Arun Jaitley's Political Funding Reforms is Not Perfect, But it is a Step Forward

The proposals on reforming political financing are the biggest talking points of Budget 2017. Finance Minister Arun Jaitley proposed reducing the ceiling for cash payments to political parties to Rs 2,000 and the issuance to electoral bonds.

News18's Tushar Dhara spoke to Dr. Jayaprakash Narayan on the implications of the proposals for electoral democracy and campaign finance. JP, as he is known, is a former IAS officer from Andhra Pradesh and the founder of the Lok Satta movement, which later became a political party. He has worked on campaigns to clean up election financing including framing the Disclosure of candidate details, and the disclosure law (2003), Political funding reform law of 2003 in the wake of Tehelka expose, Right to Information Act and Lokpal Act, among others.

Here is what he said:

It’s a step forward, but a small step forward. We must understand the background to this to appreciate what this means. In 2003 during the Tehelka scam, cash was given to political leaders. George Fernandes was among those accused, then BJP President Bangaru Laxman had to leave his job. So those in public office received cash, and even if there was no proof of quid pro quo, the implication was that cash was exchanged for favours.

At that time we canvassed with everyone, including Arun Jaitley who was the law minister, L.K.Advani, who was deputy prime minister and the home minister and the President [of India] who was in opposition, Dr. Manmohan Singh, who was Rajya Sabha leader of Congress party and other, we told them, let us do one small thing: create a window for honest expenditure in political parties, because the big issues of political reform, vote buying or black money would take time to address. The moment you take cash it is tainted, particularly if you are in office. All parties agreed.

Congress appointed a committee headed by Dr. Manmohan Singh to look at party finances. The then NDA accepted the recommendations and the report of the Congress party’s internal committee, which is a rare occurrence. The UPA and NDA unanimously enacted this law, which mandated personal and corporate tax exemption to all political contributions to the donors (100% exemption subject to a ceiling in case of corporate, 5% of net average profits of the year), whether you give as cash or cheque there is no extra liability. The idea is if I am not paying one rupee extra by way of tax, why should I give cash, I may as will give a cheque. The parties must show this and there must be disclosure and of course above 20,000 rupees must be by cheque and below by cash.

In the case of 20,000 rupees, the exception has become the norm, 65%-80% of the collections of parties are shown as below 20,000 rupees. But there is another important thing. When that law was enacted Mr. Advani directed his party, the BJP - and his word was the last word in the party – now that we have created this window let us not take cash, they did the honourable thing. Instantly, and I have it on good authority because Mr. Jaitley himself told me, the contributions fell by 80%-90%, even though the BJP was the ruling party. That is the point the Finance Minister was making in his Budget speech. The fear is that there will be retribution if I make a contribution to a party. While it is perfectly legal to fund any party I like if I like their ideology, given India’s political economy there is fear of retribution. If it is known that I have funded the Congress, the BJP may attack me and arrest me and if I fund the BJP the Congress will do it. This is a genuine fear.

[In Budget 2017] What Mr. Jaitley has done is two things: 20,000 rupees has been reduced to 2000 so that it becomes harder for parties to pretend that millions of people gave 2000 rupees each. The second is that he created a structure, the bonds mechanism, by which the contributions are tax exempt, but who has given the money is not disclosed to the public, because I can give bearer bonds to any party of my choice and they will redeem it without disclosing the identity. So it is transparent funding without revealing the identity so that I am not subject to harassment. It is a uniquely Indian phenomenon.

Mr. Jaitley’s point is valid. In a country where the vast amount of funding is through black money, at the most 3%-5% is going as contribution to parties, the rest of it candidates are spending on vote buying etc, finding a legitimate window for tax exemption is the first thing. While the source may not be revealed the expenditure is revealed. It is not perfect, but a step forward. Mr. Jaitley himself is not claiming it is perfect. At least it will take away the incentive to give cash, because of the fear of retribution. To that extent I am fully supportive, because I understand the context.

But...the real thing is, take the present round of elections in UP, Punjab, Uttarakhand, Manipur and Goa. They are talking about Rs. 10-15,000 crores being spent. This is in one set of assembly elections comprising 20% of India’s electorate. In the past 11 years since 2005 the total amount shown as contributions to political parties is only Rs. 11,000 crore!

Then there are Lok Sabha elections, local government elections, in a cycle of 5 years the expenditure of parties and candidates for vote buying is Rs 1 to 1.5 lakh crore. In 5 years you’re not showing more than Rs. 5-6000 crore as party funding. So this is a miniscule issue. The real issue is: how do you eliminate vote buying? That cannot be through public funding. The problem of Indian elections is not campaign finance, it is vote buying and illegitimate expenditure, which can only be addressed by radically transforming the nature of politics. For instance a proportional election system, where each vote is not valued that much. Direct election of a Chief Minister or Governor, I go for the whole state with my agenda, my popularity, and my track record.

The BJP is talking about one nation, one poll. Frankly, that is not a big reform. That will not change anything. But, we can use it as an opportunity to go for direct election of the head of government. The benefits are the following:

Number one, if I am contesting for an assembly seat, spending 5-10 crores on a seat makes sense, because if it pays off I can get back the money in multiples. But if you’re contesting for head of government of Andhra Pradesh, Telangana or UP, spending 4000 crores is outrageously risky. Therefore the system will shift to the personality of the candidate rather than vote buying.

Number two is proportional representation. I don’t see that happening right now because the BJP gains from the current first past the post system. Earlier the Congress was the beneficiary. BJP will not accept it right now. But if proportional representation is accepted then the marginal vote, which is so important in FPTP, will not be so important. So you go for share of the vote rather than a few more votes. For instance, in Germany only if a party gets X% of the vote will it get representation, but once you get that X% your seats are in proportion to your votes. The seats are in proportion to the votes and I don’t have a fear whether I am getting more votes in Varanasi, Gandhinagar, or in Hyderabad.