The Hindu : Debating election finance

Online edition of India's National Newspaper
Wednesday, Jul 17, 2002

Opinion

Opinion - Leader Page Articles

Debating election finance

By Pratap Bhanu Mehta

The repercussions of the existing ways of collecting campaign finance are felt across all areas of public life.

THE REFORM, regulation and overhaul of the means by which political parties and candidates finance elections is arguably the single most important institutional challenge facing Indian democracy. The imperative to raise money for elections, combined with unrealistic, unworkable and unenforceable existing laws on campaign finance produce profound distortions in the working of Indian democracy. The need to raise funds for elections is one of the primary motivations for collecting thousands of crores in illegal rents from the state. With politicians almost required to use their office to raise such funds the entirety of Government becomes one giant edifice to collect rents. At least some of the roots of corruption lie in the imperatives to raise finance in a context where the cost of elections is high, the legitimate rewards of office low, the chances of re-election uncertain, and the organizational effort required to mobilize voters massive. The repercussions of the existing ways of collecting campaign finance are felt across all areas of public life.

Most democracies attempt to regulate election finance in four ways. Democracies can limit political expenditures of parties, they can place limits on private donations and contributions, they can offer public funds for contesting elections, or they can introduce measures that bring about transparency in the process of generating funds. The idea behind the last measure is not so much to restrict fund raising activities, as it is to provide information to the voters on who is raising money from whom.

The Indian effort to regulate election finance has largely concentrated on limiting election expenditures. But this measure has proved to be self-defeating for a number of reasons. Given the complicated logistics of most constituencies a ceiling of Rs. 15 lakhs for parliamentary constituencies and Rs. 6 lakhs for Assembly constituencies is arguably unrealistically low. The state also, as the recent report of the National Commission to Review the Working of the Constitution reiterates, continues to try and micro manage campaigns by fixing the length of the campaign and so forth. Most of these measures are ineffective in regulating campaign finance.

The attempts to place limits on private donations, by for example allowing companies to contribute up to five per cent of their profit to political parties, have proved ineffective for a number of reasons. Most importantly, under the present legal dispensation both the donors and the parties have very little incentive to reveal the extent of their donations. Monitoring and enforcing limits on individual contributions is impossible in the absence of any kind of transparency. But the challenge for the Indian state is that the widespread opaqueness of our financial system across the board makes it difficult to monitor such financial flows. Arguably, we cannot get realistic campaign finance reform unless whole sectors of our economy such as real estate markets that generate "black money" and the system of taxation are reformed. But we are in a vicious circle where we will not get reform of the state in part because of the need to generate rents to finance elections, and an unreformed state will continue to be ineffective in regulating election money.

The third means of regulation, state financing of elections, has not been much tried in India. In almost all democracies except the U.S. and the U.K., the proportion of public financing of elections has been consistently rising in relation to private funding. The costs of public financing are not as high as might seem. Lok Satta, the only organisation that is doing imaginative work in this area, has circulated a proposal that evolves a complex formula for public supplement of private funding, that would cost less than Rs. 250 crores per election based on an assumption that the total ceiling for each constituency will be somewhere in the region of Rs. 50 lakhs. The good news is that as a percentage of GNP, the cost of elections is probably going down substantially and public funding, properly instituted, is not entirely unaffordable. Public funding can take not only the form of direct grants but also indirect subsidies such as free radio and television time. The challenge for public funding however is this. It appears from comparative experience that public funding, ironically, works better in systems that are already effective and transparent to some degree. For public funding formulas to be effective, certain conditions have to be met. First, public funding must encourage rather than supplant private funding, because if seen as a substitute for private funding it becomes prohibitively expensive. Second, public funding should be fair and transparent. It should not be a means for already existing party oligarchies, which usually derive their power from their ability to raise funds, to strengthen their hold on parties. In short, to be fair, public funding presumes that political parties are transparent, well run and considerably democratic in their internal workings. Most Indian political parties have no effective intra-party democracy, and, in the absence of serious reform in party structures, public funding is unlikely to yield good results. Third, one should not overestimate the degree to which public funding can be a panacea. Italy had one of the more robust systems of public financing of elections; yet private black money continued to flow in. Even in Germany, Helmut Kohl ended up resorting to illegal raising of funds.

The fourth prong of regulation, transparency, has been very weak in India as well. Although party accounts are supposed to be audited regularly, this has proved to be an ineffectual check on party finances. Much of the recent effort of bodies such as the Supreme Court and the Election Commission has been to try and strengthen the disclosure requirements for political parties and candidates. Declaration of a candidate's assets, regular scrutiny of party accounts that requires the disclosure of all donors who contribute more than Rs. 10,000, and the filing of party tax returns are all steps in the right direction. A tax return is hardly the most reliable register of the true well being of most Indians. Inducing transparency in election finance is dependent on the state being able to better regulate other non-electoral institutions that impinge upon election finance.

Any sensible strategy for regulating campaign finance will have to work on all these four dimensions simultaneously and bring them together in sustainable and imaginative ways. Although, in principle, political parties might benefit from cooperating in limiting campaign expenditure, the temptation to cooperate is not very great since the spoils of office seem to be far in excess of even expensive elections. As in most instances, the pressure to reform will have to, in theory, come from civil society. But again in practice, the public seems to have an interest in leaving the cost of running political parties to someone else, and hence there is no build-up towards reform. But the character of our governance depends upon taking this issue seriously and in initiating a concerted and meaningful debate in this area. Unless campaign finance reform becomes a top priority, corruption will remain, as Gibbon once ironically remarked, "the most infallible system of constitutional liberty".

(The writer is Professor of Philosophy and of Law and Governance, JNU.)

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