Chanakya's View: Democracy

A few days ago the Delhi high court made an important judgment relating to political parties and funding. The court was dealing with a case of the Congress Party regarding tax exemptions for the year 1995-96. Without prejudice to the merits of this case, the pronouncements of the court are significant because they deal with the critical issues of electoral reform and the deadly nexus between unaccounted money and politics.

“Money power”, the court observed, “should not be allowed to distort the conduct of free and fair elections. This will, in turn, infuse transparency and accountability into the functioning of the political parties thereby strengthening and deepening democracy”. According to the learned judges, political parties must maintain “properly audited accounts” of income received through voluntary contributions, and unless this is done parties cannot claim exemption on income tax. The sum and gist of the judgment was that the time has come to implement an “effective check over the influence of money in electoral politics”.

It is apparent to everybody that India needs a substantive and comprehensive electoral reform bill for changes in our democratic system. But the task is easier said than done. The record bears this out. The Goswami Committee on electoral reforms was set up 22 years ago in 1990. Subsequently, there have been a host of other committees and reports, including the Vohra Committee in 1993, Indrajit Gupta Committee on state funding of elections (1998), Law Commission Report on the reform of electoral laws (1999), National Commission to review the working of the Constitution (2000), Election Commission of India Report on proposed electoral reforms (2004), and the Second Administrative Reforms Commission (ARC) 2008. None of these have been able to bring about comprehensive change; they have remained confined to proposals, ideas and intentions. Some matters of electoral reforms have also been pending before the Supreme Court for years.

The blame, however, does not rest at the threshold of the Supreme Court. The blame rests primarily with political parties and politicians who have no overriding motivation to change the current system because they are the biggest beneficiaries of it. According to the Association of Democratic Reforms (ADR), a widely respected NGO, 85 per cent of donors to political parties are faceless.

Informal estimates indicate that actual collections are as much as ten times that which is disclosed. The nexus between black money and political parties is the principal cause of all corruption in India. If those who are supposed to make laws against corruption are themselves the products of a corrupt system, how can the rest of society be clean? When parties take money in cash from “unidentified” donors, they work for tax evaders.

When candidates illegally spend many times the prescribed limit on elections, their first priority is to milk the state to recoup their “investment”. India is among the lowest scoring countries on political finance regulation according to the Global Integrity Report, scoring a zero out of a hundred on implementation and disclosure of political party and candidate financing. India also scored a zero on the effectiveness of party financing regulations.

What practical and theoretically doable preliminary steps can be taken to remedy this unfortunate situation? First, the current law that allows parties not to identify donors contributing less than '20,000 must be scrapped. This is the principal (but not only) channel for parties to collect vast amounts of undeclared funds. Every paisa given as donation to political parties must be accounted for and transacted through auditable and transparent bank transactions.

Second, all payments made by political parties exceeding Rs 20,000 must be made by crossed account payee cheques or bank transfers. The Core Committee on Electoral Reforms, sponsored by the Election Commission (EC) and the ministry of law and justice, have strongly recommended this. Concurrently, the EC must harness our vaunted prowess in IT to devise an online accounting framework leaving as little place as possible for political parties to hide income and expenditure.

Third, all political parties must compulsorily make public their audited accounts every year. Currently, candidates are required to disclose their assets and liabilities but not political parties. As far back as 2004, the EC recommended that “political parties should be required to publish their accounts 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 prerequisite. The auditing may be done by any firm of auditors approved by the Comptroller and Auditor General (CAG). The audited accounts must be made public”. My personal view is that they should also be brought under the ambit of the RTI.

Fourth, careful thought needs to be given to strengthen the enforcement and regulatory role of the EC in such matters. Currently, political parties merely obtain a certificate from the EC that they have submitted their annual audited statement of accounts. Perhaps the time has come for the EC, strengthened by experts from other financial enforcement agencies, to be authorised to issue showcause notices at any time to any party where there is verifiable evidence of expenditures exceeding known sources of income. Of course, an impartial and independent EC is a sine qua non for such powers.

With these measures in place, the state funding of elections, as recommended by the Indrajit Gupta Committee in 1998, may not be necessary. State funding would only add an unnecessary burden on the exchequer and not succeed in inhibiting parties and candidates from illegally deploying funds over and above what is provided by the state. Given past experience, a far more practical way would be to stringently implement the monitoring, surveillance and deterrence measures mentioned above.

It is not enough for India to be merely labelled as the world’s largest democracy. We must also be a credible democracy in every sense of the term.
Currently, the magnitude of illicit money power in the hands of political parties diminishes our democratic credibility. It is time for all political parties to voluntarily — and urgently — rectify this situation.