No end to the mystery of political and electoral financing

There is a cap on spending by candidates during an election but no limit on spends by political parties, which are largely funded by anonymous sources. No political party wants to upset the status quo

Political and electoral financing have been in public discourse for over 30 years now, since the Goswami Committee commented on it in some detail in 1990. However, there has actually not been even an iota of progress despite claims by various governments of having taken, what they have considered and referred to as, decisive actions.

It is important to distinguish between political and electoral financing. The latter, electoral financing, is what candidates and political parties spend for contesting elections, in election campaigns. This is what is commonly referred to, typically in the western media, as “election campaign finance”. Political financing, on the other hand, is a broader term which may or may not include electoral finance but its major component is the money that political parties supposedly spend to maintain themselves and for their various activities. While these two are obviously interlinked, thinking of them separately helps in understanding what is one of the deepest mysteries in the country.

Let us begin with the electoral financing first. The issue of election expenditure is a very popular topic for discussion. The first issue is how much can be spent in an election campaign. The maximum limit that a candidate can spend in an election campaign is specified in Rule 90 of the Conduct of Election Rules, 1961. This is of course changed periodically.

Two important issues need to be highlighted about this limit. The first is to clear the very common misconception that this limit is fixed by the Election Commission of India (ECI). The ECI merely makes a recommendation to the government of the day, and in fact, it is the government who fixes this limit, simply because the ECI does not have the powers to amend the Conduct of Election Rules, which can be done only by the government of the day.

It is another story that almost all candidates give false figures in their sworn election expenditure affidavits, and all of them actually spend not only much more than what they write under oath but also way beyond the limit. There is a constant clamour that the limit is too low and should be increased.

...where do political parties get their money from and how. This is arguably one of the greatest mysteries of modern India. Despite their protestations to the contrary, all political parties have done, and continue to do, their best to keep this secret

The second, and more serious, issue is that while there is a limit on what a candidate can spend on her/his election campaign, there is no such limit on what a political party can spend on during an election. This renders the limit on the expenditure that a candidate can incur absolutely meaningless because the political party supporting the candidate can claim all that the candidate wishes to spend.

Political financing is an omnibus term. It covers the entire gamut of expenditure that political parties incur on themselves including but not limited to the office/establishment expenditure, staff salaries, travel, communications, publicity, and of course the money spent on elections. The key questions here are where do political parties get their money from and how. This is arguably one of the greatest mysteries of modern India. Despite their protestations to the contrary, all political parties have done, and continue to do, their best to keep this secret.

While political parties are required to file their income tax returns (ITRs) in which they declare their income for the year, they do not pay any income tax because Section 13A of the Income Tax Act says that 100% of the income of a political party is exempt from income tax. There is no prize for guessing who made this rule.

Additionally, political parties are required to submit a statement of donations, for each donation of more than Rs20,000, to the ECI. A comparison of the total of all the donations declared by a political party for a particular year with the income of the same year declared in the ITR, shows that the donations explain only 20-25% of the total income of the same year. In other words, 75-80% of the income of all political parties, on average, is from unknown sources.

When asked to divulge the source of this 75-80% of their income under RTI, political parties claimed that they were not covered by the RTI Act. When the Central Information Commission (CIC), the highest statutory authority in the land for implementing the RTI Act declared in 2013 that six national political parties (BJP, Congress, BSP, NCP, CPI, CPM) were indeed ‘public authorities’ under the RTI Act as they fulfilled the definition of a public authority given in Section 2(h) of the RTI Act, all the six parties refused to comply with complete disregard of the order of a statutory authority!

This happened despite the Law Commission of India saying, in its 170th report in May 1999, “On the parity of the above reasoning, it must be said that if democracy and accountability constitute the core of our constitutional system, the same concepts must also apply to and bind the political parties which are integral to parliamentary democracy. It is the political parties that form the government, man the Parliament and run the governance of the country. It is therefore, necessary to introduce internal democracy, financial transparency and accountability in the working of the political parties” (Italics added).

Each government tries to come up with some new gimmick to show to people at large that they are doing something to bring about financial transparency but each of these turns out to be a mirage. The UPA-2 introduced the Electoral Trust scheme in 2013. In 2014, the Delhi High Court held both, the BJP and the Congress, guilty of violating the Foreign Contributions (Regulation) Act (FCRA) for accepting illegal donations under the Electoral Trust scheme.

The current NDA government has introduced the Electoral Bond scheme. The Electoral Bond scheme was introduced by Finance Minister Arun Jaitley in his budget speech, under the heading “Transparency in Electoral Funding”. This is what the Minister said:
“Even 70 years after Independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections…Political parties continue to receive most of their funds through anonymous donations which are shown in cash…An effort, therefore, requires to be made to cleanse the system of political funding in India…I, therefore, propose the following scheme as an effort to cleanse the system of funding of political parties.”

The same afternoon, in his customary “media interaction” on the budget, the Finance Minister said, “These bonds will be bearer in character to keep the donor anonymous” (Italics added). It seems the Finance Minister believes that transparency and anonymity mean the same thing. One wonders how many people will agree with that.

It is widely accepted that the use of unaccounted money in politics is the source of all corruption in the country. It is also clear that political parties will not agree to change this status quo because of deep-rooted vested interests. The only way to get rid of this scourge is to insist on transparency in the financial affairs of political parties. That can only happen if political parties are put under pressure of public opinion with the active assistance of the media and the judiciary.

(Jagdeep S Chhokar was a professor of Management and Organisational Behaviour at the Indian Institute of Management, Ahmedabad. A citizen-activist, he is one of the founding members of Association for Democratic Reforms)

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