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Friday, April 16, 2004

dir="ltr">This is the first general election in which disclosure of financial details of all candidates, their spouses and dependents is mandatory, as a necessary part of the nomination. However, the media are regaling us with stories of absurd ‘disclosures’ by may candidates, concealing much more than they reveal, and making amusing reading in some cases. Why is this so?

For any one familiar with our culture of ‘black’ money, this should come as no surprise. One of the problems of our accounting is that honest earnings on which taxes are paid are fully disclosed. But dishonest earnings, or income which has been concealed to avoid tax is never disclosed. The results are paradoxical. Often, the honest professional or entrepreneur who earns legitimate income and pays full tax is seen to be rich. The corrupt public servant or dishonest entrepreneur who cannot reveal his income, and the individual who conceals his income to evade tax are seen to be asset-poor. Given decades of license-permit-quota raj, and our socialist mindset, all wealth creation is still regarded sinful by many Indians. The distinction between unearned money and genuine wealth creation is often blurred in our public discourse.

Given this sorry state, judging candidates by what they disclose would be foolhardy. Often, the honest candidate may disclose assets, and the wily one may conceal his ill-gotten proceeds. But disclosure of financial details still has a value. Usually candidates would disclose what they submit to income tax authorities. Over time, researchers, media and civil society activists can expose the disparity between the life style and properties enjoyed, and assets disclosed. This could become a tool for curbing the influence of black economy in politics, and to fight tax evasion and corruption. But the problem of black money is much more deep-rooted. Ubiquitous corruption has become the chief source of such unaccounted and untaxed money. If an entrepreneur bribes the revenue officials and evades excise duty, he enjoys multiple benefits. His products become more price-competitive and he can undercut his tax-paying rivals in the market. As he conceals production, he evades sales tax and steals power, causing further loss to the exchequer and utilities. Of course, he does not have to bother about income or corporate tax, as there is no official production! With competition stifled, the very basis of market economy collapses. Legitimate entrepreneurs are driven out of business, and unscrupulous ones thrive!

Corruption apart, our real estate transactions are rarely transparent. A sizable portion of the consideration is accepted in cash either to conceal illegal earnings, or avoid stamp duty and capital gains tax. Most citizens who are otherwise honest and well-meaning have become part of this vicious cycle of concealment and perpetuation of black economy. No wonder, our tax-GDP ratio is abysmally low for a modern economy. Given these circumstances, it would be churlish and downright hypocritical if we blame the politician in isolation for concealment of assets. An all-out assault on black money and corruption through practical, sensible and innovative measures is heeded.

We still need to answer a larger question: why do parties nominate candidates with vast unearned and concealed resources? Reliable estimates indicate that the visible, and largely legitimate (even if illegal because it is over the legal expenditure limit) for Lok Sabha election for serious contenders is of the order of  Rs.1.5 crore. But often, much of the expenditure is ‘invisible’, and incurred in the last three days before polls, and may exceed the visible campaign expenditure. In certain states like Andhra Pradesh, Karnataka and Tamilnadu, the total expenditure incurred by a serious candidate may be of the order of Rs. 4 to 5 crores for Lok Sabha, and Rs 1 crore for State Assembly – most of it spent to buy votes, distribute liquor, hire hoodlums, and sometimes bribe officials to turn a blind eye at poll irregularities. In a five year cycle, the total expenditure for State Assemblies and Lok Sabha is estimated to be about Rs 7000-10000 crores, assuming there are no mid-term polls.

Such large expenditure is a result of many systemic failings. As major parties have become electoral machines to acquire power without purpose, most cadres are mercenaries. Most parties have become private estates of those at the helm. Absence of internal democracy means that candidates often have to spend lavishly to be known, and party members have no loyalty to the cause or candidate, and their time has to be bought. With excessive centralization of power and delinking of vote from public good, many voters have become short-term maximisers. As a rational response to an irrational situation, they seek money in exchange for their vote. Often both the leading candidates end up bribing the same voters! As a result, huge expenditure does not guarantee success, but non-expenditure almost certainly leads to defeat! The irony is that the final verdict at the macro level is unaltered, as we developed a system of compensatory errors, in which the malpractices of one candidate are neutralized by those of his rival! Given this situation, the parties are compelled to nominate ‘winnable’ candidates who can match their opponents in mustering money and muscle. Money power in elections and corruption in public office thus feed on each other. Not surprisingly, a class of political ‘entrepreneurs’ emerged in recent decades. Large sums are invested in elections, and multiple returns are ‘earned’ in public office through rent-seeking. This is the seemingly intractable crisis we witness in our electoral politics. That is why repeated change of players does not seem to change the rules of the game. Over half of all incumbents are not returned to office irrespective of which party wins. And yet, there is no real change in governance.

In September 2003, all parties acted with wisdom and impressive unity of purpose to enact a sound law on political funding. Honest funding of legitimate political activity and elections is now possible. But no law can curb illegitimate expenditure unless the incentives are altered in our electoral system and power structure. The parties can no longer pretend that all is well with our politics and elections. There is a crisis of legitimacy of our political system. Recent initiatives by Parliament on funding, defections, limiting the size of Council of Ministers indicate a welcome recognition of the need for reform. But much more needs to be done to change our electoral system, bring down illegitimate expenditure, alter the incentives in elections, and attract the best and brightest into politics. The current elections are remarkable in that the economic issues and governance have occupied centre-stage. Is it too much to hope that after the elections our law-makers will focus on political reform and restore legitimacy to our electoral system?