Business houses such as the Tatas and the Aditya Birla group have recently evolved neutral mechanisms for funding political parties. Group companies donate sums to a corpus which is then distributed to political parties based on their performance in the elections. While this methodology does not a priori favour any particular party or ideology, it results in a higher contribution to the party which did better in the electionsthus favouring the winner. After the last general elections, in 2004-05, the Tatas donated Rs 4.33 crore to the Congress and Rs 2.67 crore to the BJP. The Birla contribution was Rs 11.21 crore and Rs 2.81 crore.
Financing of parties and candidates is a complex issue. Election campaigns are expensive indeed. Availability of higher amounts help candidates get better access to voters, and may improve the probability of their winning the election.
But, the pressure to collect funds could have negative implication for governance. First, at election time, lack of finances could shut out some good candidates. Second, once elected, officials are expected to work in the public interest. However, election funding could come with implicit strings attached, and elected politicians may take decisions that benefit some special interests. Third, the party in government may also abuse state resources, and exert administrative pressure on potential sponsors. A different concern arises from the increasing costs of financing campaigns. Parties that have significantly higher amounts of money can but more media time and space, and dominate the political discourse. Money power could undermine the basic concept of a democracy as a marketplace for competing ideas and ideologies.
In order to mitigate the risk of these negative outcomes, most democracies regulate campaign finance. These regulations may work through spending limits, rules on raising finances, state funding and subsidies. In some cases time limits are imposed for campaigning and candidates are required to disclose details about both fund raising and expenses.
Countries such as the US do not have any spending limits. Instead, they regulate how much any single person may contribute to a candidate. Companies, banks and foreigners are prohibited from making direct contributions. Detailed disclosures are required of parties and candidates. On the other hand, the UK does not impose any caps on contributions but has limits on spending by political parties. In India election finance is regulated mainly through the Representation of the People Act, 1951 and the Conduct of Election Rules, 1961. Some provisions of the Indian Penal Code, the Companies Act and the Foreign Contribution Regulations Act also apply.
A Lok Sabha candidate may spend up to Rs 25 lakh, and an MLA candidate Rs 10 lakh. There is no limit for propagating a partys programme. Individual contributions may be unlimited. Companies may contribute a total amount up to 5% of the average profit in the previous three years. Foreigners are prohibited from contributing.
Candidates are required to file their expense statement with the district election officer within 30 days of the election. They also have to file an affidavit disclosing their assets and liabilities. Political parties have to file a statement with the income tax authorities detailing all contributions above Rs 20,000.
These laws are rarely observed. An average Lok Sabha constituency has a population of about 2 million people, and an expense limit of Rs 2.5 million is clearly insufficient to effectively reach the constituents. Many candidates spend a higher amount. As they cannot disclose such spending, they have to raise unaccounted money to finance the campaign. The need for unaccounted money works as an incentive for corrupt behaviour. Reform of election finances in an important step towards cleaning the polity. It is important to have a public discourse on this topic such that a suitable regulatory framework is developed.
The author heads research at PRS Legislative Research, New Delhi