Transparency in politics

The Delhi Assembly elections were marked by a lot of mud-slinging. One of the issues that figured prominently was campaign finance. The manner in which funds are raised by political parties, and the amount of undeclared expenditure during elections, have been in focus for the last one-and-a-half years. Only a few days ago, the BJP and the Congress declared expenditures of ₹714 crore and ₹516 crore, respectively, for last May’s general elections. It is hard to take these numbers at face value when independent assessments run into several thousand crore rupees. What this points to is that our existing laws and rules encourage under-reporting of income and expenditure. India’s laws, unlike in the US, are biased towards expenditure control — which explains these unconvincing declarations — rather than transparency in contributions. Hence, the debate is often skewed in the direction of whether a candidate pierced the ₹28-lakh expenditure ceiling in an Assembly constituency or the ₹70-lakh ceiling in a parliamentary constituency, whereas the material question is whether the candidate can account for every rupee spent. While the ceiling has seen some revisions in the recent past, it has generally lagged behind spending compulsions in an increasingly competitive polity. The gap is filled by unaccounted money, leading to the rise of a criminalised political class. Expenditure limits have encouraged under-reporting of income and candidate spending. It is time to shift to an incomes-based approach to regulation.

While India’s laws pertaining to the income side have become more pragmatic since the Indira Gandhi years when access to corporate finance was forbidden, the incentives, if not compulsions, to tap into black money sources remain strong. For instance, while corporate contributions are fully tax deducible, they cannot exceed 5 per cent of the net profit of the firm over the previous three years. A liberalisation of these limits and incentives can help parties and candidates raise their component of legitimate finance. Corporates should set up trusts to fund elections, as some major groups have indeed done. But for these efforts to take root, businessmen, big and small, should feel assured that they will not be harassed for their political leanings. That said, rules on the contributions side can be tightened. The requirement that only donations above ₹20,000 need to be reported allows parties to tap into black money sources without fear of coming under the scanner.

Over the last two decades, we have moved towards improved disclosures on candidates’ incomes, assets and criminal records, enabling voters to make informed choices. For this process of transparency to extend to party finances, the existing system of perverse incentives needs to go. Political parties have resisted transparency — almost all parties have opposed being brought under the RTI Act, for instance. They need to — or should be compelled to — disclose audited accounts, as well as all sources of funding. But in the end, elections can be rid of money power only when the voter is visibly unimpressed by the big bucks being thrown his way.

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