It is, almost axiomatically, assumed that India?s corruption is linked to the high costs involved in conducting elections. If the cost is around Rs 8,000 crore a year, this money has to be recovered from somewhere, and what better place than to take it from industrial projects?
We examine the issue, as always in a simple Q&A format, and point out that state funding of elections will answer part of the problem, but only after a series of other reforms are also carried out.
Will state-funding of elections help reduce corruption?
Depends on what one means by state-funding and what one means by corruption. There are different dimensions of corruption, but a large part is linked to political funding. Most studies on corruption, like Transparency International surveys, are on the delivery of public services. Those are small-ticket corruption items and are linked to shortages, licensing and non-transparency. Large-ticket corruption results from discretion in land, real estate, building and awarding of government licences and contracts. This is used to finance elections. The average constituency size in the UK, which is where we borrowed our democracy model from, is 65,000 in England and Wales and much lower in Scotland. Large constituencies in India have more than 2.5 million voters.
How much do elections cost?
We aren?t talking about how much it costs the Election Commission to run elections. Nor are we talking about what candidates officially report to the Election Commission as expenditure. Most election expenditure is undeclared and unreported. Any State funding can only be about declared and legitimate expenditure. Consequently, unless there are broader electoral reforms, we won?t solve the problem of making illegitimate expenditure legitimate. For instance, there is lack of inner party democracy. Accounts of political parties aren?t audited. Parties don?t collect money through membership. There are unrealistic caps on how much expenditure is permitted.
In a Lok Sabha election, a candidate pays more for buying a seat from a party than in direct cash payments to voters or for buying them liquor. In the 2009 Lok Sabha elections, we probably spent Rs 20,000 crore; 20% was public expenditure; 20% was legitimate expenditure by political parties and candidates; 60%, if not more, was unaccounted expenditure. This is Rs 4,000 crore a year and we can double this to Rs 8,000 crores a year to take care of the Rajya Sabha and the assemblies.
To what extent does that explain the Raja scam of Rs 1,76,000 crore?
The Rs 1,76,000 crores is what we might have got, assuming the CAG figures are correct, had 2G licences been auctioned properly. It would have flowed into the public exchequer. We have no handle on how much has flowed into the private exchequer. Very few are in politics for altruistic reasons. If money has been spent, and not all expenditure is successful, one expects a reasonable rate of return. Rs 8,000 crores a year has to be financed. For example, ULCRA existed to finance election expenditure. So, we are building in a cut of 10% on all government procurement and licensing decisions and one shouldn?t forget defence procurement. That?s the reason there is reluctance to sign WTO?s plurilateral government procurement code.
Is there a link with Dev Kar?s GFI report, which says $19 billion of black money flowed out of India per year between 2004-08?
Yes, but not in the obvious way. The Global Financial Integrity numbers are one thing, the hypotheses another. The proposition that corruption has increased between 2004 and 2008 (the last year cited in the report) is plausible. So is the argument that much of this capital flight has been from the illegal economy. However, the division between illegal and legal economies isn?t watertight. One flows into the other. Elections are one event where black becomes white. The GFI report doesn?t directly address the issue of how black money was transmitted abroad. Had it been done illegally, this should have been reflected in the hawala rates. However, post-1991, there is little difference between hawala exchange rates and official exchange rates. GFI implicitly suggests that there are now legitimate channels and opportunities for sending money abroad. But there are also legitimate channels for this money to return to India, including through Mauritius and Singapore, and this net effect does not seem to have been considered. Sure, $19 billion may have flowed out per year between 2004 and 2008. But given the returns in India, I am not sure that it has stayed there.
What about corruption in the form of payments for transfers and postings?
Of course this exists but it is small-ticket. After all, the political process goes all the way down to local levels. Corruption also exists for running businesses and this isn?t pro-poor, because the poor get hurt more. The system isn?t distributionally neutral and this has been documented in the work of Manushi on cycle-rickshaws and vendors. But let?s not complicate matters unnecessarily, though there is a general corruption and misgovernance problem and, more importantly, a tolerance for corruption.
There is no point to State funding of elections?
Not until the electoral system is reformed. Not until political parties have inner party democracy and audited accounts. Not until there is conviction that we should do something about corruption. Until then, State funding will have limited utility. What it might do is reduce the number of smaller parties and independents, since only recognised national and State-level parties will be eligible for State-funding. Will this be a good thing for Indian democracy? Probably yes.
Will that lower the cost of elections?
It should. But there are complicated issues. The Westminster model with first-past-the-post systems isn?t working. What kind of democracy do we have if a candidate wins with 25% of the votes cast? There is, accordingly, no correlation between vote shares and the number of seats. If we have State-funding, will that be based on the number of seats or vote shares? We probably ought to have a system whereby a minimum vote share (50% of electorate, if not of votes cast) is required for elections. Reservation complicates matters. But that apart, can we divide the Lok Sabha seats into two categories? For the first half, we have elections according to the present system, with that minimum threshold required. For the second half, we vote for the political party rather than the candidate. That is, each political party announces a list of 270 candidates across all seats. There are assorted models that are possible. The simple point is that we should incorporate some elements of proportional representation, reduce the number of parties and independents and address electoral reform. In the absence of this, State-funding is a non-issue.