At a time when elections in five states have just been concluded and general elections are due to be held by May next year, PRS Legislative Research held its first Annual Conference on “Effective Legislatures” on December 5, 2008. There were two panels at the conference, the first on electoral finance reform and the second on parameters for measuring the effectiveness of legislative bodies. In this blogpost, I will discuss the broad framework of electoral finance laws in India and briefly summarise the panel discussions on this topic including suggestions for reform. The discussions in the second panel on measuring the effectiveness of legislative bodies will be the subject of a separate blogpost.

Campaign finance laws broadly regulate contributions made to political parties and candidates and expenditures incurred by them on electoral campaigns. There are a number of laws regulating election finance in India. While there are no limits on individual contributions, the Companies Act, 1956 caps corporate contributions to political parties and candidates at 5% of the company’s average net profits during three immediately preceding financial years. Moreover, there is a complete prohibition on foreign contributions to candidates and political parties under the Foreign Contribution Regulation Act, 1976.

The Representation of the People Act, 1951 and the Conduct of Elections Rules, 1961 regulate campaign expenditures and contain disclosure requirements for campaign contributions and expenditures. They prescribe ceilings on campaign expenditure in both parliamentary and state constituencies. The expenditure limit on campaigns conducted by a candidate for a parliamentary constituency varies from Rs. 10 lakh to Rs. 25 lakhs. For state assembly constituencies, the expenditure limit varies from Rs. 5 lakh to Rs. 10 lakh. It may be noted that the prescription of limits for a particular constituency is made on a state wise basis and does not take into consideration constituency specific factors like the size, the difficulty of terrain etc. While there is no limit on expenditure incurred by leaders of a political party on transportation for propagating the party’s program, expenditure incurred in connection with the campaign of a candidate is deemed expenditure incurred by the candidate.

Moreover, every candidate must within 30 days of the election lodge an account with the district election commissioner of all the expenditure in connection with the election incurred by him or his election agent during the campaign period. However, political parties are not required to maintain accounts of expenditures incurred by them in propagating the party’s program or incurred by the “leaders of the party” in campaigning on behalf of candidates.

With respect to electoral donations, the treasurer of the political party must, in each financial year, prepare a report in respect of contributions received by him in excess of Rs. 20,000 from individuals or companies, which should be submitted to the Income Tax Authority before filing the political party’s tax return. However, candidates are not required to keep records of contributions received by them or file them with the Income Tax Authority. They are only required to file an affidavit with the Election Commission disclosing their assets and liabilities.

The panelists at the Conference included the Chief Election Commissioner, Mr. N. Gopalaswami, Ms. Jaya Jaitley, Mr. Nikhil Kumar, Congress MP from Bihar, and Mr. Souvik Chakrabarty of the Financial Express as the Moderator. The CEC commenced the panel discussions by his scathing criticism of the way that there is no attempt by political parties to comply with electoral finance laws. He stated that ceilings are meaningless because no political party sticks to them, giving an example that in the Karnataka elections held earlier this year, the EC seized material worth Rs. 45 crore and estimated that the expenditure in each constituency was not less than Rs. 10 crore. Moreover, the Election Commission officials confiscated wads of cash being transported in ambulances, presumably on the grounds that this method of transportation would evade EC scrutiny. He also pointed out the lax enforcement of these ceilings stating that under the law, each candidate has to file his accounts within 30 days and any other person can challenge the winning candidate’s accounts within a period of 45 days. Out of 10,000 candidates that have been disqualified in the past years, only 960 candidates have been disqualified on inaccuracies in election accounting, of which only 2 candidates were disqualified on account of improprieties in financial expenditures.

Ms. Jaya Jaitley stated that the 25 lakh ceiling was ridiculously low because it would be met on the minimum expenditure of a 1 Re. postcard send to the candidate’s constituents introducing him/her self and his political goals. This does not take into account expenditures on transportation within the constituency and payment to party workers who campaign for the party. She also pointed out ways in which parties and candidates circumvent the disclosure requirements. The donors refuse to give donations in cheques insisting that parties accept donations in cash in order to avoid tax payments on the donations. She also stated that the problem of black money in election finance cannot be tackled specifically without targeting the black money nexus in real estate, smuggling and mining interests. Those who deal in black money transactions have to keep political parties happy. Thus, we have a vicious crime and corruption network involving politicians, bureaucrats, businessmen, smugglers and even the media. There is severe corruption in the state media, wherein, a candidate can get media coverage only if he pays the reporter. It is necessary to pay the reporter for being written about or not to be written against or to be written in favour of while demeaning the opposition. If media is not paid, then the candidate is basically a non-entity. She also criticized the EC rules whereby a candidate cannot put up posters advertising his candidacy arguing that it works to the disadvantage of poorer parties. She suggested that there should be designated public places where parties and candidates should be allowed to put up posters instead of imposing a blanket ban on the same.

Mr. Nikhil Kumar added that ceilings for different constituencies should be prescribed according to the size of each constituency, taking into account the changes in constituency size following delimitation. He illustrated his argument by giving the example of his constituency in Bihar. He stated that the size of his constituency in Bihar is 182 square km having increased by 50 km following delimitation. He argued that there was a need to distinguish between genuine expenditure and malpractices and that genuine expenditure includes expenditures on travel, correspondence, advertising, media coverage and party workers’ food. Moreover, he stated that he was against ceilings on expenditure and favoured transparent disclosure and accounting requirements as those prevailing in the US, where, for instance President elect Obama raised record sums of money for his campaign, yet every penny was accounted for. He also emphasized the obvious loophole that since there was no requirement for accounting of the funds received by the candidate or expenditures by political parties on the campaign, it was possible to expend campaign funds on behalf of the candidate even though not specifically authorized by the candidate.

Many concrete suggestions for reform came out from the discussions, many of which have been articulated by commission reports in the past. These include removal of ceilings on expenditures, delimitation of constituencies, transparency of accounting of both contributions and expenditures and removal of ceiling on corporate contributions. Both Ms. Jaitley and Mr. Kumar emphasized that the CEC must also regulate media just like it regulates other aspects of the electoral process. The panelists were also asked whether they supported state funding of elections as considered by various committees in the past including the Indrajit Gupta Committee Report on State Funding of Elections (1998), and the 170th Report of the Law Commission of India on the “Reform of Electoral Laws”. Mr. Nikhil Kumar responded after the panel discussions were over that he believed in partial state funding but did not think that there should be full funding of elections at the expense of the public exchequer.

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