In this episode of Decoding 2019, we’re taking a look at the role of money in Indian politics and what solutions exist for the problems it poses.
Harish Puppala | Rakesh Sharma
The 2019 election is finally here. I know this because India’s rap music pioneer Baba Sehgal tweeted this morning, “Garmi hai pls don’t wear a coat, Election hai pls go there and vote.”
(Nope, that’s not a parody account.)
More importantly, the moment that every political maneuver of the last five years was calculated for is finally here. Some call it a day of reckoning, as if we’re supposed to believe anything will ever change. The media in India generally goes full cringe-fest during lok sabha elections, calling it things like dance of democracy. I, for one, have never understood how voting is analogous to dancing.
But back to the tender/resilient democracy of India - the first phase of voting in the 2019 general election took place today in 91 constituencies across 20 states and union territories.
We can’t think of a better time to discuss the issue of campaign financing. Most of us are aware that campaign finance is one of the biggest cesspools in the country - a murky stream of cash that never runs dry, and is generally posited as the root of a large part of the staggering corruption in India. In today’s podcast, we’re taking a look at the role of money in Indian politics and what solutions exist for the problems it poses.
How much does an election cost?
Well, almost nothing...if you’re Donald Trump. Polarise people with populist slogans, make the press hate you, and you’ll be on your way to becoming the most powerful person. But Indian politics is different.
India’s budget allocated 2.62 billion rupees to the Election Commission this fiscal year, a new high figure in itself. What about candidates? A Scroll report states, “Officially, India has limits on election spending: Rs 50 lakh-70 lakh per Lok Sabha candidate, and Rs 20 lakh-28 lakh per assembly candidate, depending on the state. In practice, research suggests the reported expenditure of candidates “only represent a minuscule fraction of their real expenses—frequently less than 1/30th or 1/50th of the overall amount.”
Milan Vaishnav, a senior fellow with Carnegie Endowment, and Director at Carnegie South Asia, wrote in an essay, Confronting the Challenge of Money in Elections, that Indian elections are “...hyper-competitive. In...2014... there were 464 parties contesting elections across 29 states and seven union territories...8,251 candidates joined the fight for 543 parliamentary seats...66.4% of the eligible voting public cast their ballots on election day.”
Let that sink in - over 8000 candidates. And it costs money to campaign for votes. Vaishnav wrote that “...parties and candidates spent as much as 5 billion USD on election-related expenditures, according to one independent study.” He claims that the 2009 elections saw expenditures pushing 2 billion USD. Vaishnav wrote in another column, “For comparison’s sake, the combined 2015-16 United States presidential and congressional elections had a price tag of $11.1 billion, according to U.S. federal regulators.”
Bloomberg broke that down, party-wise. It wrote, “Prime Minister Narendra Modi’s party has spearheaded moves to loosen campaign finance laws in India...The new rules let corporations, including those partly owned by foreign entities, fund elections anonymously. They also permit businesses to bankroll political parties through opaque instruments called electoral bonds and enable shell companies to be conduits for election funding.”
The changes, which the BJP claimed were designed to at least partially account for undocumented cash used during India’s elections, could actually make it easier, even legal, for anonymous donors to support political parties. Bloomberg estimates that total spend on the election ending May 23 could rise 40% to 7 billion USD, or nearly 50,000 crore rupees, according to the New Delhi-based Centre for Media Studies. To give you a rough comparison, the film industry in India had total revenues (combining domestic and overseas collections, broadcast rights etc.) of around 15,000 crores. That means the cost of the current lok sabha election is more than three times the money Indian films earned last year. Don’t believe me? An Economic Times report from 2017 stated that the film industry in India could touch 3.7 billion USD in 2020. That’s just over half the cost of the 2019 election! Meanwhile, social media spending by political parties is likely to be dramatically higher, surging to about Rs 5,000 crore from a mere 250 crores in 2014.
As much as 2600 crores will be spent on advertising in the upcoming elections, according to Zenith India, a firm that arranges slots on TV and in newspapers. That’s more than double the 1200 crores that the Election Commission estimates the two main parties spent in 2014. Economic Times reported that In February alone, more than 4 crores were spent on political advertising on just one site - Facebook - as per the company’s report.
A caveat here - I must mention that estimates for this amount vary. The Economic Times claims election expenditure will be around 30,000 crores while Livemint and Bloomberg claim, based on the observation by CMS, that it will be in the vicinity of 50,000 crores.
Following the money trail
Now that we have an idea of the amount of money involved, let’s look at where it comes from.
Campaign finance overhaul first began in 2017, when Parliament approved an amendment that made it easier for companies to donate to campaigns, including removing a cap on corporate donations. First, the finance minister announced that the ceiling on cash donations to political parties would be lowered from Rs 20,000 to Rs 2,000 in an effort to squeeze black money contributions.
The Bloomberg article claims that the biggest innovation in India’s campaign finance laws is the anonymous electoral bond. These electoral bonds bear little resemblance to the promissory notes investors are familiar with. What I mean is, buyers aren’t paid any interest. Anyone can buy an electoral bond at the government-owned State Bank of India in denominations ranging from 1,000 rupees to 1 crore rupees. They are then delivered to a political party, which can exchange them for cash. They don’t carry the name of the donor and are exempt from taxes.
Finance Minister Arun Jaitley claimed they help improve transparency because they are banking instruments, and every political party has to disclose how much it received. If full transparency is required, donors would go back to cash. The Economic Times explained that the amended various laws included the Income Tax Act, the Representation of Peoples Act, the Finance Act and the Companies Act, and that the scheme for electoral bonds is in the nature of bearer instruments capable of being purchased by a citizen or a company from a PSU bank.
Earlier, the amount was capped at 7.5% of a company’s average net profits over three years. Companies no longer need to disclose how much they donated and to which party. As per the new rules, new firms can also donate to political parties, opening the door, according to Bloomberg, for shell companies to be set up expressly for the purpose.
However, those concerned about anonymous money in politics say changing the laws has offered little reassurance that the new measures are an improvement. Jagdeep Chhokar, a former professor at IIM, Ahmedabad and the founder of Association for Democratic Reforms, a group that researches elections, said, “Electoral bonds have made political parties completely beholden to unaccounted money, which could even be foreign money or money from dubious sources. Corporate agendas can run the show.”
Analysts claim those amendments benefit both the BJP and the Congress party. N. Bhaskara Rao, chairman of the Center For Media Studies, wondered aloud “Nobody from the opposition spoke up...Maybe everybody realizes they stand to gain if they come to power?” Ironically, Business Standard reported that opposition parties like Congress, Trinamool Congress and CPI(M) are opposed to electoral bonds, alleging that it would benefit only the ruling BJP. Oh well.
In any case, Rao has good reason to be cynical. In 2014, the Delhi High Court found both parties guilty of violating foreign-exchange laws when they accepted donations from London-based commodities giant Vedanta Resources. Then, lo and behold, the law passed last year changed the definition of a foreign company all the way back to 1976, effectively nullifying the court’s verdict because Vedanta’s overseas parent owned less than 50% of the Indian unit. The government defended the changes, saying they were intended to align the definition of “foreign source” with the nation’s foreign direct investment policies, and other laws bar political funding from abroad. Bloomberg’s report also claimed latest official data shows the BJP winning the bulk of financing in the year ended March 2018, both through corporate donations and electoral bonds.
In 2018, electoral bonds worth about 1000 crore rupees were purchased, according to data obtained under RTI by Factly, a data journalism portal in India. About 90% were of the highest denomination available, which Bloomberg claims is out of reach for the average citizen. In comparison, companies in the UK are not directly allowed to make donations to political parties. In contrast, USA allows unlimited funding through political action committees called super PACs on federal election campaigns, but requires them to disclose the names of donors.
Chhokar’s Association for Democratic Reforms went to court on the issue of electoral bonds. The apex court will pronounce its verdict later this week. Meanwhile, ET reported that the Centre and the Election Commission had taken contrary stands in the Supreme Court over political funding. The government wanted to maintain anonymity of the donors of electoral bonds while the poll panel prefers revealing the names of donors for the sake of transparency. Attorney General K K Venugopal, who appeared for the government, argued, “We have no policy of state funding of elections. Funds are received from supporters, affluent persons and companies. They all want their political party to win. If their party does not win then they apprehend some repercussions and hence secrecy or anonymity is required.” Senior lawyer Rakesh Dwivedi, who represented the Election Commission, said, “Anonymity must go. We want transparency. We want reforms. We cannot go one step forward and two steps backwards. We want free and fair polls.” He added that the poll panel was not against the scheme as such, only against the "anonymity attached to it.”
An analysis by Livemint paints a dire picture. Its report said, “That the revised donation regime lacks transparency is not in doubt…it is also true that campaign finance has always existed in a dark zone, so the legitimacy given by electoral bonds to fund-raising from dubious sources—from abroad, for instance—can be viewed as a pragmatic shift that casts some light on at least one end of the funnel: party receipts. The fairness of an electoral system where one or two parties corner most of the legitimate funds on offer is another matter. Political parties that appeal to poorer voters, for example, are indeed at a severe disadvantage. A fairer system might require the state to pool all the resources mobilized and then split the money with all parties in the fray by an agreed-upon formula: by vote shares achieved in the previous elections, for instance.” Wait, what?! That sounds like the business model of a franchise-based sports league. It’s a safe guess to assume that such a rule will never find takers.
Cash is where the action is
An analysis by The Economic Times dismissed all the talk of electoral bonds. They may be the future, but the present is ruled by cash. ET claimed that electoral bonds play a very small role in campaign finance. It said, “Though no official data by the issuer of these bonds – the State Bank of India – is put in public domain, experts estimate all political parties together may not have managed to raise even Rs 2,000 crore.” That’s right, in a 30,000-50,000-crore election, only 2000 crores, if at all, came from electoral bonds.
ET claimed that currency with the public on the eve of 2019 elections has, in fact, posted one of the highest year-on-year growth compared with pre-election growth rates in past seven elections. Currency with public rose 17.3% during 2018-19. In 2008-09, pre-election currency growth was 17.1%, 16% in 2003-04, and 17.5% in 1995-96. The only single digit pre-election period growth in currency with the public was in 2013-14, which stood at 9.2%. A Times of India report also claimed that, according to economists, the gap between the growth rates of nominal GDP and currency in circulation is a good indicator of cash being deployed for election campaigns.
That brings us to the red-hot issue of cash seizures, which is being strangely underplayed this year. The Election Commission has already seized cash, liquor and drugs worth over Rs 1,400 crore rupees between March 10 and April 1. The star of the show is Gujarat, which accounted for 509 crores. The Income Tax department's raids on politicians or people close to them in states like Madhya Pradesh, Karnataka, Tamil Nadu and Andhra Pradesh has unearthed cash like never before. Take Madhya Pradesh, for instance, which has a Congress government. ToI reported that I-T officials claimed to have unearthed a racket of collection of unaccounted cash of about Rs 281 crores in raids on people linked to Madhya Pradesh CM Kamal Nath. Meanwhile, in Hyderabad, Telangana police seized Rs 8 crore of BJP's cash and the party blamed the police for 'high-handedness' said it was an 'example of undemocratic rule' prevailing in the state. Then there was this gem of sentence in a report from Andhra, as reported by Scroll: “100 people sat on a dharna in Khammam town after a local TRS leader failed to give them the promised money for attending a public meeting addressed by KCR.” The report goes on to say, “Meanwhile, in Andhra Pradesh, YSRCP election managers are worried that candidates and local leaders are being miserly. Leaders and candidates of both TRS and YSRCP are apparently confident that a KCR wave in Telangana and Jagan Mohan Reddy wave in Andhra Pradesh will sweep them to victory, and hence are not spending enough money.”
It is for this reason, among many others, that Indian parties seem to be increasingly dependent on wealthy candidates. Neelanjan Sircar, senior fellow at the Centre for Policy Research, wrote in Hindustan Times, “...one needs to understand how candidates are selected and the policymaking role of legislators in India’s political system...Even if a candidate wins his or her seat, anti-defection laws effectively prevent elected representatives from having much of a role in policy-making. In such a scenario, third party actors have few incentives to invest in specific candidates, rather than a party at large. With little opportunity to raise outside funds, candidates must largely finance their election campaigns... this has led to a rise of wealthy candidates.”
Analysing self-reported candidate affidavits for Lok Sabha elections between 2004 and 2014, he explained that the median total wealth of candidates grew by approximately 330% in nominal terms. Even adjusting for inflation, Sircar claimed, the median wealth of candidates saw a rise of 116% in real terms. In the 2014 national election, candidates reported a median wealth of Rs 23.8 lakh - approximately 27 times the nominal per capita income of India in 2014-2015 of Rs 88,533. Sircar infers that a wealthier candidate is about 10 percentage points more likely to win than a poorer candidate. He takes a dim view of the growing cost of the electoral process for individual candidates. He wrote, “First, if candidates need to be wealthy to contest an election, only a small subset of the population can realistically hold office, resulting in legislators that have less in common with the citizens they represent. Second, if parties increasingly look at personal wealth to select candidates, instead of characteristics...such as education or constituency service, then elected politicians may become worse at representing their constituents...most importantly, if campaigns must be self-financed, then candidates may view contesting elections as an investment rather than a sunk cost, leading to greater levels of corruption in office as legislators try to recoup the costs of contesting elections.”Investment or sunk cost? That might just be the most succinct summary of campaign financing in India.The Great Diwali Discount!
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