Podcast | Digging Deeper: All you need to know about election funding in India

This is Seetal and in this Money Control Deep Dive, we explore just how money, big money shapes the way elections are ideated and fought across party lines.

Visibility is everything before a big election

Perception building is a big part of any kind of advertising and in recent times, it has reached unprecedented proportions in politics. As India Today reported, according to the latest Broadcast Audience Research Council (BARC) data,   from November 10 to16, advertisements by the BJP have been aired 22,099 times on Television.

The source of the money spent on not just political advertising but on all sorts of outreach endeavours by political parties, remains a big question mark.

This bankrolling of political fortunes is though not a uniquely Indian phenomenon.

In July this year, in the run-up to the mid-term elections in the US, The Guardian ran an interesting piece with the headline that said it all, "American elections are a battle of billionaires. We are merely spectators." It went on to say and we quote, "

The rest of us, ordinary citizens without big bank accounts, will certainly play a role in the outcome this November. We cast the votes, after all. But more and more, US politics – along with civic life broadly – often feels like a spectator sport, as a growing array of billionaire super citizens battle it out in the public square." Unquote.

Closer home, Tiwari attributed the recent advertising frenzy to crony capitalism and further claimed that the electoral bonds scheme made political funding opaque and promoted ghost funding. And what are electoral bonds?  The Economic Times explained in a June article, and we quote, "Electoral bonds are being pitched as an alternative to cash donations made to political parties and bring transparency in political funding.  As per provisions of the scheme, electoral bonds may be purchased by a person, who is a citizen of India or entities incorporated or established in India." Unquote.

Transparent or opaque?

And what kind of transparency do these electoral bonds entail? Well, the electoral bonds scheme was billed as an effective tool for cleaning political funding but in March 2018, The Hindu Business Line reported that the scheme prevents the public from knowing who has contributed, how much, and to which party. And turns political funding opaque.

Political funding, reminds the piece,  flows from corporates as well as rich individuals with the ruling parties usually getting the lion’s share of these funds. We quote, "The donors, however, take care of the opposition parties too because they understand the risk of putting all their eggs in one basket. But the incongruity of political parties depending on corporate funds to fight elections and sustain democracy at times is troubling; therefore the Government looks for ways to regulate it.

Consequently, in 2003, the Representation of People Act 1951 was amended and sections 29B and 29C inserted. Section 29B says political parties may accept contributions of any amount from any person or company except a government company or foreign source. " Unquote.

The piece further informs that Section 29C requires every political party which receives such funding to prepare a report on contributions above ₹20,000 from individuals and companies and submit the same to the Election Commission before the income tax returns are filed. If any party fails to do this, it will not get tax exemption for that year under the Income Tax Act.

Similarly, we learn that section 13A of the Income Tax Act 1961 provides for exemption of all voluntary contributions received by a political party from payment of income tax. But such exemption is conditional on the recipient party maintaining such books of accounts and other documents as would enable the officers of the I-T department to properly deduce the income received by it and also maintaining a record of such contributions and the names and addresses of donors as well as amounts above Rs 20,000.

The piece goes on to inform however that a Finance Act in 2017 exempted electoral bonds from the purview of section 29 C of the RP Act 1951 as well as section 13 A of the IT Act 1961. This means the income received by way of electoral bonds is not required to be disclosed in the report which goes to the Election Commission. What's more, political parties are not required to maintain any record of the same or the names and addresses of donors of these bonds. We quote," The electoral bonds scheme has been designed in such a way as to keep the identity of the donor absolutely confidential. Para 7(4) of the notification says that the authorised bank will not disclose any information about the purchaser of the bonds to any authority for any purpose." Unquote.

Why, asks the article, was such secrecy required in the case of political funding by way of electoral bonds? Especially when the existing laws allowed any amount of contributions to political parties with tax exemption but also laid down certain conditions like maintaining records of the amounts received as well as the names of donors?

We quote, "A path-breaking legal provision introduced by the Centre last year is that any contribution above Rs 2,000 can only be made through cheques, drafts, etc. This provision should adequately take care of the problem of black money flowing into the coffers of political parties." Unquote. By introducing electoral bonds, opined the piece,  the government has veered from this position via a regressive measure that we repeat once again, prevents the public from knowing who has contributed how much and to which party.

So was this scheme intended, asks the piece and we quote, " to conceal from public scrutiny the identity of the corporates and moneybags who contribute huge amounts to political parties, especially to the ruling parties?"  Unquote.

From funding to spending 

While the funding of political parties remains a grey area, the spending is no less of a conundrum.

In August this year, reported Financial Express, all political parties barring the BJP supported the idea of capping election spending at a meeting of all recognised national and state parties called by the Election Commission.

We quote, "The BJP, the richest political party in the country, was the only one to argue against any restriction on election-related expenditure of political parties. " Unquote. Rajya Sabha member and BJP general secretary Bhupendra Yadav, who along with Union minister JP Nadda was present at the meeting, told The Indian Express that since all political parties have to declare their expenditure in their income-tax filings, “usmein kisi prakaar ki capping nahi lagai jaani chahiye (there should not be any cap)”.

In August again, Ritika Chopra in Indian Express argued that limits on campaign expenditure were essential to provide a level-playing field for everyone contesting elections. Because such a scenario ensures that a candidate can’t win only because she is rich. We quote, "The 255th Report of the Law Commission on electoral reforms argued that unregulated or under-regulated election financing could lead to “lobbying and capture, where a sort of quid pro quo transpires between big donors and political parties/candidates”. Unquote.

And what is the role of the EC in all of this?

Well, informs the piece, the Election Commission imposes limits on campaign expenditure incurred by a candidate, not political parties. Expenditure by a Lok Sabha candidate is capped between Rs 50 lakh and Rs 70 lakh, depending on the state she is fighting from. In Assembly elections, the ceiling is between Rs 20 lakh and Rs 28 lakh. This includes money spent by a political party or a supporter towards the candidate’s campaign. However, expenses incurred either by a party or the leader of a party for propagating the party’s programme are not covered.

The incongruence in this method to curb financial irregularities is obvious.

What statistics say about electoral spending

Well, they infer quite a lot actually. Mint reported in June this year, that not only do governments tend to raise overall spending before elections, they also often spend relatively more on subsidies and transfers.

Nikita Kwatra wrote in this piece that with 2019 Lok Sabha elections less than a year away, concerns about possible fiscal slippages have begun mounting. Investors fear that the Union government may give in to the temptation of populism to counter anti-incumbency and to lift economic sentiments.

She writes and we quote, "An analysis of historical data suggests that such concerns are not without basis. Most Union governments have resorted to fiscal expansion in the year ahead of general elections, the data shows.

A 2014 research paper by Deepa S. Vaidya and K. Kangasabapathy of the Economic and Political Weekly Research Foundation showed that much of the increase in the deficit ahead of elections is because the actual spending exceeds the budgeted estimates.

That governments in democracies might be tempted to raise spending before elections has long been recognized by political business cycle theories. And India’s recent history suggests that political parties have good reasons to pay attention to such theories." Unquote.

She points out how in the last three elections, the only time that an incumbent government came to power was the United Progressive Alliance (UPA) in 2009, a year in which the government increased spending significantly.

She writes how even before the global financial crisis erupted around September 2008, the government had already embarked upon fiscal expansion. It had waived off farm loans, expanded social security schemes under the National Rural Employment Guarantee Act (NREGA), and implemented revised salaries for the central public servants as per the recommendations of the Sixth Pay Commission.

She points out that not only do governments tend to raise overall spending before elections, they also often spend relatively more on subsidies and transfers. Increased government spending before elections is also reflected in the national accounts data, which suggests acceleration in government’s consumption spending in the run-up to elections.

We quote, "The NDA-I (1999-2004) and the UPA-II (2009-2014) governments remain notable exceptions to the above trend. But it is worth noting that in both cases, the incumbent coalitions failed to return to power." Unquote.

Populist spending, she warns,  can destabilize the macro-economy at a time when the Indian economy’s vulnerabilities are growing and may even make the government slip on the fiscal deficit targets.

But why are elections so expensive in India?

Well, this question was also asked by Simon Chauchard, who is a lecturer at the School of International and Public Affairs at Columbia University, and wrote a piece for the Hindustan Times in July.

The piece opined that since with each passing election, the costs of campaigns are ratcheting further upwards, the perceived increase in campaign costs is often assumed to mean that bribes— what political scientists refer to as “vote-buying”—might be on the rise. We quote, "Yet what candidates actually spend their money on during these expensive campaigns remains unclear due to the paucity of credible data on real expenses." Unquote.

The research behind the article threw up some interesting facts about a case study involving an assembly election in Mumbai in 2014  where major contenders spent between Rs 1 crore and Rs 16 crore, with considerable variation across parties. Real expenses,  said the piece, include a large number of gifts and handouts to voters and/or local influencers.

We quote, " In addition to targeted payments to “influential citizens,” money also trickled down party networks, which led to gifts and cash handouts being showered on voters in a relatively indiscriminate manner during the waning moments of the campaign.

However, gifts are not always the only, even the primary, reason why electoral campaigns are expensive. Many other expenses, from basic logistical costs to the short-term wages that candidates pay to their workers and the crowds these workers recruit, sometimes place even more meaningful constraints on candidates. Payments to campaign workers are an oft-overlooked major expenditure. " Unquote.

The piece concluded that election costs are rising not only because voters receive gifts, but also because campaigns are getting bigger and more ambitious, sophisticated, professional, and competitive.

The influence money wields

Jennifer Bussell, an assistant professor of political science and public policy at the University of California, Berkeley, wrote another interesting piece on this subject in Hindustan Times. She cited research to say that illicit funds are important in funding elections in the country even though there is a dearth of credible data on the actual costs, the sources of support for candidates, and the implications of campaign costs on governance between elections.

She wrote, "However, newly available survey data on politicians in three of India’s largest and most electorally competitive states—Bihar, Jharkhand, and Uttar Pradesh —offer a unique and systematic view into the nature of campaign finance across all levels of elected office, from the gram panchayat to the Lok Sabha, and the possible repercussions for Indian democracy. These data, collected between 2011 and 2014 from surveys of more than 2,500 incumbent politicians, provide insights into the role of political parties in funding elections, candidates’ sources of campaign support, and the specific, and troubling, the importance of illicit funds." Unquote.

She was at pains to emphasise that accurate estimates of campaign spending could not be found and a key question posed by election analysts, to date unanswered, is the degree to which political parties provide financial support to candidates for office at various tiers of government . It was found that party support was far more prevalent at higher levels of office.

The keynote of her piece was that there prevails a culture of assistance in gift giving and more than half of respondents across all levels of office—and nearly all at the state and national level—reported that candidates are pressured to distribute gifts on the campaign trail.  We quote, "This strategy of gift-giving helps explain the role of individual actors in supporting campaigns; even in local offices, politicians report that it is an individual party and unaffiliated actors who help to distribute funds.

Perhaps even more surprising is that more than a quarter of state legislators themselves report that they distribute gifts to help other candidates with their campaigns. In this way, it is not simply canvassing or attending rallies that are necessary to support candidates, it is taking part in fundamental, but illicit, acts of gift distribution." Unquote.

And the most frequent source of funding? Says the piece, "The degree to which politicians understand black money to be the most important source of funds is striking. If this is the case, then understanding who has influence over elected officials is not simply a question of who knocked on the most doors or who handed out the most gifts, but rather who has the ability to provide illicit sources of funds." Unquote.

How big money influences the big picture

These statements made by her become even more significant in the context of Rs  30,000 crore was the estimated amount to be spent on the last Lok Sabha elections, making it by far the most expensive electoral exercise in Indian history.

NDTV reported in March 2014 before the Lok Sabha polls that the projected expenditure to elect the 16th Lok Sabha was set to rival the $7 billion (approximately Rs. 42,000 crore) spent by candidates and parties in the 2012 US presidential elections.

N Bhaskara Rao, Chairman of the Centre for Media Studies had told PTI then, "Till recently, political parties used to spend more during election. Now, the trend has changed with candidates in most cases spending more than the parties. Now where is this money coming from? It is coming from crorepati candidates, corporates and contractors." Unquote.

NDTV had cited the CMS study according to which, while Rs. 2,500 crore was spent in the 1996 Lok Sabha elections, the amount had jumped to Rs. 10,000 crore in 2004 polls.

Rao had added that despite efforts, the electoral system lacked a "level playing field" due to unaccounted for or black money.

What kind of spending will tilt the scales during the forthcoming elections, will be worth keeping an eye on.  It will also be interesting to see whether,  it will be the voters without deep pockets after all who will have the final say at the end of the day.