The Supreme Court judgment declaring the Electoral Bonds Scheme, 2018 unconstitutional is an opportunity to focus our attention on money power in politics. Understandably, most of the discussion on the judgment is centred around which party received how much money in the form of electoral bonds. We need to dig deeper and understand the role of money power in Indian politics and the consequences. Only then we will be able to build public opinion in favour of the political reforms needed to improve our democracy.
In a healthy democracy the money is needed for legitimate political activity. But in a flawed democracy vast amounts of unaccounted money is also required to fund illegitimate activities including vote buying. When voters cannot clearly perceive the link between their vote and the consequences that impact their lives, and when taxes are largely delinked from the services they receive, democracy is reduced to voting and protest. In a poor country with centralised governance and ineffective delivery of basic services, voters will have to be enticed to vote through distribution of money and gifts. Such distribution does not guarantee the vote, but it makes the candidate and the party a credible contender for power in the eyes of the voters, effectively limiting the contest to the candidates of major parties that distribute money. In large pockets of India such illegitimate, unaccounted expenditure has now reached extraordinary proportions. In States like Andhra Pradesh, Telangna, Karnataka and Tamil Nadu, an expenditure of Rs 25-30 crores by the leading candidates in an Assembly Constituency is now very common. For the Lok Sabha Constituency, such expenditure is of the order of Rs 100 crore per candidate. This illegitimate, unaccounted expenditure is about ten times the legitimate, accounted expenditure in elections. The discussion centered round the electoral bonds and accounted party funds does not cover the real, concealed cost of politics distorting the political economy and governance. Electoral bonds and other means of accounted party funds constitute only the tip of the iceberg.
There are two kinds of legitimate expenditure incurred by the political parties, candidates, or local party leaders and organisation. The first is the obvious expenditure needed to run the party organisation. Parties need money for myriad political activities that are the staple of democratic politics. All this is legitimate and accounted expenditure. The second big expenditure of parties relates to legitimate election campaigns. As explained above, the legitimate campaign expenditure in India is only a small fraction of the actual spend.
We must recognise that both these expenditures to run the party organisation and conduct election campaigns are legitimate. In every democratic society parties incur such expenditure. In mature democracies, usually membership dues cover the costs of running the organisation. In some countries like the UK and Germany parties receive a government grant in proportion to the votes they received. Such public funding is enough for running the party organisation, and money is raised by donations for election campaigns. In the US, only for presidential elections there is public funding available to major candidates for running their campaigns. But that funding is subject to two conditions: the candidates should raise most money in small contributions, and they should limit the expenditure below a threshold prescribed. In recent campaigns many presidential candidates are not seeking public funds because their campaign expenditure is exceeding the limits prescribed.
There is a history behind India's Electoral Bonds Scheme. In 2001, Major politicians were caught on tape receiving cash contributions for political activity. The resulting controversy led to resignation of Bangaru Lakshman, the then BJP President. George Fernandes, the Defence Minister, also was forced to resign, and only after a judicial commission (Justice Phukan) cleared his name was he reinducted into the Cabinet. FDR and Lok Satta movement utilised the opportunity to advocate legitimate funding mechanisms to political parties. I persuaded all major leaders in government and opposition to create a system of tax-exemption to individuals (no limit) and corporates (5% of net average profit over three years) on donations to political parties
Anticipating the growing role of electronic campaigning, we also advocated free air time in all electronic media - public and private - for political parties during election time. All parties embraced the idea and Arun Jaitley, the then Law Minister, successfully piloted the Election and other Related Laws Amendment Act, 2003, and Parliament enacted it unanimously. BJP insisted on contributions by cheque, but soon realised that despite full tax exemption, donors were not willing to fund by cheque for fear of harassment and retribution by rival parties. Mr Jaitley himself explained to me their predicament on more than one occasion. It is this experience that seems to have guided Mr Jaitley in introducing the electoral bonds in 2018, this time as Finance Minister. The objective seems to be to raise accounted money for legitimate purposes, but protect the anonymity of the donors so that they are not victimised by rival parties. The scheme is obviously imperfect, and it gives opportunity for rent seeking and coercion. Once the matter went before the judiciary, the Supreme Court has no other recourse except to direct complete disclosure and transparency.
However, it may merely be a pyrrhic victory. The contributions may only go underground, with cash dominating again even for legitimate political activities. Between 2004 and 2012, over eight years, only 8.9% of the total funds of parties were from known sources! Over 90% of the accounted party funds were from unknown sources! There should obviously be transparency in political funding. But if 90% of even the legitimate expenditure is met through cash contributions, that will not improve our democracy. We need to work hard and long to transform our political economy. Only when economic fortunes of individuals and corporates are insulated from political vagaries will donors contribute openly for political activity. Corporates in mature democracies openly express their political preferences and donate to parties and candidates without fear of retribution. We need such a climate of rule of law.
The author is the founder of Lok Satta movement and Foundation for Democratic Reforms. Email:drjploksatta@gmail.com / Twitter@jp_loksatta
