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Needs For Transparency In Fund Allocation By Political Parties During Election Campaigns

While political financing is an important part of the role of political parties in the democratic process, transparency and openness in the fund allocation by political parties are the cornerstones of a well-functioning democracy. Non-disclosure of such allocations fuels corruption. Political campaigns require significant resources to be effective.

In India's case, recent political-fiscal "reforms" have done little to make political parties accountable for the money they receive and apportion, and have legitimized opacity. As per a report published by NDTV, the donations of the National Parties during 2021-2022 have increased by 31.5% and BJP got about 72% of all political funds via electoral trusts in 2021-22. This article provides an overview of the political-financial regime in India and the need for transparency in fund allocation. Finally, the paper offers some possible steps to increase transparency and accountability in political finance and restore the health of Indian electoral politics.

Political finance is inherently less of an issue given that election campaigns can engage citizens and initiate democratic dialogue between parties and the voters. It strengthens political parties and provides the opportunity to compete on an equal footing. However, money can be a tool for some to unnecessarily influence the political process, unequal access to funds can undermine equality of opportunity, and unregulated political finance can lead to inflows of money black, political solicitation of commercial interests, and widespread voting.

Political campaigns cost money, and the ability to raise funds largely determines a party's ability to compete. Donations are a legal way for people to participate in politics, but sometimes there are conditions attached. The need for political parties and their representatives to finance political struggles can lead large donors to exert undue influence on political agendas. The risk came to a head when some private donors donate large sums of money leading to a lack of transparency. In many countries, campaign finance has proven to be the weakest phase of the electoral cycle.

Genesis Of Political Funds In India

The origin of the political finance regime in India can be divided into three phrases

In the first phase, which lasted from 1947 to 1990, there was a shift from traditional funding (primarily dues on memberships) to corporate donations, with private companies donating money to various parties in exchange for regulatory favors. The institutionalization of the practice first raised concerns about the links between black money and political finance in the 1960s.

The first step towards a regulatory scheme began in the case Kanwar Lal Gupta v. Amar Nath, where the Supreme Court of India ruled that the expenses of a candidate for the representation of a political party should be included in the calculation of election expenses of that candidate to determine whether the election expenses limit. But this was abolished by an amendment introduced by Parliament in 1975 to the Peoples Representation Act (RPA) of 1951.

During the second phase, covering the period from 1990 to 2003, various electoral reforms were initiated, including the recommendations of the Dinesh Goswami committee, such as government funding in the form of limited in-kind support (fuel vehicle, microphone rental, issued in 1990, voter cards, electoral rolls) and it also proposed to ban corporate donations to political parties. The most notable development during this phase was from the Common Cause case of 1996 - the Supreme Court sent notices to political parties asking them to file their returns by February 20, 1996. To determine compliance with the capped expenditure of a debate with a candidate only takes place if the party has submitted its audited accounts. This obliges 4,444 political parties to declare their annual income, which brings some transparency.

The third phase between 2003 and 2017, is characterized by increased efforts to increase transparency on political funding. The Elections and Related Acts (Amendment) Act of 2003 made corporate and individual donations to political parties 100% tax deductible, encouraging corporate/individual donors to donate publicly by check.

In 2017, the ruling government took several initiatives in the name of political-financial "reforms" which increased the money paid to all parties through digital payments/cheques but did not provide transparency or disclosure of the identity of donors. These include the introduction of electoral bonds, the removal of restrictions on corporations making donations to political parties and the requirement to report political contributions on their tax returns, and amendments to the law Foreign Contributions Regulation Act (FCRA), 2010 which will facilitate indirect foreign funding. Political cash donations exceeding 2000 rupees per person were also prohibited.

Exigency Of Transparency In The Allocation Of Political Funds

To covenant the independence of parties from the undue influence of stupendous donations by, individuals, corporations, etc., and to ensure that the parties compete on equal footing and there is transparency in the allocation of political funds, there is a significant need to regulate party funding.

The UN Human Rights Committee, in the year 1996, articulated:
"Reasonable Limitations on Campaign expenditure may be justified where this is necessary to ensure that the free choice of Voters is not undermined or the Democratic process distorted by the disproportionate expenditure on behalf of any Candidate or Party. The results of genuine Elections should be respected and implemented."

According to the 255th Law Commission of India Report: Electoral Reforms, the need for transparency in political funds allocation is derived from the following concerns:
  • Financial superiority leads to a"winnability" factor or electoral advantage, and thereby wealthier parties and candidates get a better chance of winning elections, as also expressed by the Kanwar Lal Gupta case.
  • Financially weak individuals or parties were unable to participate fairly in elections thereby infringement of equality before the law.
  • To lessen the incidence of corruption, black money, and crony capitalism in electoral politics, transparency in Political financial reports is necessary.
  • Elected officials face dangerous financial pressure due to quid pro quo between major donors and parties/candidates, necessitating reduced political capture of funds.
  • Large donations, although legal, lead to "institutional corruption" which undermines the political ethics of republican democracy. If candidates/parties are too closely tied to financiers, it will change their views and beliefs in ways that attract the most money, then they will be less accountable to voters.

Current Legal Framework Guiding Transparency In Funds Allocation By Political Parties

Every country in the world has some form of regulation on the role of money in politics. The most common regulations include provisions prohibiting/restricting donations from certain sources, limiting spending, and state/public funding, which vary from country to country.

In the case of India following are the governing provisions and leading principles:
  1. Limitations to the contribution to political parties are regulated by The Representation Of Peoples Act, 1951, The Companies Act, 2013, and The FCRA, 2010. There is no limit on individual contributions but political contributions in such cases cannot be more than 2000 rupees in cash per person.
  2. There is no ceiling limit on corporate donations to political parties now. Previously, there was a limit of 7.5% which was removed by the amendment introduced to section 182 of the Companies Act 2013 in 2017.
  3. Election Bond Scheme (notified January 2018) � Anyone, including corporations, can donate anonymously to various parties through these bonds by purchasing these bonds to be designated in the State Bank of India. Its denominations range from 1000 rupees to 10 crore rupees.
  4. Foreign donations to candidates or political parties are prohibited. However, after FCRA 2010 Amendment changed the definition of "foreign source," candidates/parties are now able to accept donations from foreign companies registered in India.
  5. Partial State Funding: These kinds of subsidies are in the form of free airtime in state-owned electronic media (since 1996) and are permitted, based on party performance, free copies of voter lists, and maps of the identity of voters.
  6. Disclosure of Funds: Section 29C of the RPA 1951 requires financial reports of all contributions received by a party over Rs. 20,000. Parties are also required to submit audited annual accounts to ECI by 31 October annually in accordance with the Guidance Note issued by the Institute of Chartered Accountants of India.
  7. According to Section 77 of the RPA 1951 and Election Rules 1961, there is a limit on election expenses undertaken by a candidate, in the case of constituencies in Parliament the range is 70 lakh rupees, and 23 lakhs in the case of assembly constituencies. There were no such restrictions on party spending in the elections campaigning.

General Recommendations
Donation ceilings must be set to ensure that no donor can unduly influence candidates/parties and the political process as a whole.

The following types of donations should be prohibited or restricted:
  1. Donations from Foreign donors to prevent Foreign influence.
  2. Corporate Donations to ensure independence from special interests.
  3. Public/semi-public entities avoid using public funds for political purposes.
Spending limits should be introduced to reduce unfair advantages to financially advantaged applicants.

Financial reporting requirements should be in line with the spirit of the United Nations Convention against Corruption. They facilitate transparency, enable voters to make informed decisions and ensure effective monitoring of compliance.

The Law Commission of India in its 255th Report on Electoral Reform as well as the ADR has made various recommendations from time to time but has yet to implement them.
Some of them are:
  1. The Law Commission report disclosure is at the heart of political and financial public oversight and must be strictly enforced. In this regard, the ECI Transparency guidelines should receive statutory support.
  2. The parties disclose the name, address, and PAN details of the donor and the amount of the donation, even if the contribution is less than Rs. 20,000.
  3. Completely abolish cash donations. An arbitrary limit of 2,000 rupees has allowed parties to cavort with the system, resulting in reported amounts just below the threshold.
  4. The Law Commission recommends that political parties be sanctioned for not complying with provided statements of contributions received by political parties under the RPA. The party is to be fined 25,000 rupees for each day of non-compliance, refusing in extreme cases, while the fine for submitting false information should be up to half-million rupees.

No regulatory framework can guarantee effective enforcement of political finance regulations, because in a democracy, laws governing political finance are passed by politicians themselves. The willingness and ability of parties and other stakeholders to use funds appropriately and to comply with the law in letter and spirit are paramount.

How a political party manages its access to and use of funds defines the basis of a democratic political fiscal system. In addition to political will, strong institutional control is also essential. Organizations responsible for enforcing political and financial regulations must be independent, capable of inclusive and transparent appointments to leadership with a guaranteed tenure. These functions are an integral part of better implementation and efficient execution.

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