Prabhat Singh
Any serious attempt at curbing the scourge of black money in India must involve reforming election financing, which has rightly been termed the >root of corruption . In the absence of state-funding of elections, most parties and candidates support electioneering through massive amounts of black money in cash, amassed through donations from corporates and rich donors. Post-elections, the winning candidates and parties unduly favour their donors.
In wake of demonetisation, the PM urged discussions on state-funding of elections. So far, parties have successfully resisted all such attempts. However, demonetisation has enfeebled them by hitting their black money finances hard. This presents the PM with the best chance to institute state-funding of elections, and thus carry out one of the most significant anti-corruption reforms in the history of independent India.
How bad is the problem?
Estimates say nearly $5billion was pumped into 2014 Lok Sabha elections, most of which was black money. Such gargantuan sums of money, coupled with the fact that there is visible involvement of some corporates in the campaign, gives an >appearance of corruption .
State-funding is a staple of election financing in countries with the fairest elections. In India, the void is filled by illicit corporate donations, resulting in quid pro quo post-elections.
A dysfunctional system of election financing is also major cause of criminalisation of Indian politics – in the absence of state support, funds must be managed from somewhere, and more muscle usually ensures more money.
An overview of the existing rot
Before one gets to ways of correcting the morass, it’s essential to have an overview of the system of election financing in India.
The system is two-tiered – based on parties and candidates. The parties are required to disclose income but not expenditure, while it’s the other way round for candidates.
The parties, whose main source of income comes from donations by individuals and corporations, use loopholes in the law to avoid disclosing identities of even the big individual donors. As regards corporate donations, despite the availability of tax breaks, most of it is done off-the-books mainly to avoid reprisals in case the opposing party wins. On the other hand, the candidates grossly underreport expenditure while actually spending far higher than the legal limits allow. Most of the illegal spending by candidates comes from the assistance given to them by their parties which carry greater financial heft, and have no ceiling on expenditure.
A new model
Before state-funding can be instituted to reduce the pernicious influence of black money on elections, two questions need to be answered:
1. How will finances be distributed amongst the various parties, and between a party and its candidates?
2. How will the Indian political parties, devoid of intra-party democracy, make judicious use of the money and select the right candidates?
Various committees in the past have tried dealing with the above questions, but have come up short. Usually the committees have recommended making vote share of previous elections the criteria for fund distribution. However, this would be grossly unfair to new parties as well as to the non-incumbents in case there’s an anti-incumbency wave. It might also induce complacency in parties with a high vote share. Other committees have remained non-committal about state funding due to lack of intra-party democracy.
Answering the questions
The answer to the two questions lies in the “matching funds” model that provides state funding based on collection of small-sum grassroots donations, which is being successfully implemented in New York, Netherlands, Germany, and several other geographies. Such a model would provide state funds to both candidates and parties based on the amount they collect from citizens, as long as contributions can be verified to be authentic. Those with greater public support, denoted by the greater funds they collect, will be entitled to more state funds. This will have to be done in steps so that funds from one round can be used to raise more in the next round. At the end of each round of fund-raising, expenditure >receipts for the total amount (donations+matching grant) would have to be furnished. If some money is unutilised, it would have to be returned, barring which the candidate would face severe penalties. This would minimise wastage of public money and encourage people to donate. The money for each candidate and party would have to be deposited in a separate account to allow Election Commission oversight.
To weed out fake/perfunctory candidates and parties, a floor (minimum limit) on the number of donors as well as the total amount raised, must be set. Similarly, a ceiling (maximum limit) on the amount of each donation would reduce the influence of rich donors. The exact parameters will have to be arrived at through wide-ranging consultations.
Matching grants would also ensure accountability of parties and candidates to their electorate throughout, because only that would make people part with their money when elections approach.
Without the need for legislation, giving matching funds to candidates would boost intra-party democracy by empowering those that have grassroots appeal. This would also help decriminalise politics. At the same time, matching funds to parties would ensure balance of power between them and their candidates. Higher funds can be allotted to parties that promote intraparty democracy and women candidates.
To ensure day-to-day activities of parties between elections can run smoothly without the need for black money, the ratio of matching grants can be higher for them than for the candidates. Calculations can be done based on existing estimates, keeping in mind that the ratio should not be so high as to allow excess funds to parties that could be rerouted to candidates, which would draw candidates away from grassroots donations. Alternatively or in addition, parties can be allowed to get matching grants for funds raised between elections too. If this happens, the ratio of matching grants for parties can be moderated. Funds given for non-electioneering purposes would have to be maintained in a separate account.
This model would help scale up what AAP employed to fund Delhi elections. In the absence of matching grants, it’s unlikely that grassroots donations alone will raise enough resources to compete on a multi-state/national scale. To scale up AAP’s model, matching grants are a must.
Since the tradition of fund-raising is nascent in India, awareness drives must be complemented by tax breaks and other incentives to encourage common citizens to donate. Given that grassroots donations might be limited initially, the ratio of matching grants would have to be higher than 1 (it’s 6 in NYC). This would ensure parties and candidates are sufficiently empowered to contest and also avoid the easier path of receiving illicit funds from corporates. The ratio can be reduced for donations above a threshold to prevent wastage of public money on already rich candidates. To encourage women candidates, the ratio of matching funds for them can be raised. By reducing governmental dependence on corporate money, state-funding would also incentivize deregulation of economy, since a regulated economy ensures corporates are beholden to the government.
Difficulties
This model, however, is not devoid of implementation >issues . Firstly, since each contribution must be verifiable, cash donations won’t qualify for matching grants unless accompanied by authentic receipts. This means that a lot of donors, who can’t donate through verifiable means (cheque/card etc.) are ruled out too. However, as things like universal financial inclusion, Aadhar and Unified Payments Interface (UPI) become reality, the EC and government should embark on massive awareness drives to encourage everyone to donate through verifiable means. Secondly, candidates might try to >reroute their black money through donations. However, given extant robust verification systems, this shouldn’t be a huge problem. Thirdly, verifying a large number of donations and making sure candidates and parties receive funds in time to smoothly run their campaign would raise administrative barriers, but in no way should be a deal-breaker.
Limiting expenditure
Acknowledging the fact that expenditure ceilings on candidates are almost always violated, they should be removed. Instead, in order to quell temptation to receive black money for electioneering, avenues for expenditure – ads, rallies – should be restricted, as they’re in countries like Germany, where elections are a rather staid affair. Restricting mega rallies by party leaders and ads with their faces plastered all over them would also help restore the accountability of candidates, and reduce the increasingly presidential nature of Indian elections. In addition, campaign cycle should be shortened.
Despite the difficulties, this model gives satisfactory answers to both the questions posed earlier, and given its feasibility, should overcome resistance from political parties.
