dir="ltr">A recent vital piece of legislation relating to political funding went largely unnoticed in media and political circles. The Election and Other Related Laws (Amendment) Bill, 2003 (Bill No. 18 of 2003) was approved by both Houses of Parliament in August 2003, and became law in September with the assent of the President. In any other functioning democracy, such a law would have been hailed as a major reform, and dominated public discourse for months. The deafening silence on the subject in India is a sad reflection of the quality of public discourse.

This law is far-reaching in its consequences. If such a law were enacted in the US, the American political funding crisis would have been resolved. True, our political funding crisis is far more complex, and is closely linked to our electoral system and the politics of fiefdom practiced in most parts of India. Unlike in the US, most of our election expenditure is both illegal (unaccounted and beyond the ceiling limits), and illegitimate (for buying votes, bribing election officials and hiring hoodlums). Not surprisingly, parties and candidates are loath to disclose funding sources and expenditure.  Despite these limitations, this law is a major step forward in cleansing our polity.

The law accomplished three important objectives. First, it removed the loophole inserted in 1974 in respect of election expenditure ceiling in the form of explanation 1 under Section 77 of the Representation of the People Act, 1951. In a brazen display of dishonesty and political chicanery, the law was amended in 1974, and all expenditure incurred or authorised by a political party or by any other individual or body of persons or association was exempted from election expenditure ceiling. This amendment made a mockery of the election expenditure limits, and the spirit of the law was violated with impunity by most parties and candidates. No wonder, Prime Minister Vajpayee stated publicly that almost every elected member started his public career with a big lie, by declaring that his election expenditure did not exceed the legal ceiling! At last, now this legal infirmity is removed by Section 4 of the new law, whereby only the travel expenditure incurred by leaders of political parties is exempt from election expenditure  limits. For recognised political parties, the number of leaders whose travel costs are exempt is limited to forty, and for other parties, to twenty. By any standard, this is a reasonable exemption. Now, all other election-related expenditure incurred by a party, or person will be counted for ceiling purposes. While the illegitimate, concealed expenditure may continue, all visible, legitimate campaign expenditure will have to be disclosed and calculated, and shall not exceed the limits imposed by law – currently Rs 600,000 for Assembly constituencies and Rs 15,00,000 for Lok Sabha in major states.

Second, a strong incentive has been provided for open contributions to political parties. Parties need money for organization and mobilizing public opinion, and to compete in the market place of ideas. Candidates need money to get themselves known and to reach the voters and communicate effectively. Our failure to evolve rational incentives for political funding has severely distorted the electoral process. Parties and candidates have habitually abused their political clout to extort money, and the license-permit raj of the past gave ample opportunities for unaccounted resource mobilization. We have never recognized that political activity is a noble endeavour, and should be funded legitimately. This ambivalence led to several flip-flops in the past. Companies Act was amended in 1960 allowing corporate contributions to political parties. But in 1969, at the height of license-permit raj, such contributions were prohibited. Then in 1985, Rajiv Gandhi government amended the law again, permitting companies to contribute up to 5% of their average three years net profits for political purposes. However, in the absence of tax incentives, most companies preferred to fund parties clandestinely for a variety of reasons – on account of the ubiquitous black economy, for fear of retribution from rival parties, and as a bribe or extortion money for favours received or anticipated, or avoiding harassment. For the first time, the law now provides for full tax exemption to individuals and corporates for all contributions to registered political parties. Sections 80 GGB, and 80 GGC have been inserted to this effect. Even in the US no such tax exemption exists. In fact, companies are prohibited from making political contributions, though certain loopholes allowed funding of soft money. And there are limits to individual contributions in the US – a maximum of $2000 to a candidate, $20,000 per year to a national party committee, and aggregate limit of $95,000 for all contributions in a 2 year cycle. Considering this, the tax incentive provided by the recent law is a vital step in encouraging open and accountable funding of parties. As a corollary, all contributions of Rs 20,000 and above must be disclosed by the party to the Election Commission, and such information will be in the public domain.

Perhaps the most far-reaching reform from a long-term perspective is the indirect public funding now available to recognized parties in the form of allocation of equitable share of time on the cable television network and other private or public electronic media, based on past performance. The recognized parties will now get free broadcasting time in all electronic media. If the Election Commission applies this provision creatively, not only will parties get free time, but we can have exciting debates between candidates and parties. The US presidential debates could be one sensible model to emulate. This has the potential to transform the nature of political campaigning, and will reduce campaign costs dramatically. In the US, about 70% of all campaign cost is for TV advertising. At one stroke, parties in India have been given a powerful platform to reach voters free of cost. In addition, the practice of free supply of copies of electoral rolls is now sanctified by law, and rules can now be framed allowing supply of other material. Eventually, direct public funding in cash can be contemplated. Such public funding has to be transparent, verifiable, non-discretionary and based on performance.

All in all, this is a great step forward for our troubled democracy. That it received support from all parties is a source of great optimism about the future. Clearly, all major parties are alive to the need to curb corruption, and provide legitimate means of political funding.

The NDA combine, and in particular Law Minister Arun Jaitley, and the Congress party which formed a committee headed by Manmohan Singh to examine political funding deserve to be congratulated in full measure. The nation owes them a debt of gratitude.

As pointed out earlier, this law is not enough to resolve our political crisis. Most expenditure in elections is illegitimate, and many politicians have become ‘entrepreneurs”, converting politics into big business. The first-past-the-post system, coupled with parliamentary executive in states dependent on legislators’ support for survival on day-to-day basis led to a deep crisis. Systemic reform alone will bring back sanity to politics. But the political funding reform now in place is a vital break through, and an important first step in our quest for honest politics and good governance.