How To Fund A Campaign - Or Not

The ongoing American presidential election has seen the presidential candidates use campaign funding as a rallying point- Trump claims that his campaign is self-funded (the claim, upon investigation, proves to be false- no surprises there), Bernie Sander’s claims that his funds come largely from ‘main street’ and not ‘wall street’ while Hilary Clinton promises to tighten and make transparent the existing campaign funding laws if voted to power (in the meantime, she continues to fund her campaign using the afore mentioned ‘big money’). While political developments across the pacific are intriguing, they also raise the following question- how are election campaigns funded in India?

The laws which govern the financing of elections in India are the Representation of the People Act, 1951 and Conduct of Elections Rules, 1961. While many amendments have been made to both these acts over the years, presently, the expenditure incurred by a candidate while campaigning for a parliamentary constituency can range between Rs.54 lakh and Rs.70 lakh.  There is no direct state funding of elections in India, hence the funds for footing the above mentioned expenditure can be raised by: individuals contributions (these have no limit on them), corporate contributions (capped at 5% of the company’s average net profits during the three immediately preceding financial years and are also tax exempt). However, there exists no cap on the expenditure for propagating the party’s programme during the election. To ensure transparency, each party is required to submit an account of contributions exceeding Rs.20000, from an individual or a company, to the Income Tax authority and all candidates have to file an affidavit with the Election Commission, disclosing their assets and liabilities. Such a framework serves the dual purpose of a) ensuring ‘equality of opportunity’ by reducing the candidates dependence on wealthy donors as not all citizens have access to such avenues b) monitoring of disproportionate donors.

However, the inadequacy of the above guidelines in regulating “money power” in the elections is best summed up by former prime minister Atal Bihari Vajpayee –“every legislator starts his career with the lie of the false election return he files”. The campaign expenditure ceilings, instead of limiting costs, only results in evasion through under reporting. This is so because the ceilings don’t reflect the competitive cost of an election as a candidate is likely to spend 50 to 100 times more money than that, if he/she hopes to win. The lack of public financing in conjunction with the limit imposed on corporate donations means that candidates have to raise and spend money on their own for each election.

Since there exists no limit on party spending, the situation is exacerbated as, effectively, there is no upper limit on how much can be spent on a campaign - as long as such party propaganda doesn’t favour any particular candidate, any expenditure so incurred is not counted as part of campaign expenditure. This loophole renders the aforementioned campaign expenditure limits ineffective in practice. The US, by contrast, imposes no general limit on the expenditure that can be incurred by a candidate during a campaign but the law does put a limit on the contribution. The exploitation of the loophole his results in warped scenarios in Indian elections where, on one hand, a candidate’s jeep can be stopped for using two loudspeakers instead of one, while on the other hand a national party may sponsor front-page ads on every newspaper on the day of the polls. 

As a result, the following scenarios have become common place in Indian elections:

In one scenario, a party may simply favour ‘crorepati candidates’ i.e. rich candidates who are capable of funding their own campaigns, a phenomena which results in greater participation of criminals in electoral politics (Vaishnav 2011).

An alternative scenario is that of the creation of a powerful nexus between corporates and candidates. Corporates, unable to contribute more than the 5% ceiling, donate to political parties/candidates using undisclosed black money, in exchange for regulatory kickbacks if the candidate in need of these funds is elected to power. Another interesting trend is that corporates (and individuals) display risk-averse behaviour as they are perverse to making disclosed donations despite the tax exemption offered. This is so because the anonymity offered by undisclosed donations (made by breaking up a large donation into packages of less than Rs.20000) protects them from reprisal from a political party they are not donating to or if they are contributing to two opposing parties simultaneous to hedge their bets. This means that black money runs rampant in elections. In fact, as of May 2014, 93.8% of the income reported by Congress and 91.3% of the BJP’s income came from unlisted sources. Furthermore, campaign donations are tax deductible only if they are made to political parties, and not to individual candidates. This, combined with the lack of transparency and accountability in the internal democracy of a party means that there exists no guarantee that the political party in question will allocate the contributions to the donors’ preferred candidates.

The political business cycle also shows evidence of the aforementioned nexus. For instance Kapur and Vishnav (2011) revealed a nexus between real estate sector and election funding by showing a cyclical co-relation between election season and the price of cement. Sukhtankar has found that during election years there exists evidence of embezzlement in politically controlled mills, a fact reflected in lower prices paid to farmers for cane. The Adani Group’s valuation increased by 30% in 2014, on the expectation that Narendra Modi (a political brand that the company closely associates itself with), will form the coming government.

Cumulatively, these factors, have a perverse impact on political equality. Individuals with humble backgrounds or individuals who refuse to indulge in ‘dirty politics’ are priced out of the system, thus hindering their ‘right to public office’. Election finance reform needs to be rooted in removing/reducing corruption, reducing campaign costs and ensuring equal opportunity for political participation. Such reform can be instituted by adopting alternative models of campaign financing such a public financing, grass root funding or a hybrid of both (for instance public funding of parties in proportion to the amounts they raise openly from identified small-sum private donor). However, any attempt at mobilizing grass root finance in India may be frustrated by the lack complete financial inclusion in the country. John Stuart Mill once said that a political party is most likely to cater to the electorate that forms its vote bank. If such a vote bank also becomes the primary source of funding for the candidates, perhaps the goal of financial inclusion will be pursued more proactively. Individuals are likely to give a party money if they believe that the party concern will provide them with commensurate deliverables- this hold true both for grassroots and public finance (a major component of which would be tax revenue). Thus, both systems have potential for increasing accountability and therefore controlling the magnitude of campaign expenditure.

Kriti Mahajan