Monday, April 28, 2014

How political parties can accept money without disclosing the source and spend without limit on the elections

This piece was written in April 2009. Everything written here still holds good

Fighting elections in India has become extremely expensive. According to an Election Commission (EC) representative, while an estimated Rs. 4500 crores was spent for the 2004 Lok Sabha elections, this time around, the expenditure will cross Rs. 10,000 crores. About 20% of this constitutes government expense; the remaining will be spent by political parties and their candidates. Though a huge sum, even this is in all probability a conservative estimate.

The high election expenditure is not a reflection of the basic cost of the campaign but rather an indication of the permissive environment that has evolved over time where there is no limit for the amount of money that political parties can collect and spend on elections. Political parties are neither accountable nor transparent about their finances. The state machinery is unwilling or unable to curb illegal expenditure by political parties allowing the elections to become an outlet for huge quantities of black money. Such an environment encourages political parties to outdo each other in spending in the quest for political advantage. Politicians across the country have chartered as many as 60 helicopters costing between Rs. 75,000 and 2 lakhs per hour for use over a month (Hindustan Times, April 21, 2009). Profligate spending is no longer frowned upon. But this was not always so.

The law on election expenses

The election related laws framed in 1950’s had the objective that money should not be allowed to influence the outcome of elections. The Representation of People Act, 1951 required every candidate to keep an account of all election expenditure incurred or authorized by him. The expenditure was to be kept within prescribed limits and subject to inspection by EC representatives. Violating the limit was deemed a corrupt practice and punishable by disqualification from contesting elections for a period up to 6 years.

The law did not set limits on the expense of political parties and there was a reason for this. The Constitution of India did not even recognize the ‘Political Party’ as a formal entity at that time; political parties had no defined role to play, either in the elections or in the formation of government. The law to limit expenses therefore only dealt with the expenditure by the candidate; this was considered sufficient to curb overall expenses on the elections. In time, political parties started exploiting this loophole.

Did expense incurred by the sponsoring political party or by the friends and supporters of a candidate towards his election in excess of prescribed limits constitute a corrupt practice? This issue came up before the Supreme Court in the case of Kanwarlal Gupta vs. Amar Nath Chawla (1974). Using the occasion to expound on the objectives of the ceiling on spending by candidates, the Supreme Court observed:

“It should be open to any individual or to any political party, however small, to be able to contest an election on a footing of equality with any other individual or political party, however rich and well financed it may be, and no individual or political party should be able to secure an advantage over others by reason of its superior financial strength.”

“The other objective of limiting expenditure” the Supreme Court added, “is to eliminate, as far as possible, the influence of big money in electoral process. If there were no limit on expenditure, political parties would go all out  for collecting contributions and obviously the largest contributions would be from the  rich and the affluent who constitute but a fraction of the electorate….. The small man's chance is the essence of Indian democracy and that would be stultified if large contributions from rich and affluent individuals or groups are not divorced from the electoral process.”

After outlining these objectives, the Supreme Court argued that “if a candidate were to be subject to the limitation of the ceiling, but the political party sponsoring him or his friends and supporters were to be free to spend as much as they like in connection with   his election, the object of imposing the ceiling would be completely frustrated and the beneficial provision enacted in the interest of purity and genuineness of the democratic process would be wholly emasculated.” The thus Supreme Court answered the original question in the affirmative.

This judgment met with the negative reaction of the government of the day. The Representation of People Act, 1951 was amended by the Congress government in 1975 and an infamous “explanation” added to the election expense provision. The explanation ran thus:

“Notwithstanding any judgment, order or decision of  any  Court  to  the  contrary,  any expenditure incurred or authorized in connection with the election of a  candidate  by  a  political party  or  by  any  other  association  or  body of persons or by any  individual  (other  than  the candidate  or  his  election  agent)  shall  not be deemed to be, and shall not ever be deemed to  have been,  expenditure  in connection with the election incurred or authorized by the candidate or by his election agent….”

Not only the sponsoring political party but also friends, relatives and supporters of a candidate were freed from any limits on spending for their candidate. The objectives of the original provisions in law limiting election expenses of candidates had been completely frustrated!

Financial transparency of political parties
The Income Tax Act was amended in 1979 requiring political parties to file income tax returns every year. The tax law allowed a political party to claim full exemption from income tax for a variety of sources of income including voluntary contributions received from any person provided the party maintained books of accounts, recorded details of all voluntary contributions above Rs 10,000 and got their books audited. However, most parties including the Congress and the BJP did not comply with the law and file returns. This fact only came to public notice after a Public Interest Litigation filed by ‘Common Cause’ came up before the Supreme Court in 1995. The Supreme Court ordered the Government to investigate and prosecute the erring political parties, but it is not clear if anything came of this. The Law Commission of India in its 170th report, “Reform of the Election Laws”, in 1999, made this scathing comment on the issue:

“While a small income-tax payer who fails to file his return is prosecuted and penalized, the political parties which are in receipt of huge funds which they spend on elections and other occasions are not being touched. The parties too do not appear to have realized that if they themselves do not follow the law, not only it sets a bad example to others, they will not have the face to tell others to abide by law.”

The Commission followed a comprehensive analysis of the problem of election expenses with the recommendation that political parties must be required by law to keep accounts, have them audited and publish them for the general public and strong penalties should follow including de-recognition of the party by the EC for non compliance. The National Commission to Review the Working of the Constitution also expressed similar views in 2002.

The election expense laws were finally amended in 2003, but not on the lines suggested by the Law Commission. The Election and Other Related Laws (Amendment) Act, 2003 was passed by the NDA Government with the support of almost all parties including the Congress. While the infamous 1975 “explanation” to the election expense clause was finally deleted, this change made no difference any longer. The election laws and rules were amended to allow political parties to “accept any amount of contribution voluntarily offered to it by any person or company”. Only contributions to parties over Rs 20,000 (earlier Rs 10,000) were to be recorded and reported. The punishment for not submitting returns was that income tax exemptions could not be claimed! The income tax laws were also amended to give 100% tax exemptions to companies and individuals for contributions to political parties. The NDA government claimed that these changes would bring about more political accountability. But many questions remained unanswered. Would companies, for example – solely in business for profit - contribute a part of their profit to party funds without any expectation of return favors when/if the party came to power?

The idea of limiting election expenses had been buried once and for all by codifying in the Representation of People Act, 1951 the right of political parties to accept (and consequently spend) any amount. Enacting strict penalties to ensure transparency and accountability in finances of political parties had been given the go by, even though it was clear that the laws would not be respected otherwise.

The Election Commission suggested to the UPA government in 2004 that “political parties must be required to publish their accounts (at least abridged version) annually for information and scrutiny of the general public and all concerned, for which purpose the maintenance of such accounts and their auditing to ensure their accuracy is a pre-requisite” Their plea fell on the deaf ears. The UPA was as comfortable with the status quo as the NDA.

Who will fund the parties?

The escalating cost of elections puts pressure on parties to mobilize funds whichever way they can. Most political parties do not collect money for party activities and elections by building a broad membership and collecting regular dues. The funds collected using legal channels from companies and individuals are only a fraction of what they ‘need’, given the possibilities of unlimited expenditure. During the 2004 elections, for example, all the political parties put together showed expenditure less than Rs. 230 crores according to figures made public by the EC. Sources of unaccounted wealth need to be tapped; this is probably what makes parties shy of making their ‘real’ books open to the public. Seen against this context, the recent action of the Bahujan Samaj Party (BSP) in Delhi in nominating extremely wealthy businessmen is understandable. The President of its Delhi unit admits that as the party does not fund its candidate’s election expenses, it expects them to have deep pockets if they should have a fair chance to win. The BSP candidates for four of the seven Delhi constituencies have declared assets of 622, 155, 14.5 and 19 crore rupees respectively!

There has been a concerted campaign for some time past – initiated by certain NGO’s and now enthusiastically adopted by corporate India and the media - to reform the middle class elector. The hope that is held out is that if more people vote and exercise their choice with discrimination, things will improve. The question that begs an answer is who will persuade the political parties to reform?  

24th April 2009

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