Why State Funding Of Elections Should Precede Action Against Corrupt Realty

The Prime Minister has talked about more action on the black money front – including benami property transactions and election funding.

The question is which one should the PM prioritise? Given that the demonetisation of Rs 500 and Rs 1,000 notes has been hugely disruptive, the logical answer is that he should take the one that will be less disruptive in the short run. This means electoral funding reform. Doing something on this front will not disrupt the economy. In fact, it would be a positive step towards cleaner politics and democratically empowering, apart from directly targeting the core of black money generation.

Real estate, with its deep links to both the financial system and the real economy, needs to be tackled in stages. Going after it with a vengeance will be more disruptive than demonetisation. It has to be defanged in stages.

Some newspaper editorials have welcomed the general idea of electoral funding reform, but doubt that the country can afford state funding right now (read here). But this is completely wrong, for elections are held once in five years, and funding candidates is the best way to reduce their need for black money and corruption.

Political funding reform must focus on two areas: one is funding to candidates for election campaigning, and the other is general party funding for political activities. Since political parties are central to democracy, they too need legitimate funding sources.

Of the two, candidate funding is the simplest to finance. This is how it could be done and financed. Let’s assume that each constituency is allotted Rs 5 crore for distribution among candidates according to their final vote shares. The top three candidates can get the bulk of the funds by producing bills on their expenses, with smaller amounts going to those who have not lost their deposits. Marginal and frivolous candidates should get nothing.

This means India’s 543 Lok Sabha constituencies will need Rs 2,715 crore every five years (assuming there are no mid-term polls). This is hardly a budget-busting number when the government spends Rs 4,000 crore every year on the Member of Parliament Local Area Development Scheme (MPLADS). If just one year’s money in MPLADS is routed to finance Lok Sabha campaigns, the budget will not be impacted at all. If the entire MPLADS is discontinued, the money would be enough to finance all central and state elections and even save money that can be spent on education or health. My guess is that if MPLADS entitlements are halved, it would be more than enough to finance all elections. Even if MPLADS money is not discontinued, a small 0.1 per cent election cess on the goods and services tax would be more than enough. Either way, each candidate would get more than the current spending limit of Rs 70 lakh for Lok Sabha elections in big states.

So money is not the issue.

But this brings us to the larger issue: financing political parties. This is where corruption is deep-rooted, since black money is given to political parties often in lieu of economic and policy favours to businessmen. Currently, donations below Rs 20,000 do not have to be declared, and this is where political parties accumulate black money. In 2014-15, all political parties put together claimed Rs 622 crore of donations above the Rs 20,000 limit. Actual donations received above this level can be considered to have a component of black money.

The only way to reform political funding is to make all donations above Rs 1,000 payable by cheque or with PAN numbers. Donations above this level should be tax-free only if all donor details are made available to the taxman.

Also, all political parties should be forced to respond to RTI queries on their funding and their big donors should be disclosed on their websites. The donors, often big businessmen, may not like this, but a mature democracy needs openness to make political affiliations apparent.

It won’t be easy to get all parties to agree to a common minimum programme of political funding reform. But the state financing of candidates in elections can be done first before making party funding more transparent and subject to verification by auditors and the general public.

And it is worth repeating one truth: money is not the problem. It is political parties’ lack of enthusiasm for reform that is the problem.

(Note: This article was part of an earlier one published in Dainik Bhaskar)