Election finance reform has once again bobbed up to the surface of public consciousness with debates on black money and the Budget proposal to cap anonymous cash donations to political parties.
In their 2012 Election Law Journal paper, “Reforming India’s party financing and election expenditure laws”, M.V. Rajeev Gowda and E. Sridharan present a review of party and election financing in India and suggestions for reform. The results are based on anecdotal rather than empirical evidence and are, therefore, “tentative”.
Mr. Gowda and Mr. Sridharan argue that corruption in India has thrived despite some legal and civic will to fight it. They argue that the post-Independence Licence Raj combined with a ban on corporate donations — instituted to prevent corporations from exerting a disproportionate influence on the elections — meant that there were those seeking regulatory favours from the government and a paucity of electoral funds. A good match, to say the least.
By the time corporate donations were legalised in 1985, it was too late. The system had grown used to black money and there were neither tax incentives nor privacy laws to aid corporate donations. While there was some improvement in transparency in the first decade of this century, the system continued to incentivise evasiveness and false declarations. For instance, a 2003 law that capped expenditure by candidates but allowed parties and independent supporters to spend on their behalf meant that candidates were under-reporting expenditure. The Congress and the Bharatiya Janata Party, the authors say, were spending four to six times the ceiling.
The implications of the current regulatory environment include a dependence on black money due to a lack of public funding, low financial accountability caused by a lack of transparency and democracy within parties, and the transaction costs of numerous small donations relative to a few large ones.
The authors argue that confidentiality of contributions, rather than tax deductions, will help corporations make donations without fear of political reprisal. Raising the ceiling of corporate donations too would help transparent funding. However, to altogether shift away from donations by large corporations or a wealthy few, the authors suggest nudging the system towards many smaller contributions as has been done successfully in a number of countries, such as Canada, France, Germany and the Netherlands. Indirect subsidies and individual offsetting tax credits for political contributions have helped effect this shift. Additionally, parties could receive monies from a public fund in proportion to how much grassroots funding they receive. These policies come with their own risks but are possible steps in the right direction.
