Election Funding in India
India has a population of more than a billion, with vast development needs. As one of the world’s biggest democracies, the responsibility of political parties and the need for reliable and honest leaders is indispensable. The elected political leaders in India play a big role in framing economic and welfare policies, besides maintaining an atmosphere in which democratic values are respected.
Political parties run expensive election campaigns to come to power. In India, financing of elections is not transparent. The financing of elections is done by the corporates and businessmen who need to protect their interests. The nexus between politicians, political parties and businessmen has blemished the image of the Indian polity.
Initially, political parties in India financed themselves through private donations and membership dues. Corporate contributions to political parties were legal, subject to certain restrictions and had to be declared in the company’s accounts. In 1951, the Representation of People Act introduced limits on the amount that could be spent on election campaigns. Since the 1950s and well into the 1970s, India had a high taxation regime and highly regulatory and protectionist policy framework. In these circumstances, black money was generated which financed the elections. The reports of the Santhanam Committee on Prevention of Corruption (1964) and the Wanchoo Direct Taxes Enquiry Committee (1971) both highlight the problem of black money entering the system.
In 1968, corporate donations to political parties was banned to prevent large business groups from exercising undue influence on politics. This ban was not accompanied by any form of state funding or any other form of funding. The cost of election campaigning being what it is in India, a vast country needing all kind of vehicles to transport the candidates in reaching
the voters as well as the variety of other election paraphernalia, politicians and political parties increasingly started relying on black money for election campaigns. The Supreme Court in the Kanwar Lal Gupta and Amar Nath Chawla (1974) case held that a political party’s expenses towards a candidate, would be included in his or her total election expenditure. However, the Parliament amended the Representation of People Act in 1975 to nullify the Supreme Court’s judgement. The amendment clearly stated that party and supporter expenditures not authorised by the candidate did not court toward the calculation of a candidate’s election expenses.
In 1979, political parties were granted exemption on wealth and income taxes, provided they filed annual returns including audited accounts, listed donations of Rs 10,000 and above. They were also exempted from revealing the identity of donors.
In 1985, the Companies Act was amended which once again allowed corporate donations to political parties. This donation could not be more than five per cent (later raised to 7.5 per cent) of the total net profits of the company and was to be audited by the company’s board of directors.
In 1990, the Dinesh Goswami Committee on electoral reforms was set up. The committee in its report recommended some state funding for basic campaign expenses along with banning corporate donations completely. These recommendations were shelved; they did not provide for an adequate substitute in the form of public funding.
The Supreme Court in the Common Cause (1996) judgement ordered political parties to file income tax returns. The Supreme Court interpreted explanation 1 of Section 77 of the Representation of People Act, to mean that the election expenditures of a political party would not be included in that of a candidate for the purpose of determining compliance with the expenditure ceiling, only so long as the party had submitted audited accounts of its income and expenditures.
An important development in campaign financing occurred in 1998. The government provided a partial state subsidy in the form of allocation of free
time for seven national and 34 state parties on the state-owned television and radio networks.
The Indrajit Gupta Committee (1998) recommended partial state funding, mainly in kind. The committee also recommended that parties that failed to maintain and submit audited accounts and income tax returns should be denied state funding.
In 2003, the declaration of criminal records on candidates was made mandatory and, most importantly, the Election and other related Election Laws Amendment Act was passed which made personal and corporate donations fully tax free and mandated political parties to disclose their donations above Rs 20,000 (that is, increased the amount that could be anonymously donated from Rs 10,000).
Reforms Proposed in Budget 2017
In a move aimed at promoting transparency in political funding, the finance minister Arun Jaitley in his Budget speech of 2017 announced capping of cash donation from a single source to political parties at Rs 2,000. The move was in response to the Election Commission asking the government to bring down this limit of anonymous donation.
The minister also said that the Companies Act will be amended to remove the ceiling on corporate funding to political parties and also to allow companies to keep the name of the beneficiary political party confidential. (Till now, corporate entities could contribute only 7.5 per cent of average net profit in the past three financial years, and the names of beneficiary political parties had to be disclosed in companies’ profit and loss statements.)The amount of donation will, however, have to be mentioned in the company’s accounts. Further, the donations will be allowed only after a resolution is passed by the board of directors of a company. In developed countries, anonymous corporate donations are common practice.The expenditure incurred, directly or indirectly, by a company in publication, a souvenir, journal, or a pamphlet on behalf of a political party would be taken as a monetary contribution to the party.
Flouting the Companies Act provisions attracts a fine of not less than five times the amount contributed and every officer in default is liable to up to six months’ imprisonment and a fine of five times of the amount contributed.
Through the Finance Bill, the government also announced a proposed amendment of the Reserve Bank of India Act, 1934 to enable the issuance of time-limited electoral bonds. A donor could purchase bonds from authorised banks against cheque and digital payments only andgive it to a registered political party of his/her choice.These bonds will be redeemable only in the designated account of the registered political party. Donor identity is thus kept anonymous. Revealing donor identity could lead to ‘adverse consequences’, as the finance minister indicated in his speech.
An amendment to Section 13A of the Income Tax Act has been proposed in the Finance Act, 2017, which exempts political parties from keeping records for donations made through electoral bonds. This particular section in the IT Act states that political parties have to maintain records such as the name and address of the persons who have made contributions above Rs 10,000. Now, this clause is being amended to exempt electoral bonds from falling under that category.
Critical Comments To an extent the reforms in making electoral funding more transparent are welcome.
[Read complete article in the book, Spectrum’s Indian Polity]