Campaign Finance Reforms in India: Issues and Challenges

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Campaign Finance Reforms in India: Issues and Challenges Chair: Before opening up the floor to questions and comments, I would like to give the issue some historical perspective. The origin of the malaise, of the dependence, enormous dependence on unaccounted money and of extremely high levels of election expenditure, unaccounted election expenditure, may have been in 1969, when corporate donations to political parties were banned. It was made legal again, under Section 293 of the Companies Act, only in 1985. In 1969, in the context of a highly regulated import-substituting economy, corporate donations were banned; the question arose as to where an adequate legal source of funds would be available for political parties. State-funding was introduced in a range of countries through the 1960s, 1970s and 1980s; you can have a range of designs for State-funding; it can be full Statefunding, on a vote-share basis, on a per-vote basis, on a reimbursement basis; it can be partial, on a matching-grant basis or against private funds raised. In 1969, when you banned legal corporate funding of political parties without substituting it with State-funding, you created a huge vacuum, which meant that parties were willy-nilly forced to go under the table, to the black money economy, and were dependent progressively on unaccounted funds. Then you have another development in 1975, when in the 'Kanwarlal Gupta vs Amarnath Chawla, case, the Supreme Court said that party expenditure should also be counted into a candidate's expenditure-limit. The Government amended the law and appended explanation (i) to Section 77(1) of the Representation of the People Act, to say that party spending will not be counted for the purposes of the candidate's expenses limit and, therefore, parties can spend any amount. The candidate has a fixed limit which has been revised progressively, which for a Lok Sabha seat is now ` 40 lakh, which is a very small amount compared to the actual amount that gets spent. Effectively, you removed all expenditure limits because parties could spend as much as they liked; even after the 2003 amendment brought in by the NDA Government, where candidates had to declare what their party spent on them, if a party claims that it does not mention the name of the candidate, does not associate its www.orfonline.org 27
ORF Seminar Series funding with the candidate, it says it is just propagating the party programmes, then it falls outside the spending limit for a candidate. The combination of what happened in 1969 and then in 1975 was that you had no adequate legal source of spending till corporate-funding was reintroduced as legal in 1985; you had a highly regulated economy where the licence raj was very much in place; you also had unlimited party-spending, which meant that you had an arms race between parties at the time of elections. Even the re-introduction of corporate-funding in 1985 really made no difference because by that time the dependence on unaccounted money had become deeply entrenched in the system; also, until 2003, there was no tax incentive. There was the fear of lack of anonymity, and of being penalised by the party which you did not fund, if it came to power some time in the future. So, the entrenchment of political parties in the unaccounted economy became very deep. Although, as Mr. Manish Tewari said, the 2003 amendments have introduced a degree of transparency, and more and more companies are now contributing by cheque and claiming tax-deduction, it is still a small percentage of the actuals. Now, what do we do about this? As I said at the beginning, there are four types of regulation of elections and parties: limits on expenditures, limits on contributions like in the US and public-funding of some kind or the other. It can be designed in various ways and forms with different types of reporting and disclosure requirements. So, in principle, one way is to tightly monitor expenditure and also link it to a tight monitoring of contributions, like what Mr Arun suggested. But you have other systems also. In the US, there is no limit on expenditure, but it is relatively clean. You don't have this kind of corruption because there are very strict reporting and disclosure requirements. Remove what is basically a farcical cap on expenditure. Why have candidate- limits of ` 40 lakh when you exempt parties, and effectively make it a meaningless limit. Why have it all then? Do away with it and focus on having strict disclosure. There are cash and unaccounted contributions; even if you 28 www.orfonline.org
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