Untangling the Electoral Web: A path towards transparent financing

Articles 324-326 of the Constitution that guarantee to every Indian a free and fair election, also assure, intrinsic to this right, that statutory and constitutional organisations ensure rigorously a level playing field. With the Rs 1.35 lakh core staggering spending on the just concluded 18^th Lok Sabha Poll, (an amount which is more than double of the Rs 60,000 crores spent in 2019) questions on the role of money power in polls once again surfaces. The fact that electoral spending was also grossly imbalanced between political players with the ruling Bharatiya Janata Party (BJP) having amassed unbridled amounts through both the Electoral Bonds Scheme –declared illegal and unconstitutional by the Supreme Court of India—and unchecked and un-audited donations to the private PM Cares fund, also made the 2024 a one-sided battle.

What are the laws and rules governing money spending in elections? Are they observed in letter and spirit?

The laws on election funding

Election financing in India is governed by a comprehensive set of laws, rules, and guidelines designed to maintain transparency, accountability, and integrity in the electoral process. These regulations cover various aspects of election expenditure by both individual candidates and political parties. Below is an in-depth exploration of these laws and their implications, including the latest guidelines and expenditure limits for the upcoming Lok Sabha elections in 2024.

The Representation of the People Act (RPA), 1951, sets forth a comprehensive framework for the maintenance and submission of election expenses by candidates.

Section 77(1) of the RPA mandates that every candidate meticulously maintain a correct account of all election expenses incurred from the nomination date to the result declaration date.
This requirement is reinforced by Section 78, which obliges candidates to submit their accounts of election expenses to the district election officer within thirty days of the result declaration.
Non-compliance with these provisions can lead to severe repercussions under Section 10A, which allows for the disqualification of a candidate for up to three years for failing to lodge an account of election expenses or for lodging an incorrect account.
Moreover, Section 123(6) identifies exceeding the prescribed limit of election expenditure as a corrupt practice.

The Election Commission of India (ECI) set specific expenditure limits for candidates in the 2024 Lok Sabha Elections[1]. For instance, in Andhra Pradesh and other states, the expenditure limit is ₹95 lakh for each Lok Sabha candidate and ₹40 lakh for each Assembly candidate. In smaller states and Union Territories, these limits are slightly lower, set at ₹75 lakh for Lok Sabha candidates and ₹28 lakh for Assembly candidates. These limits encompass all election-related activities, including public meetings, rallies, advertisements, posters, banners, and vehicles. To ensure compliance, the ECI is required to closely monitor the expenditure of each candidate, requiring them to maintain separate account books for election expenditure and use only one bank account for all election-related transactions. Additionally, candidates, agents, and party cadres are prohibited from carrying more than ₹50,000 in cash and ₹10,000 worth of material in their vehicles, with any excess subject to seizure by election authorities. Recognized political parties’ star campaigners can carry a maximum of ₹1 lakh in their vehicles.

In terms of transparency, the ECI’s guidelines[2] stipulate that expenditures over ₹20,000 by political parties must be made via cheque, draft, or bank transfer, except in specific circumstances. Unrecognised parties must file their election expenditure statements with the Chief Electoral Officer of the respective state. When providing financial assistance to candidates, political parties must adhere to prescribed expenditure limits and ensure payments are made through accountable financial instruments. Furthermore, political parties are required to maintain and submit annually audited accounts by qualified Chartered Accountants to the ECI.

Over the years, the expenditure limits have undergone various changes. For example, in 2019, the limits were set at ₹70 lakh for Lok Sabha candidates and ₹28 lakh for Assembly candidates. The last major revision before 2024 occurred in 2020, increasing the expenditure limits by 10%. In response to the growing number of electors and rising costs, the ECI formed a committee to study cost factors and make suitable recommendations for enhancing the ceiling limits. The committee considered the increase in electors from 834 million in 2014 to 936 million in 2021 (an increase of 12.23%) and the rise in the Cost Inflation Index from 240 in 2014-15 to 317 in 2021-22 (an increase of 32.08%). These factors, along with the shift to virtual campaigning, were crucial considerations in recommending the revised expenditure limits.

The PUCL v/s Union of India (2003) case endorsed stronger disclosure and auditing norms, advocating for statutory audits and proper formats for filing election expenses.

The financial Burden of elections

The 2024 Lok Sabha Election broke all records and became the most expensive electoral event in the world, with expenditure reaching ₹1.35 lakh crore[3]. This staggering amount, more than double the ₹60,000 crore spent in 2019, underscores the significant financial burden of elections in India and highlights the ongoing issue of transparency in political funding.

Despite the much-proclaimed extensive regulatory framework established by the ECI to monitor and control election spending, transparency remains a major concern. The ECI has prescribed specific expenditure limits for candidates—₹95 lakh for Lok Sabha candidates and ₹40 lakh for Assembly candidates in larger states, with lower caps in smaller states and Union Territories. These limits are intended to cover all campaign-related expenses, including public meetings, rallies, advertisements, and transportation.

However, the actual expenditure far exceeds these limits, as political parties and candidates find ways to circumvent the restrictions imposed by the Model Code of Conduct.

The cost of entry into Indian politics has surged to unprecedented levels, with the intertwining of wealth and power creating formidable barriers for aspiring candidates, particularly those from less affluent backgrounds. As evidenced by the data from the recently concluded state assembly elections in Madhya Pradesh, Rajasthan, and Chhattisgarh, a significant proportion of winning candidates possess assets valued at crores, reflecting the increasing role of wealth in electoral politics[4].

In Madhya Pradesh, 44% of winning candidates boast assets of 5 crores and above, while Rajasthan and Chhattisgarh present similar trends, with 39% and 30% respectively[5]. The comparative analysis further reveals a substantial increase in the average assets of re-elected MLAs, with the Indian National Congress witnessing a staggering average asset increase of 51% in Madhya Pradesh, 37% in Rajasthan, and 49% in Chhattisgarh[6]. The concentration of wealth among successful political representatives raises concerns about the affordability of political participation and the exclusion of individuals who cannot afford the exorbitant costs associated with electoral campaigns.

Hidden costs and under-the-table transactions

N. Bhaskara Rao, chair of the Centre for Media Studies (CMS), notes that pre-election activities, such as political rallies, transportation, hiring of workers, and even controversial practices like horse-trading of political leaders, contribute significantly to the overall expenditure[7].

A recent report by the Association for Democratic Reforms (ADR) reveals that approximately 60% of contributions to the six major political parties in India from 2004-05 to 2022-23 came from undisclosed sources, totalling ₹19,083 crore[8]. This lack of transparency is largely due to the use of electoral bonds, which allow for anonymous donations. The Supreme Court of India’s recent ruling[9] declaring the Electoral Bond Scheme unconstitutional highlights the need for greater transparency in political funding. The Court noted that the anonymity granted by the scheme promotes corruption and quid pro quo arrangements, undermining the integrity of the electoral process.

Despite the ECI’s efforts to enforce expenditure limits and ensure transparency, political parties often engage in under-the-table giveaways, including gifts, cash, and gold, to influence voters. This practice continues to rise with each election, reflecting the growing reliance on money power over ideology in Indian politics.

Third-party campaigners and lack of regulation

A significant yet often overlooked aspect of electoral expenditure is the role of third-party campaigners[10]. These are individuals or groups that participate in campaign activities without being formally registered as political parties or candidates. Indian electoral laws lack clear definitions and regulations for third-party campaigners, leading to a lack of transparency and accountability.

The unchecked expenditure and nature of content posted by third-party campaigners raise serious concerns, especially in the context of the now-scrapped Electoral Bond Scheme. The absence of regulation for third-party expenditure often leads to an influx of unaccounted money into the electoral process and quid pro quo arrangements.

Election freebies: implications and measures for electoral integrity

Election freebies, often manifesting as promises of goods, services, or financial incentives, have become a widespread strategy used by political parties to sway voters. While these tactics can attract short-term support, they pose significant risks to the principles of free and fair elections. Addressing the implications of election freebies is crucial for ensuring electoral integrity and fostering a more informed electorate.

The impact of election freebies

The allure of immediate gains can skew voters’ decisions, leading them to prioritize short-term benefits over long-term policies and governance capabilities. This undermines the democratic process, as decisions are not based on informed evaluations of candidates’ platforms and performance. Additionally, large-scale promises of freebies can impose a heavy financial burden on state budgets. This often results in the misallocation of resources, diverting funds away from essential services such as education, healthcare, and infrastructure development, which are critical for sustainable growth and development.

The repeated reliance on election freebies fosters a culture of dependency among voters. This discourages them from making informed choices based on policy performance and long-term benefits, instead creating an expectation of continual handouts from political parties.

Election freebies distort the democratic process by encouraging voters to base their decisions on immediate material gains rather than the long-term development and governance capabilities of candidates. The financial burden of these promises diverts funds from critical public services, potentially hindering sustainable growth and development.

Freebies and welfare schemes have been a defining feature of Indian politics, especially around election times. While they can provide immediate relief and benefits to the public, their timing and intent often draw scrutiny, raising questions about the ethical implications of using public resources to secure votes. The recent slew of schemes announced in the Budget 2024-25 and the extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) are prime examples of this practice.

Several ambitious schemes aimed at fostering development and addressing various socio-economic issues were introduced by the government in the month of February 2024. The “Viksit Bharat by 2047” initiative outlines a vision for a developed India by 2047, including a 50-year interest-free loan of Rs. 75,000 crore to state governments to drive significant development in the economy, environment, and social progress. The “Rooftop Solarisation Scheme” or PM Suryodaya Yojana aims to provide 300 units of free electricity per month to one crore households through the installation of rooftop solar panels, offering substantial annual savings, promoting entrepreneurship, and creating employment opportunities for the youth. In the health sector, the government proposed a vaccination program for girls aged 9 to 14 to prevent cervical cancer, potentially improving women’s health outcomes significantly.

The budget also proposed changes to existing schemes. The government plans to provide two crore more houses under the PM Awas Yojana (Grameen) in the next five years, addressing the increasing housing needs in rural areas despite the challenges posed by COVID-19. Various maternal and childcare schemes will be unified under a comprehensive program to improve early childhood care, nutrition, and immunization through platforms like U-WIN and Mission Indradhanush.

In January 2024, the government extended the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for five years, providing free food grains to 81.35 crore beneficiaries. This scheme, with an estimated cost of Rs. 11.80 lakh crore, aims to ensure food security and mitigate financial hardship for the poor and vulnerable sections of society.

Policy-making close to elections occupies a grey area, teetering between genuine public service and strategic political manoeuvring. While the intent behind such policies might be to address pressing societal issues, their timing raises suspicions about whether they are authentic welfare measures or electoral strategies aimed at swaying voters.

Policies announced just before elections can be perceived as tools to gain voter favour. Ruling parties introduce popular schemes during this period to create a positive image and garner support that might otherwise be lacking. This practice leads voters to make decisions based on short-term benefits rather than considering long-term policy impacts. The immediate appeal of these measures can overshadow critical analysis of their sustainability and overall efficacy.

The integrity of governance is also at stake when policies are perceived as electoral gimmicks. The timing of these announcements erodes public trust in the government’s intentions and transparency.

There is a delicate balance between providing necessary welfare and using public resources for electoral gains. Genuine welfare policies should be designed with long-term sustainability and impact in mind, not merely for short-term electoral advantages. Transparent and accountable governance can help ensure that welfare schemes are implemented effectively and fairly, benefiting those in need without compromising fiscal health or ethical standards.

Although these policies might not technically be classified as “freebies,” they often serve a similar purpose. They provide immediate relief and address pressing needs, but their timing close to elections often raises ethical concerns. This practice can violate the principle of free and fair elections by unduly influencing voter behaviour through state resources.

The recent schemes announced in the Budget 2024-25 and the extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) highlight this complex interplay between welfare and electoral strategy. While they offer immediate benefits and address urgent needs, their proximity to elections brings into question the genuine intent behind them.

Moving forward, it is crucial for policymakers to balance addressing immediate needs with ensuring long-term sustainability. Welfare schemes should genuinely benefit the public and not merely serve as electoral tools. Transparent governance and accountable implementation are key to maintaining this balance and fostering trust in public institutions. Only through such measures can the delicate line between public service and political strategy be navigated effectively, ensuring that the true spirit of welfare is upheld while maintaining the integrity of the electoral process.

Transparency in electoral finance

In the realm of democratic governance, transparency in electoral finance stands as a crucial pillar, ensuring that the voices of the people are not drowned out by the influence of vested interests. India, like many democracies, grapples with the challenge of ensuring fair and transparent elections amidst the complexities of modern politics. In this pursuit, the concept of state funding of elections has emerged as a potential solution, offering to mitigate the influence of private donors and level the playing field for all candidates. This comprehensive piece explores the various facets of state funding, drawing insights from recommendations by esteemed commissions, different models of implementation, and the imperative of transparency in electoral finance.

Understanding state funding of elections

State funding of elections fundamentally entails the government providing financial support to political parties and candidates, thereby reducing their reliance on private donations. This support can manifest in various forms, including direct grants, subsidies, or reimbursements for campaign expenditures[11]. The overarching aim is to curtail the disproportionate influence of wealthy individuals and corporations on the political process, thereby safeguarding the integrity of elections and promoting democratic principles.

Recommendations by Commissions

In the discourse surrounding state funding of elections in India, several influential commissions have provided valuable recommendations, shaping the conversation and informing policy considerations. These commissions, through their reports and findings, have underscored the potential benefits of state funding while also highlighting the need for a robust regulatory framework to ensure transparency and accountability. Let’s delve deeper into the recommendations put forth by these esteemed bodies:

Indrajit Gupta Committee (1998)[12]:

The Indrajit Gupta Committee, established in 1998, conducted a comprehensive review of electoral finance practices in India. Recognizing the disparities in financial resources among political parties, the committee recommended state funding as a means to level the playing field. Importantly, the committee emphasized the provision of non-monetary support, such as free transport, to ensure fairness among parties with limited resources. Additionally, it proposed two key restrictions on state funding: limiting it to national and state parties with recognized symbols and providing short-term funding in kind rather than cash.

Law Commission of India Report (1999)[13]:

The Law Commission of India’s report in 1999 echoed the sentiment of the Indrajit Gupta Committee, advocating for state funding of elections under a stringent regulatory framework. Emphasizing the importance of transparency and accountability, the report recommended that political parties should not be allowed to accept funds from sources other than the state. It underscored the need for comprehensive reforms to ensure the integrity of electoral finance practices.

National Commission to Review the Working of the Constitution (2001)[14]:

While not explicitly endorsing state funding of elections, the National Commission to Review the Working of the Constitution in its 2001 report echoed the sentiments of the Law Commission. It highlighted the necessity of establishing an appropriate regulatory framework for the regulation of political parties before considering state funding. The commission emphasized the importance of addressing systemic issues and strengthening regulatory mechanisms to uphold the integrity of electoral processes.

Second Administrative Reforms Commission (2008)[15]:

The Second Administrative Reforms Commission, in its “Ethics in Governance” report from 2008, advocated for partial state funding of elections. Recognizing the pervasive influence of illegitimate and excessive funding in elections, the commission underscored the importance of curbing such practices through state intervention. It recommended measures to reduce the dependency of political parties on private donors, thereby enhancing transparency and fairness in electoral finance.

Benefits of state funding

The adoption of state funding of elections offers a myriad of advantages that resonate with the core tenets of democracy. Firstly, by reducing the dependence of political parties on private donors, state funding limits the undue influence of wealthy individuals and corporations on political outcomes. This ensures that policies and decisions are guided by the interests of the electorate rather than narrow vested interests. Moreover, state funding levels the playing field for all candidates, irrespective of their financial resources, thereby fostering healthy competition and diversity in political representation. Additionally, state funding mandates public disclosure of party finances, enhancing transparency and accountability in electoral finance. This increased transparency not only empowers citizens to make informed choices but also serves as a deterrent against corruption and malpractice in electoral processes. Furthermore, by lowering financial barriers to entry, state funding encourages democratic participation, enabling a more diverse range of candidates, including those from marginalized or underrepresented groups, to engage in the political process. Overall, state funding of elections aligns with the principles of fairness, transparency, and inclusivity, which form the bedrock of democratic governance.

Different models of state funding

The German model[16] of “matching grants” provides an intriguing approach to state funding, offering financial support to political parties based on their electoral performance. Under this system, parties receive funding from the state, which is proportional to their vote share in recent elections. This mechanism ensures that parties with broader popular support receive a larger share of state funding, thereby reflecting the will of the electorate. Additionally, the German model mandates immediate reporting of high-value donations and imposes strict regulations to promote transparency in electoral finance. Moreover, smaller parties are provided equitable funding opportunities through this model, provided they meet a predetermined threshold of electoral support, typically around 5%. By incentivizing parties to garner public support and discouraging reliance on private donors, the German model fosters a more democratic and transparent electoral process.

In contrast to the German model, the United States employs a system of federal election funds to support presidential candidates[17]. The Federal Election Commission provides matching funds to candidates who meet specific criteria, such as adhering to spending limits and securing a threshold level of public support. This system is funded through a voluntary $3 tax checkoff on federal income tax forms, allowing citizens to contribute to the financing of presidential elections. While the US model offers some degree of public financing, it also highlights the significant influence of private donations, particularly from Political Action Committees (PACs) and Super PACs, which can circumvent spending limits through independent expenditures. Despite its limitations, the US model underscores the importance of public participation in financing electoral campaigns and provides insights into the challenges and opportunities associated with state funding.

Application to India

In the context of India, a hybrid model drawing insights from both the German and US approaches could offer a pragmatic solution to electoral finance reforms. This model could incorporate elements of proportional state funding based on vote share, akin to the German model, along with public financing mechanisms for candidates who meet eligibility criteria, similar to the US model. Additionally, stringent regulations and oversight mechanisms would be essential to ensure transparency, accountability, and integrity in electoral finance practices. Such regulations could include strict limits on campaign spending, immediate disclosure of donations above a certain threshold, and rigorous enforcement of penalties for non-compliance.

However, implementing state funding of elections in India would also pose significant challenges and require careful consideration of various factors. These challenges may include logistical issues in administering state funds, ensuring equitable distribution among diverse political parties, and preventing misuse or misallocation of funds. Moreover, public perception and political will may play a crucial role in determining the feasibility and acceptance of state funding reforms. Addressing these challenges would necessitate a collaborative effort involving policymakers, electoral authorities, civil society organizations, and other stakeholders to design and implement a robust framework for state funding of elections.

A national election fund- another approach

In addition to exploring models of state funding inspired by global practices, India can consider the establishment of a National Election Fund as a pivotal component of electoral finance reform. This dedicated fund would serve as a centralized repository for political donations, streamlining the process of financing elections and enhancing transparency and accountability.

The idea of a National Election Fund has been championed by eminent personalities in the realm of electoral reform[18], including former Chief Election Commissioner T.S. Krishnamurthy[19]. In various fora and publications, Krishnamurthy has underscored the importance of centralizing political contributions and ensuring their transparent allocation to promote fairness and integrity in the electoral process. His advocacy for the establishment of a National Election Fund has garnered attention from policymakers, electoral authorities, and civil society organizations, sparking discussions on the feasibility and implementation of such a fund in India’s electoral landscape.

The National Election Fund would be created with the primary objective of centralizing political contributions and ensuring their transparent and equitable distribution among political parties[20]. All political donations, whether from individuals, corporations, or other entities, would be directed to this fund, thereby eliminating the need for parties to solicit funds independently. The fund would serve as a neutral arbiter, allocating resources based on predetermined criteria to ensure fairness and inclusivity.

The allocation of funds from the National Election Fund would be governed by transparent criteria, such as a party’s electoral performance, adherence to democratic practices, and representation of diverse interests. Parties that meet certain eligibility requirements, such as securing a minimum threshold of electoral support or adhering to ethical standards of conduct, would be eligible to receive funding from the National Election Fund. This transparent allocation process would mitigate the influence of private donors and promote a level playing field for all political parties and candidates.

One of the key features of the National Election Fund would be its emphasis on encouraging public participation in political financing[21]. The fund would provide matching funds for small donations from individual citizens, incentivizing grassroots engagement in the political process and reducing the influence of large, potentially influential donors. This emphasis on public participation not only diversifies the donor base but also reinforces the democratic principle of citizen empowerment in shaping the political landscape.

Conclusion:

In the pursuit of strengthening democratic governance and upholding the principles of transparency and fairness, India stands at a crossroads in its approach to electoral finance. The comprehensive exploration of state funding of elections, supplemented by the proposal for a National Election Fund, underscores the imperative of reform in this critical domain. As the world’s largest democracy, India must navigate the complexities of electoral finance with foresight, pragmatism, and unwavering commitment to democratic ideals.

The journey towards transparency in electoral finance is multifaceted, requiring concerted efforts from policymakers, electoral authorities, civil society organizations, and citizens alike. While state funding of elections offers a promising avenue to reduce the influence of private donors and level the playing field for all candidates, its implementation necessitates careful consideration of regulatory frameworks, oversight mechanisms, and stakeholder engagement. Drawing inspiration from global best practices and indigenous innovations, India can chart a path towards a more transparent, inclusive, and participatory electoral process.

Since India is done with the Lok Sabha elections of 2024, addressing the issues raised by the burgeoning nexus of wealth and power is paramount. While electoral reforms have made significant strides in safeguarding the integrity of the voting process, the high cost of entry into politics threatens to undermine the democratic aspirations of millions. A reassessment of the current political financing environment is essential to ensure affordability in democracy and meaningful public engagement. By embracing transparency and accountability, India can uphold its democratic values in the face of evolving political and economic realities, fostering a political landscape that is truly representative of the diverse aspirations and interests of its citizens.

[1] https://old.eci.gov.in/files/file/13928-limits-of-candidate%E2%80%99s-expenses-enhanced/

[2] https://www.eci.gov.in/transparency-guidelines

[3]https://economictimes.indiatimes.com/news/elections/lok-sabha/india/rs-1-4-lakh-crore-the-cost-parties-are-paying-to-woo-voters-in-the-worlds-biggest-elections/articleshow/110196142.cms?from=mdr

[4] https://thewire.in/politics/entry-cost-into-politics-soaring-high-money-elections-and-participation

[5] Ibid

[6] Ibid

[7]https://www.thehindu.com/news/national/unveiling-the-veil-expenditure-disparities-in-indias-electoral-system/article68143486.ece

[8]https://www.thehindu.com/news/national/almost-60-of-the-funds-received-by-national-political-parties-are-from-unknown-sources/article67925069.ece

[9] Association for Democratic Reforms v Union of India, 2024 INSC 113

[10] https://www.orfonline.org/wp-content/uploads/2013/02/IssueBrief_47.pdf

[11] https://prsindia.org/theprsblog/state-funding-of-elections?page=2&per-page=1

[12] https://legislative.gov.in/document/indra-jit-gupta-committee-report-on-state-funding-of-elections/