State Funding of Elections

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State Funding of Elections

Financing election campaigns

  • Indian elections are the world’s biggest exercise in democracy but also among the most expensive. India’s campaign spend is only rivalled by the American presidential race, the world’s most expensive election.
  • Political parties and candidates need large sums of money for voter mobilisation, advertising, consulting, transport, propaganda and printing of campaign materials to reach voters in constituencies.
    • Electoral outcome: Increase in availability of funds could help the candidate get better access to voters and have a positive effect on the electoral outcome. In other words, there is an incentive for candidates to collect higher level of funding.
      • This behaviour could have negative implications for good governance.
      • It might shut out good candidates who are unable to raise sufficient funds.
    • Private funding: Sometimes funding from private sources could come with implicit strings attached; this could result in the elected politicians taking decisions that benefit special interests rather than the public interest.
    • Party in power: Politicians in power may misuse state resources and exert administrative pressure on potential sponsors to receive money. In order to restrict these adverse possibilities, most democracies regulate the manner in which election campaigns are financed.
    • Public disclosure system: The public disclosure system that exists is limited.
      • Only 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.

2019 General Elections

  • In just 28 days since the announcement of the general election, the Election Commission (EC) seized cash, drugs, alcohol, precious metals and other items worth Rs 1,800 crore.
  • Compare this to the legal upper limit of expenditure per candidate — Rs 70 lakh.
    • Simple arithmetic would show that the seized amount can fully finance up to five candidates from each of the 543 constituencies.
    • The amount seized is just the tip of the iceberg. The expenditure in any election is estimated to be several times the legal upper limit.

Corporate donations

  • Corporate donations constitute the main source of election funding in India which is awash with black money, with business and corporate donations to political parties commonly taking this form.
  • 1962 bill: In 1962, the late Atal Bihari Vajpayee moved a Private Member’s Bill to prevent electoral donations by corporates.
    • It was argued that since all shareholders need not subscribe to the political endorsement by a corporate, it was immoral to allow donations against their consent.
    • Vajpayee had propositioned that such funding would only serve corporate interests.
    • While all political parties welcomed the bill, the then ruling party did not vote in its favour. Never again was such a bill introduced.
  • Section 29B of the RPA 1951: Under Section 29B of the Representation of the People Act 1951, political parties are free to accept donations from any person, except from a foreign source.
    • Two inferences can be drawn from this —
      • first, money wields the ability to disrupt political agenda;
      • second, foreign money dilutes electoral integrity.
    • Both reasons would equally be valid for any person who is alien to the election process — a non-voter.
    • The concerns that arise from foreign-funding are equally applicable to funding from corporates, with the distinction that while the former is a jurisdictional alien; the latter, on account of being a non-participant, is an alien. However, party interests deter further expansion in the law.

Defending political donations

  • Corporates have long defended their political donations on the grounds of freedom of speech. Within American jurisprudence, corporates claim free speech under the First Amendment.
    • Like citizens, they seek to endorse their economic and political views through contributions to campaign finance. However, casting such a wide net of freedom of speech seems misplaced.
  • Corporates are associations that further economic interests of their members who enjoy a freedom of trade. Therefore, their freedom of speech is based on their exercise of the freedom of trade, which is essentially for a commercial purpose.
    • Citizens, on the other hand, enjoy an unfettered freedom of speech which extends onto the political domain.
    • Since corporates are not participants as voters, they have no claim to freedom of “political” speech and expression. Therefore, while citizen-voters can donate to a political party pursuant to free speech, corporates must refrain from donating to a political party.
  • Further, corruption in election finance and the flawed party funding system drive political parties to misuse government’s discretionary powers to raise funds for election campaigns. The combined effect is the absence of a level playing field which has reduced the effectiveness of our democracy.

Electoral bond scheme

  • The finance ministry’s electoral bond scheme afforded a way to fund political parties without disclosing the donor’s identity.
    • Of the Rs 2,722 crore donated through the scheme in the last 15 months, almost 95 per cent has gone to the ruling party, which enjoys a 31.34 per cent vote share.
    • The remaining contestants with a 68.66 per cent vote share could only garner 5 per cent funding.
    • The anonymity provision under the scheme is antagonistic to transparency — the bonds merely enable an “on-the-books” secretive transfer.
    • The State Bank as the facilitator would be privy to the details of the depositor and the political party funded, therefore allowing the ruling party to monitor its rivals. What would be unknown to others will be known by the ruling party.

Best practices elsewhere

  • 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.
  • In 2015, the Brazilian Supreme Court declared corporate financing of elections to be unconstitutional.
    • The court understood that right to equality was essential to ensuring fairness through the extrinsic (fair options between candidates) and intrinsic (fair options between ideologies) conceptions.
    • Because 95 per cent of all campaign finance came from corporates, the courts felt that disclosure norms could only address the extrinsic aspect.
    • Corporates would still be able to collectively suppress certain socio-economic ideologies (welfare measures, controlled economy, wage-labour regulations) to their advantage, by inducing political parties and candidates.
    • So, the electoral contest would not allow certain policies to flourish, irrespective of who won. Outlawing corporate funding was important to ensure the right to equality.

State funding: A viable alternative

  • State funding of elections (in various forms) is a potential solution to this problem.
  • Indrajit Gupta Committee on State Funding of Elections: The Committee 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.
    • In realpolitik terms, there is no incentive for any ruling political party to reform the law as it stands.
    • Even the main Opposition party lives in the hope that it would derive similar advantage when it comes to power.
    • Thus, necessity would dictate that the task of electoral funding be given to the EC under Article 324.
  • A fair and transparent manner to finance the political parties would require a censure of unaccounted money and direct donations by corporates and non-voters to political parties.
  • A state funding scheme would be viable through the levy of an election cess on the direct taxes.
  • National Election Fund:
    • A National Election Fund could be maintained by the EC, into which the proceeds from this cess may be deposited.
    • At the current GDP-Direct Tax ratio and voter numbers, a 1 per cent election cess can fund Rs 500 for each vote cast in elections to the Lok Sabha and the state assemblies.
    • The cess being progressive would spare the poorer candidates from the costs of funding elections.
    • Direct donations to political parties may be permitted only from persons who are entitled to vote. Those not entitled to vote may contribute to the neutral National Election Fund.
    • Donations from corporates into this fund will not distort the election process, but would instead improve the integrity of the peoples’ electoral choice.
    • Parties would be inclined to adopt a more inclusive agenda when in government since more votes will translate into more state funding.
    • Parties will also vie for votes in absolute numbers than merely be the first past the post. Democracy will then truly be of the people, for the people and by the people.

Way forward

  • The mechanics of State funding of elections needs 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.
  • 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.

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