A vote for state funding

A vote for state funding

Context

Election Finance in India

Issues

• Corporate donations constitute the main source of election funding in India which constitutes mainly of black money, business and corporate donations to political parties. The public disclosure system that exists is limited
• In 2008, using the provisions of the Right to Information (RTI) Act, the Central Information Commission allowed disclosure of income tax returns of political parties, though it is an open secret that actual expenditure is much, much higher than what is disclosed.

Global best practices

• Partial or full public funding: India’s privately funded election campaign stands in contrast to the trend in most countries, which have partial or full public funding or transparent regulation and financial accountability of political finance as in the U.S

Contentious features of electoral bond scheme

• It will not carry the name of the payee: The most significant aspect of the electoral bonds scheme is that it will not carry the name of the payee as there is reluctance to donate to parties through bank instruments citing loss of anonymity
  • Benefit: Bonds will allow corporate houses to make anonymous donations through banking channels to the party of their choice
  • Disadvantages: This would lead to further opacity in the funding process and further limit oversight and accountability
• Corporate funding not addressed: Far from reducing the large-scale corporate funding of elections, the introduction of electoral bonds does not even address this issue. The bonds scheme imposes no restrictions on the quantum of corporate donations. Consequently, electoral bonds cannot address the problems that arise from the corporate control over politics and corporate capture of government policies and decisions. Rather, electoral bonds will result in unlimited and undeclared funds going to certain political parties which will be shielded from public scrutiny as the balance sheets will not show which party has been the beneficiary
• From 20,000 to 2000: The decision to reduce cash contributions from Rs 20,000 to Rs 2,000is a step in the right direction, but the net effect is debatable, since it could prompt parties to take smaller cash donations, and therefore not declare their source. This would not decrease the drift towards non-transparent funding

Hence, far from making the funding process transparent, the bond scheme could provide a backdoor to corporates and other lobbies for shaping public policy to benefit their interests

Three Steps back

Electoral bonds must be seen in conjunction with:

• Lifting of the maximum limit of 7.5% on the proportion of the profits a company can donate to a political party, thus opening up the possibility of shell companies being set up specifically to fund parties
• Amendment of the Foreign Contribution (Regulation) Act (FCRA) opening the floodgates of foreign funding to political parties, especially those which have a foreign support base
• The refusal of political parties to come under the RTI Act in order to conceal their sources of funding

These three things will end up strengthening the business-politics nexus

Negative amendments

Proposed amendments to the Income Tax Act and the Reserve Bank of India (RBI) Act will exempt parties from keeping records of donations made through bonds

ADR Report

ADR reported that nearly 70% of party funding over an 11-year period came from unknown sources; nearly Rs 7,900 Crore donations came from unknown sources in 2015-2016. Electoral bonds will not change this. In fact, political parties don’t need to reveal the donor’s name for a contribution above Rs 20,000 provided these are in the form of electoral bonds

Why high cost of elections is not good for democracy?

A major concern associated with the high cost of elections is that it prevents political parties and candidates with modest financial resources from being competitive in elections

Measures that could be taken

Such measures include strong disclosure norms, strict statutory limits on election expenses and ceiling on corporate donations to political parties

Further solutions

State funding of elections (in various forms) is a potential solution to this problem

• The Indrajit Gupta Committee on State Funding of Elections had endorsed partial state funding of recognised political parties and their candidates in elections way back in 1998, but the lack of political will has prevented any serious discussion on this
  • The mechanics of this process need to be carefully worked out to establish the allocation of money to national parties, State parties and independent candidates, and to check candidate’s own expenditure over and above that which is provided by the state

Conclusion

Based on the experience of countries that have total or partial state funding of elections, it will not be difficult to work out a formula that is both efficient and equitable to ensure that democracy works for everyone and not just for the wealthy few