The economics of elections

It is impossible to fight elections without lots of black money. Every politician needs access to black money, either directly or through his party. Maybe this leads to corruption, but it is politically necessary a democracy’. This sums up the attitude of virtually all politicians. Even fundamentally moral ones, who do not accept bribes themselves, take money form their party although they know this has been collected through dubious means. They feel the system leaves them with no choice.

It is utterly wrong to have businessmen financing politicians. In that case elections cease to be public goods and become private goods, with businessmen investing in politicians to earn a return.

The answer, of course, is to change the system. It is ridiculous to justify black election money in the name of democracy. Elections are no doubt costly. They constitute public goods that benefit all citizens. So they should be financed by the tax revenue gathered form citizens.

It is utterly wrong to have businessmen financing politicians. In that case, elections cease to be public goods and become private goods, with businessmen investing in politicians to earn a return. As a liberaliser, I am dead against this sort of privatisation. The funding of elections is one activity which must be nationalised, taken over by the state.

Today, all political parties suddenly favour the public funding of elections. The hawala scandal has made them keen to improve their image and reduce their dependence on black money. In the past, one party was typically dominant and had a major advantage over others in extorting money and so resisted change. But today no party dominates, and so all see equally good opportunities in reformed system. Sceptics say politicians will continue with their dirty tricks, and treat public funding as an additional bonus. Up to a point. This will certainly happen. But at least politicians will no longer be able to say black is inescapable. The current, tainted system compromises all politicians, honest people form entering politics. Indeed, entrenched crooks start with an enormous advantage over honest reformers, and this is hardly what democracy should be about. Public funding is a necessary, though not sufficient condition for clean politics.

What sort of public funding should we have? I would like to present a 10-point programme for a new system.

  1. Today, any candidate getting less than 10 per cent of the popular vote loses his deposit. We should use the same yardstick for pubic funding. In each state, candidates of parties winning per cent of the popular vote at the previous election should qualify for pubic finding.Independents who won 10 per cent of the vote in their constituency should qualify too. This leaves new parties at a disadvantage. But past experience shown that a new party with ideas that catch the public imagination can get to 10 per cent of the vote without any significant election spending, so the disadvantage is temporary.
  2. We should accept the Election Commission’s suggestion to raise the spending limit of candidates to Rs 15 lakh for a parliamentary constituency and Rs 6 lakh for a state assembly one. The current legal limits are almost a quarter of the proposed sums, which is why they are widely flouted.However, the law also permits unlimited spending by parties on behalf of candidates, making a mockery of the ceiling. We need a realistic but comprehensive, enforceable ceiling. The Parliamentary limit of Rs 15 lakh must include all spending, whether by a candidate, his friends or his party.
  3. Public funding should be half the permissible ceiling-that is, Rs 7.5 lakh per parliamentary constituency. If three candidates per constituency get public funding, the total cost for a general election will come to no more than Rs 116 crore, negligible in an over-all budget of Rs 187, 000 crore.State elections should be similarly funded from state budgets. During a recent TV debate, a Congressman suggested that the government should match contributions raised by a party, a system followed in some foreign countries. Such a system confers an unwarranted advantage on ruling parties, which can extort ‘contribution.’ A matching grant system in our context would mean matching private lot with public money, and must be avoided.
  4. The distribution of public election funds must not be entrusted to the outgoing government. It must be entrusted to the Election Commission, which will ensure impartial distribution to all parties.
  5. As suggested by the Goswami Committee, the bulk if not all public funding should be a kind-copies of electoral rolls, paper for posters, petrol, diesel, vehicle hire.
  6. In the USA, more than 90 per cent of election spending in on TV time. The electronic media are by far the most effective way of reaching a mass audience. Historically, this has not been possible in backward, poor India. But the latest NCAER survey shown that 20 per cent households own TV sets and 40 per cent radios, far higher percentages of voters than a candidate can hope to attract to public meetings. So we need a scheme to give candidates free time on public radio and TV as part of public election funding. As India modernises, this will become the most powerful form of electioneering here too.
  7. Company contributions to parties should be banned. There is no reason why companies should finance elections-that only creates an unsavoury nexus between companies and politicians. In practice, company contributions today are small. White money is taxable, so businessmen prefer to use black money. Besides, they do not want to publicise payments for which they expect a reward later on. Some reformers have suggested tax exemption for company contributions to encourage white money. I disagree. Companies should not be allowed to contribute either white or black money.
  8. Individual citizens must be allowed to contribute to candidates, to show their enthusiasm and support. This is an essential feature of all democracies. Businessmen cannot be denied this right, provided they use their personal funds, not corporate ones. However, we should limit personal contributions. The limit per citizen could be Rs10, 000 per candidate, subject to a maximum to ten candidate . That is high enthusiasm without being high enough to buy politicians.
  9. The Election Commission should appoint independent auditors to inspect the accounts of each candidates, including spending by his party and friends. The submission of accounts must be done within a month of the elections, and the audit completed within six months. Anybody found guilty of violating the rules must be disqualified speedily, and prohibited from contesting the next elections well. The accounts should be made public, so that all funds have come form and how they have been spent.
  10. Candidates must declare the assets of their immediate families under oath. Anyone later found with undeclared assets must be disqualified, jailed for perjury, and prohibited from fighting the next election. Company contributions to the parties should be banned. There is no reason why companies should finance elections—that creates an unsavoury nexus between companies and politicians.

    These suggestions go beyond public funding, and include other safeguards to reduce the role of money in elections. I am not dogmatic about all ten points, Some could be amended this way or that. But in any case we need urgent, radical reform, perferably in the very first session of the next Parliament.

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