters, investors and credit rating agencies alike during this election season. In a first-of-its-kind attempt to quantify political instability, Mint examined a variety of factors that contribute to political instability to come up with a composite index of political instability in India.
The Mint Political Instability Index (MPI index), based on trends since 1981, shows political instability scaled its peak in 1991 and fell substantially during the 2000s before rising sharply over the past few years during the second term of the United Progressive Alliance (UPA) government.
Mint’s analysis shows that with everything else remaining the same in 2014 as in 2013, a fractured or weak mandate on 16 May (which we define as 140 seats for the single largest party in the ruling coalition) will drive up the index of political instability to a 16-year high. A strong mandate (which we define as 280 seats for the single largest party in the ruling coalition) will drive down the MPI index value to a four-year low.
The MPI index is a composite gauge that assigns equal weights to five disparate indices—the index of political paralysis, the index of economic misery, the index of demographic instability, the perception of corruption index and the communal conflict index. All index values are normalized and averaged to yield a composite index, which takes values between 0 and 1 (see chart on Page 2) for detailed methodology) for each year since 1981. Values closer to 1 indicate higher instability, while values closer to 0 indicate lower instability.
The indices of political paralysis and of economic misery are themselves composite indices. The former is based on two parameters—the proportion of seats obtained by the single largest party in the ruling coalition in the Lok Sabha, and the number of days Parliament functioned in a given year.
In the past two decades, the index of political paralysis was on average at its highest levels during the rule of the United Front government and lowest during the term of the National Democratic Alliance government. It rose again during the UPA’s rule.
The index of economic misery is based on inflation and gross domestic product growth data, assigning higher scores for higher inflation and lower scores for higher growth. The index of economic misery scaled its peak in 1991 and despite minor blips, continued to fall till the late 2000s, when it began rising again. The index of economic misery essentially captures the extent of stagflationary pressures in the economy.
It is the rise in these two key sub-indices over the past few years that drove the MPI index above the danger mark of 0.50 in 2011, for the first time since 1998, when the MPI index, with a value of 0.61, was at its third highest level after 1991 and 1992.
The index of demographic instability is based on the proportion of people in the age group 20-34 years. While this cohort represents the idealism of youth, the high levels of unemployment in this age group also make this cohort the most volatile. The demographic instability index has risen steadily since 1981, though the rise has not been dramatic.
The perception of corruption index is based on the number of Economic and Political Weekly (EPW) articles on corruption in a given year. We relied on EPW since it is the only publication with fully digitized and searchable historical archives. The index fell through the 1980s, spiking during the late 1980s and early 2000s. The last spike was in 2011, the year when Anna Hazare, Arvind Kejriwal and their supporters shook the political establishment with their anti-corruption crusade.
The communal conflict index is based on the number of riots in the country recorded by the National Crime Records Bureau (NCRB). The communal conflict index saw a steady fall from the 1980s till the mid 2000s, after which it has been on an ascent.
The composite index of political instability was above the danger mark of 0.50 for the past three years, ending at 0.53 in 2013. A fractured mandate will drive up the MPI index to 0.54, while a strong mandate will drive it down to 0.50, the midpoint between instability and stability.
This suggests that while a strong government will lower instability, that in itself may not be enough. It will need to push growth and lower inflation to fully douse the fires of discontent raging across the country.