Prof. M. V.

Rajeev Gowda Indian Institute of Management Bangalore CPP International Public Policy Conference December 30, 2011

Political Party Funding Laws Election Expenditure Laws

1968: Corporate donations banned in 1968 (to counter Swatantra?) 1985: Corporate donations allowed again 2003: Corporate and individual donations made tax deductible
Corporations can donate up to 5% of last 3 years profit

Donor details not needed for donations below Rs. 20,000 Generally ineffective
Donors prefer anonymity

In 2008-09, the Congress received donations of Rs. 480 million ($10.7 million). Of these donations, only Rs. 280 million ($6.2 million) was in donations of Rs. 20,000 ($450) and above. The BJP, in the same year, received total donations of Rs. 1960 million ($44 million) Rs. 300 million ($6.7 million) of this was in amounts of Rs. 20,000 ($450) and above. BSP reports practically all its funds raised in donations of less than 20,000

Strict limits on how much a candidate can spend on an election (25 Lakhs for typical Lok Sabha constituency) Disqualification if exceeded Only one MLA ever disqualified Aggressive policing by Election Commission Daily accounting requirements Exceptions for Party Spending on Top Campaigners Some state subsidy: air time on TV and Radio

24 constituencies (4 urban and 19 rural or predominantly rural), 57 out of 122 candidates who polled up to 3.4 per cent of total votes spent in the range of Rs. 275,000 (then $6875). 15 candidates who polled 3.5 to 16.5 per cent votes spent an average of Rs. 3.5-6 million (then $87500-$150,000). 50 candidates who polled over 16.5 per cent votes, spent on an average Rs. 7.355 million (then $184,000). This figure includes candidate, party and independent supporter expenditures. Up to a level of expenditure there is also a clear relationship between election expenditure and votes secured. To be viable, candidates need to cross a minimum expenditure threshold Average winner spent Rs. 8.287 million (then $207,000) and the average runner up spent Rs. 6.809 million (then $170,000).

Vajpayee once testified to a parliamentary committee that every legislator starts his career with the lie of the false election return he files. ADR Report on 2009 election revealed that candidates, across party lines, declared expenses well below the election expenditure limit. Only four candidates declared expenses above the limit and 30 candidates declared expenses between 90-100% of the limit.

Demand for Black Money to Fund Elections Election Expenses Driven Underground Parties Preference for Candidates Who Can Finance Own Elections

Value of Assets No. of Candidates Very high (Rs. 322 50 million and above) High (Rs. 5-50 1485 million) Medium (Rs. 1-5 million) 1785

No. of Winners % of Winners 106 33%

283 116 15 520

19% 6% 0.44% 7.4%

Low (less than 3437 Rs. 1 million) Total 7029

Imperatives of Black Money Generation

Institutionalization of Corruption

Increase in Criminalization of Politics Buying of Votes with Cash Payments

The number of MPs with criminal charges pending against them has risen from 128 to 161 between the 2004 and 2009 election, a rise of 26%. The number of total pending criminal cases against them has risen from 429 to 512, a rise of 19% The number of MPs with serious criminal charges against them has risen from 55 to 75, a rise of 36%.

Clientelism in Projects Dynastic Politics Paid News and Corruption of/in Media

Those politicians considered to be front-runners for powerful positions attract more election funding. Among such politicians, political contributions (typically in the form of black money) flow more readily to those regarded as likely to become Chief Minister (at the state level) or Prime Minister, because they would then be able to exercise disproportionate power in affecting governmental outcomes. The funds that these politicians attract enable them to become more powerful than their competitors within their parties. They then allocate party nominations to their supporters at the expense of other activists in the party, and ultimately dominate a party. They trust only their family to manage their money

The real problem is the escalation in the floor of minimum expense necessary to stay in the electoral race. Thus, the attempt should be to infuse a substantial amount of white money across the political spectrum, including to the new players, with a very low threshold criterion. The terms of use should be such that it encourages percolation of money within party organizations, encourages democratic functioning and a culture of accountability and transparency in money matters.

After every Lok Sabha or assembly election, any party or independent candidate who secures more than 2% of the votes polled should be reimbursed @ Rs 100 per vote secured by them from a special public fund. Deposited in the bank account of the local, constituency level, unit of the party organization. Party allowed to use funds for any legitimate political activity, including elections, for a period of five years. The funds should be subject to rules of accounting, auditing and transparency that govern public funds.

In effect, it would mean that the assembly level unit of each of the major parties would have an assured sum of more than Rs 1 crore over a five-year period It would not do away with 'black' money but would encourage the parties to nominate an honest but resourceless political worker. This would cost about Rs 8,000 crore over a five-year period, assuming one cycle of Lok Sabha and assembly election each.