The Lok Sabha polls are round the corner and preparations for financing have acquired frenzied proportions. Largescale deployment of money to influence the results has been attracting the attention of the Election Commission of India (ECI) as also of the thinking sections of the citizenry over the past several years. The ECI has the statutory powers to regulate, monitor and control the expenses being incurred by the candidates, their friends and the political party they belong to. But the question whether it has been able to really curb or even contain the use of black money in the electoral process begs the answer.
Financial transparency in electoral process has three interconnected aspects: campaign finance, financing of political parties and disproportionate increase in the assets of some of the elected representatives. Any attempt to clean the process of the unaccounted and/or dirty money needs to address all the three issues in a holistic manner. However, the ECI’s writ runs only on campaign financing and not on the other two.
Interestingly, nobody has the authority to regulate the financing of political parties. Though the Income Tax department and the CBI theoretically have the authority to examine the disproportionate increase in the assets of individuals, they do not exercise it until arm-twisted by courts in rare cases, and then too with much reluctance. Recall the fate of such cases against Mulayam Singh Yadav and Mayawati.
Over the years, the ECI has been taking stringent steps to curb and monitor the election spending by and on behalf of the candidates. These include steps such as laying down a ceiling of maximum permissible expenses, limiting the period of campaigning, including expenses incurred on behalf of the candidate in his expenses, requirement to incur election expenses from a specific bank account, maintenance of day-to-day record of such expenses, and submission of expenditure statements to the ECI, etc.
The machinery of posting of expenditure observers for each constituency has been strengthened with the setting up of video surveillance and media monitoring teams, flying squads, expenditure control room, etc in each constituency and the requirement to maintain a shadow expenditure register to check the veracity of the accounts being maintained by the candidate. All this has given teeth to the ECI to monitor election expenditure, but it’s a cat and mouse game in which political parties remain far ahead of the regulator. And as usual, it is the mouse that is trying to bell the cat!
The Association for Democratic Reforms (ADR) and National Election Watch (NEW) obtained and analysed the statements of expenses filed by the candidates who contested the 2009 Lok Sabha polls. Surprisingly, it found that the average expenditure reported by the serious candidates was between 45 and 55 percent of the then permissible limit of Rs 25 lakh. In fact, the average expenditure of even winning candidates of different parties came out to be about Rs 15 lakh. The lowest admitted expenditure of one of the elected MPs was Rs 1.31 lakh. This was all the more astonishing considering that the general refrain of political parties has been that the ceilings on the election expenditure are unrealistic. In fact, based on the feedback of political parties, the ECI itself has since raised the expenditure ceiling for parliamentary constituencies to Rs 40 lakh and is now proposing to raise it to Rs 70 lakh.
The moot point is that whatever the expense ceiling may be, if a candidate admits having incurred that expenditure, he would need to have accounted sources to explain it. Otherwise, a part of even the permissible expenditure has to be met from unaccounted sources.
Besides the anecdotal evidence that actual expenditure is anywhere between 5 to 10 times of the ceiling, there are at least three types of evidence in the public domain that suggest that the election expenditure declared by most candidates to the ECI are a gross understatement:
♦ Published studies by reputed academic institutions (see The Market for Criminality: Money, Muscle and Elections in India by Milan Vaishnav of Columbia University, Party System Fragmentation, Intra-Party Democracy and Opaque Political Finance and India in Transition Series by E Sridharan, University of Pennsylvania)
♦ Field surveys by independent and trustworthy NGOs working in this domain, such as the Centre for Study of Developing Societies, Centre for Media Studies etc
♦ Reports of actual seizures of cash/liquor/drugs etc during the 2012 Assembly polls by the election authorities (52 crore in cash, 7.5 lakh litres of liquor, 56 kg of heroin and 102 kg of opium)
The ECI handbook of Instructions on Election Expenditure Monitoring (published September 2011) reports a variety of ingenious ways being deployed for clandestine distribution of cash to voters. Some of the methods used for unaccounted expenditure to influence voters are cash distribution through self-help groups/NGOs, village headmen, pawn brokers, newspaper vendors, milk vendors; community meets/feasts/aartis etc; organising mass marriages/local sporting events/medical camps/entertainment shows etc. Besides, large sums are also spent on setting up dummy candidates, winning over poll agents of rivals, utilising vehicles and other facilities of non-serious candidates.
A new trend has emerged in recent years to evade the ECI’s monetary limit. Since the limit applies to expenses from the date of announcement of election, the actual campaigning is started much before the announcement of election dates. Witness that serious campaigning for the forthcoming Lok Sabha polls started from November onwards and leaders of main political parties have already criss-crossed the whole country holding what they themselves claim to be mega rallies. The expenses incurred by the parties on this until the announcement of election dates would not be includible in the expenditure ceiling.
Another area where black money is used for electoral gain is ‘paid news’. It emerged as an ingenious device a few years ago and, if sources are to be believed, has now spread far and wide like a virus, including at vernacular and English media outlets. The latest in this league is the infiltration of the agencies conducting opinion polls, even for respectable news channels. The Press Council had earlier taken note of the menace of paid news but has lately gone silent on the subject. The broadcast media is anyway outside the Press Council’s purview. So the field remains open.
Though incurring expenditure in excess of the permissible ceiling is regarded as a ‘corrupt practice’ and punishable by disqualification, hardly anyone has ever been disqualified for such an offence.
The strictness displayed by the ECI has only forced the election expenditure to go underground, while the expenditure ceilings continue to be flouted and a large part of the actual expenditure is being met from unaccounted sources.
State funding of political parties/candidates based on some equitable criteria is often suggested as a solution to eliminate the proliferation of black money in the electoral process. While State funding may provide some succour to parties/candidates who do not have the resources or clout to enter the electoral fray, it is unlikely to have any effect on the use of black money by those who have access to such funds.
Therefore, besides the various steps taken by the ECI, some additional/alternative ways and means need to be thought out for curbing the influence of black money on the electoral process. Perhaps, incentivising the parties to take recourse to electronic means of communication (television, FM radio, Internet, social media and the like) and newspaper ads etc, while placing further restrictions on the physical means of contacting the voters (rallies, processions and the like) could be one. Some of the steps that can be examined in this regard are: longer free air time on public sector broadcast medium to all candidates, and the non-inclusion of expenditure on the use of electronic means of communication in the ceiling on election expenses etc.
But, at the end of the day, it is public pressure through civil society movements that will make any serious dent in this problem.
Financing Of Political Parties
Strange as it may sound, there are nearly 1,400 political parties that are registered with the ECI under the Representation of the People (RP) Act, 1952. Most of these have never contested any election, leave alone win a seat in Parliament or any Assembly. Two direct advantages of obtaining registration from the ECI are: a registered political party can start collecting donations from day one while its income becomes exempt from income tax; and the entire donations made to a party become exempt in the case of donors without any upper limit. No wonder, as per ECI sources, on an average, more than 100 new parties are seeking registration with the ECI every year.
The process of seeking registration is simplicity itself. The applicant party has to file a proforma application, together with copy of its constitution, proof of having at least 100 members, and a bank draft of 10,000, and give certain undertakings such as that it will comply with the Constitution of India, it will file annual statements of accounts with the ECI, it will contest election within five years etc. Once the documentation is complete, the registration is more or less automatic.
The RP Act requires all registered political parties to file an annual statement of all donations over 20,000 received by them from any one person, with the ECI by 30 September of the following year. Information obtained by an NGO Public Information Foundation under the RTI Act, showed that until June 2012, only 98 of the 1,196 political parties (registered until then) had filed their donation statements, and that only 174 registered political parties had filed their audited statement of accounts for FY 2010-11.
Again, strange as it may sound, the ECI has no power to ensure compliance, either with this statutory requirement or with the undertakings given by the political parties at the time of registration. In fact, it has no power to deregister a political party for any reason whatsoever.
The ECI also exercises the power of granting recognition to registered parties under the Election Symbols (Reservation and Allotment) Order, 1968, as a state-level or national-level party depending upon the number of votes it secured in the last election to the Assembly or Parliament. Such recognition is of great value to a genuine party as it confers on the party the privilege of having a reserved election symbol across the country.
Out of nearly 1,400 registered parties, only six are registered as national parties and another 41 as state-level parties. The rest are all unrecognised, which means that they have either not contested any election or their candidates have not been able to obtain even the minimum percentage of votes/seats prescribed. But all of them are eligible for income tax exemption for themselves as well as for those who make donations to them.
By an amendment to the Income Tax Act in 2003, it was provided that income of all registered political parties will be fully exempt if they maintain books of account, get their accounts audited by a chartered accountant of their choice, and file the statement of any donations above 20,000 received by them, with the ECI by the due date giving names and addresses of the donors.
Simultaneously, all donations made by individuals or corporates to a registered party were made fully exempt in the hands of the donor without any upper limit. While for all other types of organised entities, like companies, firms, societies, trusts etc the Income Tax Act lays down detailed rules and guidelines regarding the books of accounts and other records to be maintained, the accounting standards to be followed, the proforma of audit report and return of income etc, it does not do so for the registered political parties. There is also no requirement that the donations received by the political parties or the income earned by them should be utilised for genuine political activities of the parties, and not on any other objects — say, personal use of its members or office bearers etc.
Again, unlike other organised entities, political parties are allowed to file their returns of income on paper and not on an electronic medium — which makes any kind of verification that much difficult. The guidelines of the Income Tax department for selection of cases for scrutiny do not include the cases of political parties. As a result, returns of income of political parties even where filed are not subjected to any verification and are accepted on a summary basis.
The Income Tax department also does not maintain any separate record of registered political parties. A report brought out by ADR-NEW shows that many of the recognised state-level parties (some of them ruling parties in their states) and most of the registered parties neither file their returns of income with the Income Tax department nor their annual statements of donations (of above 20,000) with the ECI. The same report also examined the information relating to annual donation statements filed by the major national and state-level registered parties with the ECI and co-related these with the sources of income disclosed by them in their returns of income for FY 2004-05 to 2010-11. It found that in one case the party claimed to have received entire donations running into several crores in amounts below 20,000, in seven cases the percentage of such donations was above 80 percent, and in most other cases above 50 percent. This implies that large cash amounts are being credited by these parties in their books of account as cash donations or coupon sales received from anonymous sources. Thus, cash donations/coupon sales below 20,000 per case have become an open avenue for political parties to introduce any amount of black money in their books, and also avail exemption from tax, with no questions asked. In other words, a large part of the sources of even admitted incomes of most of the active political parties remains opaque and unamenable to any verification.
A still more damaging development is the use of dormant/non-functional parties for money laundering. A news item in The Times of India dated 14 January 2011 says that the ECI believes fraudulent political parties are being floated to launder money, which finds its way into the stock market and is also used to buy jewellery, but has little to do with electoral campaigning or any other political expenses. It adds that as per ECI estimates, only 16 percent registered parties (or about 200) are actually involved in political activities — most others are floated to park money illegally as donations to exploit the tax exemptions.
It is noteworthy that prior to the amendments in the Income Tax Act in 2003, the tax exemption was available only to political parties recognised under the Symbols Order. Considering the misuse of the amended provisions, there are strong reasons to deny the blanket exemption to those political parties, which are unable to get recognition under the Symbols Order within five years of their registration. Instead, such parties can be allowed to claim the exemption available to public charitable trusts if they fulfil the conditions applicable to those trusts.
Need For A Law Regulating The Financial Affairs Of Political Parties
All this brings out in sharp relief the urgent need to set up a statutory mechanism for monitoring/regulation of the financial affairs of political parties. It is notable that all other organised entities that raise money from public or deal with public funds or are eligible for tax exemptions are governed by some statute or the other regulating their affairs, eg, the Companies Act, the Trusts Act, the Societies Registration Act, to name a few. These laws not only set up the authorities and the mechanism for regulating the affairs of the respective entities but also provide disclosure norms requiring them to place basic information of their financial affairs in public domain — some of which is on an electronic platform. There is no reason why similar obligations should not be statutorily placed on registered political parties. Some progress in this regard has happened through the steps taken under the RTI Act. But this is hardly sufficient.
Disproportionate Increase In The Assets Of Elected Representatives
Following a 2003 Supreme Court judgment, the EC requires all candidates contesting General and Assembly polls to submit an affidavit at the time of filing their nomination, disclosing particulars of all moveable and immoveable assets held in the names of self, spouse and dependents. Particulars of latest return of income are also required to be given. Besides, there is a one-time requirement on the elected MPs to furnish their property statement to the presiding officer of the respective House of Parliament within 90 days of taking oath.
ADR-NEW analysed the election affidavits of 304 MPs of the 14th Lok Sabha (2004) who contested again in the 2009 General Election and found that the average value of assets of these recontesting MPs has increased from 1.92 crore in 2004 to 4.8 crore in 2009, ie 280 percent. Similarly, large increases were noted in the assets of MLAs recontesting the 2012 Assembly elections. The ADR-NEW report also brought out that a large number of candidates/MLAs contesting the elections admitted of having never filed a return of income — even those who disclosed assets of several crores and election expenses of several lakhs.
Although the ECI receives the election affidavits of the candidates, it has no power to take any action in cases of disproportionate increase in disclosed assets compared to the known sources of income. Therefore, it routinely forwards the affidavits to the Income Tax department for verification. Information in these affidavits is in the nature of 40statement of wealth. In most cases, the candidates are not assessed to income tax, leave alone wealth tax. Even those who are assessed to income tax file their returns of income only. The proformae of returns of income in use for last several years (particularly the Saral/Sahaj/Sugam) do not include any statement of wealth. As a result, the information in election affidavits cannot be readily verified with any available information in the Income Tax department. Is it then any wonder that except in a few rare cases, no verification of the information in election affidavits happens even in the Income Tax department?
Thus, on the one hand, there is every indication that black money has spread its tentacles far and wide in the electoral system; on the other, there is really no effective mechanism to check its influence. Further, it is anybody’s guess as to how much of this is ‘dirty money’, ie the proceeds of crime and corruption etc.
A more ominous development staring us is the likely use of black money in local body elections. It is estimated that the three-tiered system of decentralised governance has added nearly 29 lakh new elected positions at the grassroot level, multiplying the demand for election finance and possibilities of use of black money manifold.
(SS Khan is a former member of Central Board of Direct Taxes)