A level-playing field: democratising poll finance

electoral financing

With the general elections already announced, it is crucial to highlight an aspect of finance that is not frequently given the spotlight it rightly deserves. Yes, I’m talking about electoral finance. And looking at how it has been structured currently, there is a need to ensure its transparency for the larger good of a billion Indians.

The election process over the years has come to be defined by certain variables. These variables play a crucial rule in order to make the algorithm of elections move as peacefully in the largest existing democracy in the world, as it does, despite the web of controversies it is entangled in.

These variables are more of parameters as they keep changing their modus operandi. But, the nature of their acts remain the same. These parameters are money, muscle power and effective advertising to the correct vote banks a party wants to target.

The interplay amongst these parameters along with the socio-economic environment make elections a process that involve complex political, mobilisational and logistical support that remain unparalleled by any existing democratic regimes of the globe.

Under existing laws, the candidates and the political parties are free to spend as much as they like with impunity. Instances are not wanting where several lakhs, if not crores, of rupees have been spent on electioneering campaigns and yet nil election expense returns have been filed on behalf of such candidates.

The Election Commission had estimated that the 16th Lok Sabha elections of 2014 would entail an expenditure of Rs 3,500 crore to the exchequer. The expenditure made by the state governments are reviewed by the Union Law Ministry and then reimbursed. Since the governments’ major sources of income are revenue receipts from the public in the form of taxes, it can be understood that the electioneering campaigns of various political parties are in-part sponsored by the revenue received by the government and in-part by corporate financiers and individuals.

Due to the murky nature of election finance, the high cost involved in elections has been cited as the largest source of corruption. Given the regulatory intensity of the state with respect to land, builders have an incentive to pay for elections on behalf of politicians through unreported transactions in exchange for regulatory and policy favours. This is also the reason why the construction sector faces a short-term liquidity crunch around the time of elections.

Over the years, political finance has become more opaque and digital. The introduction of electoral bonds was perhaps the only incremental policy measure of the current administration in terms of electoral reforms. While this policy provision makes some headway by partially eliminating illicit finance in the political setup as it ensures all transactions are routed through the banking system, it seems to be a half-hearted attempt as the identity of the donor is still concealed.

Furthermore, this system puts forth no such obligation for the corporations to disclose their purchases of the electoral bonds in their annual accounts nor does it put forth a clause that the parties are required to report the deposits that they may receive through this political financial instrument.

Not only does this system maintain the opaqueness of the political funding process but it also veils it from any financial scrutiny and thereby creating an unchecked funding process of the political parties. Another caveat that tilts the scales towards the ruling party is that only the ruling administration can access the information about which entity or individual has donated to which party.

Also, the amendment to the Foreign Contribution (Regulation) Act has made foreign contributions to political parties iron-clad. These policy measures, in addition to removing any limit on the extent to which a corporate entity, both domestic and foreign, can contribute funds towards a political party, make a lethal combination. Rather, this further reduces the transparency of electoral finance.

As of FY18, 53% of the total declared income of national parties and 22% of the total declared income of regional parties came from unknown sources. As the percentage of funding from unknown sources is of statistically significant and of a high value, we need to device mechanisms that not only help us to trace the financing of the political parties and the electoral process but also ensure that is sustainable in the long-run.

Illicit finance

This will help us tackle the problems of illicit finance and corruption. Another key insight we all should be focusing on is that how the political discourse and its policy making can be influenced in favour certain select entities and foreign influence given how election finance laws have been structured. Therefore, it is crucial have policies that allow Indians to know the source of political financing.

In order to bridge this policy lacuna, we need to ensure that these political contributions through bearer bonds are not anonymous. Thereby, there is a need for an advocacy for Reformed Electoral Bonds as I would like to call them. These would be electoral bonds without the secrecy clause, and thereby truly transparent.

In addition to this, a healthy mix of Reformed Electoral Bonds and state funding of elections will help in ensuring elections’ finances are accounted for and are in compliance with the Institute of Chartered Accountants of India guidelines for auditing of reports.

This model would aid in reaching an efficient political finance equilibrium that incurs a marginally less deadweight loss. Consequently, it will also give rise to a breed of political leaders whose nomination wouldn’t be based on their financial status but that on their leadership skills and technical specialisations.

The multiplier effect of this model, if adopted, can help India tap into its unutilised demographic dividend. Therefore, I feel that this model will create a level playing field
even for those in the rural areas — the basis on which the 2019 elections will be fought.

(The writer is an investment banking professional)

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A level-playing field: democratising poll finance

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