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The End of the Electoral Bond Era

This episode is a collaboration with Grand Tamasha, an excellent podcast on the latest developments in Indian politics, economics, foreign policy, society, and culture.
Milan Vaishnav, the host of Grand Tamasha, joins us for this bonus episode. On 15 February 2024, the Supreme Court, in a unanimous landmark verdict, struck down the controversial electoral bonds scheme. Given that general elections are just around the corner, Milan discussed how this judgment will impact the financing of political parties in the largest democracy in the world.
If you like our podcast do consider supporting us with a donation at the link below: https://www.dakshindia.org/donate/

Show Notes

  1. The DAKSH Podcast https://www.dakshindia.org/the-daksh-podcast/
  2. Ajoy Sinha Karpuram, Why did the Supreme Court strike down the Electoral Bonds Scheme? https://indianexpress.com/article/explained/explained-law/supreme-court-electoral-bonds-verdict-9163729/

  3. Arun Jaitley, Why Electoral Bonds are Necessary https://pib.gov.in/newsite/PrintRelease.aspx?relid=175452
  4. Association for Democratic Reforms & Anr.  Writ Petition (C) No. 880 of 2017 https://main.sci.gov.in/supremecourt/2017/27935/27935_2017_1_1501_50573_Judgement_15-Feb-2024.pdf

  5. Part 1: Behind the BJP’s rise and rise, bonds, trusts and raids on corporates https://www.newslaundry.com/2024/02/20/behind-the-bjps-rise-and-rise-bonds-trusts-and-raids-on-corporates

  6. DAKSH Podcast, Crime and Politics (Milan Vaishnav) https:www.dakshindia.org/crime-and-politics/

  7. Milan Vaishnav, On electoral bonds, a short-lived celebration https://www.hindustantimes.com/opinion/on-electoral-bonds-a-short-lived-celebration-101708170676086.html
  8. Press Release: Introduction of the Scheme of Electoral Bond https://www.dea.gov.in/sites/default/files/Electoral%20Bonds_Press%20RELEASE_2-1-2018.pdf

Leah – Hello and welcome to this special bonus episode of the Daksh Podcast. This episode is a collaboration with Grand Tamasha, an excellent podcast on the latest developments in Indian politics, economics, foreign policy, society and culture. I’m your host, Leah.

I work with Daksh, a Bangalore-based non-profit, working on judicial reforms and access to justice. A few weeks ago, on 15th February 2024, the Supreme Court, in a unanimous landmark verdict, struck down the controversial electoral bond scheme. Given that general elections are just around the corner, we wanted to examine how this judgement will impact the financing of political parties in the largest democracy in the world.

Joining me on this special episode is a friend of the podcast and returning guest, Milan Vaishnav. Milan is a Senior Fellow and Director of the South Asia Programme at the Carnegie Endowment for International Peace. He is also the author of When Crime Pays, Money and Muscle in Indian Politics.

This was the subject of a previous episode of the Daksh Podcast, a link to which is in the show notes below. He is also the host of the Grand Tamasha Podcast. I began by asking Milan why a regular Indian citizen should care about how elections are funded.

Leah – Hi Milan, welcome back to the Daksh Podcast.

Milan – It’s good to be here, thanks for having me.

Leah – So the big news that came out of the Supreme Court last week was the decision on electoral bonds.

So, of course, the decision made headlines and sent ripples through the political establishment. Not surprising since it’s 2024 and general elections are around the corner. But as a regular Indian citizen, why should I care about the dynamics of electoral funding?

Milan – So that’s a really good question.

And I think there are at least four reasons why ordinary Indian citizens should care. I think the first is that we now have accumulated evidence to show that access to personal wealth or networks of wealth has become a sort of non-negotiable requirement of contesting office in India. This is especially true at the state and national levels.

In other words, access to wealth has become a sort of litmus test for whether or not you’re going to be a competitive candidate in state and national elections, which means there is sort of decreasing space for the proverbial aam aadmi, or sort of a common man or woman to be a political representative. I think the second is that large-scale giving by high net worth individuals and or corporations creates the possibility of quid pro quos between well-endowed supporters and office holders. If a company is bankrolling a politician or political party, they might well expect policy or regulatory favors once they come into office, if they win their election.

Number three, we know that increasingly candidates are putting more of their own resources into electoral campaigns. Parties are seeking candidates who can be self-funding or self-financing. Now, when candidates are investing such a large sum of their own money into campaigns, they face every incentive to engage in rent-seeking or corruption once in office to make back that money with interest.

And last but not least, I think to the extent that money acts as a barrier of entry to higher office, it can also further entrench economic inequality because the types of people who are going to be occupying the parliament and the state assemblies are from the 1% of the population. And so therefore, it is those interests that are going to be reflected in the policymaking process.

Leah – Yeah, the point about quid pro quo was also mentioned in the Supreme Court judgment where they said that when corporations are donating money to political parties, it’s not out of ideology, which could be in the case of individuals, but it is for quid pro quo, it is for favors.

So I think that’s a really important point to keep in mind. So before we dive into the judgment and its implications, I’d like to just go back a little in history and discuss the history of electoral funding in India. So post-independence until 1969, when the Indira Gandhi government banned corporate donations, how were contributions to political parties made? And were there any restrictions on spending?

Milan – So I think it’s wise to break this up in the two parts that you alluded to, spending and contributions.

Let me start with spending. There was a piece of legislation passed shortly after the Constitution was ratified, the Representation of the People Act, 1951. And in that legislation, it lays out sort of ground rules for how campaigns are to work and how elections are to be conducted.

In that legislation, there are strict limits on how much candidates can spend during their election campaign. Now, from the very beginning, there was some ambiguity as to whether spending carried out by political parties or independent third-party supporters of candidates could be accounted for on candidates’ ledgers, right? So would candidates have to assume the responsibility of what parties or third-party supporters spend on their behalf? In the mid-1970s, the Supreme Court ended this ambiguity by saying the two can’t be de-linked. In other words, yes, individual candidates have to accommodate outside expenditures within their own candidate expenditure limits.

In less than a year, the Indira Gandhi government essentially nullified that. They introduced an amendment which explicitly stated that any third-party spending on behalf of the candidate wouldn’t count towards the candidate’s ceiling, right? So, in other words, there were strict limits from the beginning, on paper anyway, for what candidates could spend. Zero limits on what parties could spend.

So then let’s think about the contribution side. If you go back to some of the writing on the earliest days of the Republic, in fact, this goes even before 1947, the Congress Party, which was the dominant party, obviously, for that entire period, relied heavily on membership contributions to fund its operations. The party was not averse, didn’t neglect accepting help from corporate houses, but it tried to keep, at least in the public eye, the kind of arm’s-length distance from corporate interests.

I think we start to see this attitude shifting in the post-1947 era as membership resources failed to keep pace with the party’s growing ambitions, right? When the rough and tumble of nationwide elections hits, membership dues weren’t going to cut it. I think there was a key inflection point, and you alluded to this in your question, in 1969, and that is when Indira Gandhi, as prime minister, banned corporate donations to political parties. Now, the pretext she used to do that was to attack, in a frontal way, corruption and rent-seeking, but I think the historical evidence suggests that her motivations were strictly political.

She was worried about right-wing conservative parties, namely the Jan Sangh and the Swatantra Party, gaining ground on the Congress and getting support from corporate interests. Now, rather than instituting a kind of public finance system for elections, this ban on corporate donations simply pushed corporate funding of elections underground, right? And the ban took place alongside a whole other series of policy changes associated with import substitution. So you had nationalization of various sectors like banking, insurance, coal.

You had stringent controls on foreign investors. You had various, quote-unquote, anti-monopoly provisions that tightened the state’s grip on the sort of commanding heights of the economy. So, in this context, these corporate donations took place, in black, under the cover of darkness, in a manner that was extortionary, rather than simply corporates contributing to the political party.

Leah – So, in this next phase, you know, in the 70s and 80s, whenever we think about corporations and political parties, you know, we have this image of oily businessmen carrying briefcases filled with wads of cash. So, as you had said, you know, so the corporate donations go underground. It becomes a means of transferring black money to these political parties.

So, now, in 1985, when corporate donations were legalized again, did that move reduce the reliance on black money and did it foster greater transparency?

Milan – Yeah, it’s a really good question. So, what happens in 1985, then Prime Minister Rajiv Gandhi and their son, re-legalizes corporate donations. And the legislation passed said that firms are allowed to contribute up to 5% of their average net profits over the three previous years to political campaigns.

This did not really move the needle, because I think the damage had already been done. For decades, you essentially had a routinized practice of making non-transparent donations to political parties in exchange for special policy or regulatory dispensation. And that system had become so entrenched, there really wasn’t much incentive for either side, firms or parties, to deviate from this past practice, right? I think firms especially had an incentive to give on the sly, because this allowed them to evade retribution if their preferred party didn’t come to power, right? I mean, firms would have sleepless nights if they gave to a political party.

There was an election, that political party then became in the opposition. They could face retribution from the new ruling party. So, one final thing that happened in 2003, again, didn’t really do much to move the needle, was that then NDA government passed a set of electoral reforms, including making corporate donations 100% tax-deductible for the very first time.

But all of the evidence suggests that that, too, did not bring election funding above ground.

Leah – So, the next major development is electoral bonds, and that’s the main subject of our discussion today. So, if you could just describe for our listeners the contours of the electoral bond scheme.

Milan – Yes, electoral bonds kind of came out of left field. I don’t think anyone was really expecting it. They were a new instrument of political giving, announced by the then finance minister, Arun Jaitley, in his 2017 budget speech in Parliament.

And electoral bonds are essentially bearer bonds that private entities, individuals, associations, or firms can purchase from the State Bank of India, which, of course, is a public sector concern, transfer those bonds to the registered bank accounts of political parties. Now, what this does, essentially, is to provide a legal avenue for entities to contribute to political parties through legitimate banking channels, while also protecting the anonymity of both the donor and the recipient. That’s essentially electoral bonds in a nutshell, but I think it’s important to note for our listeners that in conjunction with the introduction of electoral bonds, the government made two additional pretty significant alterations to campaign finance law.

The first was to completely eliminate the cap on corporate giving, which had stood at 7.5% of a corporation’s average net profits, up from 5% when Rajiv Gandhi re-legalized corporate donations. The second change was to eliminate the provision that firms who make political donations must declare those contributions on their annual profit and loss statements. Now, take this all in total.

Firms, individuals, associations can now give unlimited sums of money to political parties with neither the donor nor the recipient having to disclose that transaction. And that, essentially, is the major change that electoral bonds brought about.

Leah – Let me quickly go through some statistics on electoral bonds before we go further on this discussion.

So, between March 2018 and January 2024, 16,518 crore rupees was collected through the sale of electoral bonds. 94% of the contributions that came from electoral bonds were of the 1 crore denomination. So, these were not small contributions.

57% of the money went to the ruling BJP. So, Milan, as a non-profit, we are governed by very strict regulations on foreign donations and there’s always this bogeyman of the foreign hand that is discussed when it comes to non-profits or even foreign contributions to the media. We don’t see that kind of a discussion around foreign contributions to political parties.

So, if you could just describe what is the regulatory regime around that?

Milan – So, this is a very, very interesting question, Leah, where there have been changes in recent years. Basically, before 2016, foreign funding of elections was strictly prohibited under the law. The Modi government made a minor but critical alteration to the law.

This is the Foreign Contribution Regulation Act, known as FCRA. It made an alteration to that law that potentially opened up the floodgates to foreign funding of elections, again, which had been previously outlawed. In 2014, the Delhi High Court found both the BJP and the Congress, both parties, guilty of accepting donations from multiple foreign corporations.

Now, rather than face the music and the penalty of that judgment, to evade punishment, these two parties, which, of course, agree on very little else, joined hands in 2016 to amend the FCRA Act, essentially to retroactively redefine what a quote-unquote foreign company was under the law. Now, this was not done after some robust debate about, you know, how should we define foreign companies? How should we define indigenous Indian companies? It was done in order to make sure that these parties would not be found liable for accepting foreign contributions. So, basically, what the new change means is that previously designated foreign companies, as long as they are adhering to the norms of FDI in the sectors in which they are invested for the purposes of the law, they can be considered domestic entities, right? So, previously designated foreign firms can now give money in Indian elections.

Leah – A rare example of cross-party consensus on legislation in India.

Milan – That’s right. And I would just point out that another striking example of that cross-party consensus was back in 2002 and 2003, when the Election Commission introduced a new regime of candidates having to disclose their personal financial assets and liabilities and their criminal antecedents at the time they submitted their nomination papers.

And there was an attempt, a cross- party attempt, through Parliament to override that, with the Supreme Court eventually struck down, right? So, in both instances, parties came together, again, who have very little in common, it seems, judging by what happens on the floor of Parliament, in order to protect themselves.

Leah – Milan, I’d just like to draw on a previous episode of the Daksh Podcast, where we discussed criminalization of politics. So, if you could just describe for our listeners, what is the link between restrictions on electoral funding and the proliferation of criminal elements in politics?

Milan – Yeah, I think it’s a really good question.

I think it builds nicely off our previous episode. Look, the fact of the matter is that over the past seven and a half decades, we know that elections have become extremely expensive, more expensive with each passing year, for a number of reasons. Number one, the population has grown, the size of constituencies has massively, exponentially increased.

Number two, we know that political competition is on the rise, right? There were more than 680 political parties who contested the 2019 national elections. There were some 50-odd parties which contested general elections in 1952. We know that there is a practice of parties handing out money, liquor, all sorts of freebies, goodies, on the eve of elections.

Expectations of voters in that regard, particularly in some states, has really gone through the roof that that costs a lot of money. We now have new technology, new forms of digital advertising, right? All of these things require money. Political parties, on the other hand, have not necessarily dedicated themselves to the hard work of building robust party organizations and devised mechanisms for legitimately building up their fiscal coffers.

Instead, what they have done is essentially cast their lot with candidates who will run on their symbol who are self-financing, right? And by self-financing, I mean candidates who can cover the cost of their own campaigns, can subsidize other candidates, may pay parties for the privilege of running on their ticket. And so, parties have been sort of thrust into the embrace of deep-pocketed candidates at all levels of India’s federal setup. Now, one demographic that has access to resources, liquid resources, and incentive to spend those resources are people associated with criminal activity, right? And so, part of the reason that political parties are drawn to so-called criminal elements is precisely because of their money power.

That is, muscle is attractive to them in part because of the money that comes along with it, right? Now, there is no formal immunity, of course, for a criminally indicted lawmaker once he or she enters office. But I think we all know that when you’re in a position of power and you hold official office, there are multiple ways in which you can derail or at least delay the wheels of justice, right? So, this is a system now which has become perfectly incentive-compatible for all of the parties involved.

Leah – Thanks, Milan, for laying the context for the discussion on the Supreme Court case.

So, the electoral bond scheme was challenged before the Supreme Court by various petitioners, including the Association for Democratic Reforms, ADR, Common Cause, and the Communist Party of India, Marxist. Interestingly, the Communist Party of India, Marxist, didn’t take any money through electoral bonds throughout the period it was valid. So, the petitioners argued that the scheme allowed non-transparency in political funding and legitimized electoral corruption at a huge scale.

There were two main questions before the court. One was whether unlimited corporate funding to political parties infringes on the principle of free and fair elections and equality. The second question was whether anonymity embedded in the electoral bond scheme violates the voters’ right to information.

Milan, can you just tell us what the Supreme Court said on both these questions?

Milan – Sure. So, let’s take the first question, which is, does unlimited corporate giving undermine elections? And what the court said is that electoral bonds, by allowing unlimited donations to companies, essentially is engaged in a practice that is antithetical to free and fair elections. Unlimited corporate donations without any limits means that firms would enjoy quote, unrestrained influence of companies on the electoral process, end quote.

Which, again, essentially violates the concept of a level playing field, right? Now, the second question is about the voters’ right to know. And I think this is, for me, I thought, the most interesting part. You will recall, and we just touched upon this a few minutes ago, that in 2003, the court held that voters have a right to know about the personal biographical details of candidates who are on the ballot.

And that is the judgment which underpins this affidavit that all candidates must submit at the time of their nomination, which lists their financial assets, their financial liabilities, their educational qualifications, and their criminal antecedents, right? The court ruled in that landmark judgment that voters, in order to make an informed choice, have to have that basic set of facts about candidates on their ballot. This judgment essentially extends that logic to political parties by saying the same way that voters have a right to know about candidates, they also have a right to know about who is funding political parties, because that’s essential for exercising informed choice. Now, the judgment gave three reasons for why the political party is a very relevant political unit when voters are going to the polls, right? We know, for instance, voters associate voting with political parties because of the centrality, the importance of political symbols, right? The lotus flower for the BJP, the hand for the Congress, the elephant for the BSP, and so on and so forth.

Second, you know, India has a form of government where the executive is chosen from the legislature based on the political party or coalition of parties which has a majority of seats in the looks of it. And number three is, in 1985, the constitution was amended to add the 10th schedule, which is popularly known as the anti-defection provision. And the basic idea of the anti-defection provision is that if you, as a member of parliament or a state legislator, vote against your party’s whip, you will be disqualified from holding office.

And that legislation was put into place to try to increase the degree of party cohesion and party unity, right? And the court, in upholding that provision, said, look, it’s really important because when people are voting for Millon or for Leah, they’re voting for Millon on the basis of his political party, in part, or Leah’s political party. So then if candidates or MPs and MLAs are just willy-nilly switching parties, that’s a violation of the bond between representative and voter. So essentially, this entire logic, which had been laid out by the court earlier, applied to political parties, has been transferred over in the new domain of political funding.

So I think this is a really important aspect of the judgment.

Leah – One of the union government’s main arguments before the court was that the scheme was a tool to curb black money. So the former finance minister, Arun Jaitley, in an article published in 2018 on the PIB website had said, in fact, the choice has now to be consciously made between the existing system of substantial cash donations, which involves totally unclean money and is non-transparent, and the new scheme, which gives the option to the donors to donate through an entirely transparent method of check, online donation or through electoral bonds.

Did this argument convince you?

Milan – It didn’t convince me and I don’t think I was the only one who remained unconvinced. So let’s try to understand the logic, right? And I think it’s important to give the government credit where credit is due. It did aim through electoral bonds to steer political funding away from cash.

You know, the image that you mentioned before of the kind of these oily businessmen carrying cash in suitcases and delivering them to party offices, right, and smoke-filled rooms and so on and so forth. It sought to steer political funding away from cash and towards the formal banking system, right? So in that sense, you could argue, at least on its face, that electoral bonds addressed one problem of the corrupt status quo. Now, I think the situation is a bit more complicated than that.

I mean, even the Reserve Bank of India, we now know, objected on record to the scheme saying that it could still allow for black money of unknown provenance into elections because just because it happens to the banking system doesn’t mean that it’s all legitimate white money. But secondly, once somebody buys a bond, they could easily transfer it, sell it to somebody else, who then sells it to somebody else who then finally deposits it in the political party, right? So that we’re not able to observe that entire sort of chain of custody, right? Let’s just assume for a second that the government is on a strong footing in saying that, look, at least we got rid of cash. But I think there’s a trade-off here because at the same time it removed any possibility that even one rupee of political giving could be traced to its original source, right? So I as an iron ore magnate could give an unlimited sum of money to the BJP contesting elections in Karnataka, the BJP comes to power, and then I all of a sudden get all kinds of favorable treatment.

No journalist, no civil society organization, no voter, no member of the general public would be able to connect those dots because neither side under the electoral bond scheme has to disclose that transaction. I think just to add another layer of complexity, there was a kind of asymmetric transparency involved in the scheme. And let me explain what I mean by that.

Bonds are routed through the State Bank of India, public sector undertaking, therefore the regulator, which is the government, would know exactly who is giving to whom. The public, media, civil society, and the opposition would be kept in the dark, right? So my fundamental takeaway, and I wrote about this back in 2017, 2018, is that although these bonds were introduced with great fanfare as ushering in a kind of new era of transparency, what they did de facto was to merely legitimize opacity in political funding.

Leah – So the Supreme Court of India has now directed the State Bank of India to submit all the details of electoral bonds to the Election Commission by March 6th, and the Election Commission has to make this public by March 13th.

Do you think these details will only reveal how much donors have contributed to electoral bonds and not who they have contributed to? More specifically, do you think SBI will be able to map the purchase of bonds to the actual donation to the political party?

Milan- So I’m skeptical that this is going to happen or be very fruitful for two reasons that could be proven wrong. The first is that will the Election Commission, which requires information from the State Bank of India, actually be able to submit this information by March 13th? Will the State Bank of India drag its feet and ask for a delay or push this off until after the election? We know how the Indian judicial system works. I mean, you know, it’s instructive that we got a judgment in the electoral bonds case in 2024. This was a scheme announced in 2017, right, formally notified in 2018.

So I’m skeptical about the process, but let’s just assume for a moment that they do it, they adhere to the timeline. What have they been asked to do? So the State Bank of India has been asked to create a list of electoral bonds which have been purchased, and by whom, and a list of electoral bonds which have been received, by parties, and in what denominations. Those two pieces of information can be out there.

They do not necessarily have to include a mapping of one to the other. Now, my submission would be that they can be mapped, because it is reported that there are serial numbers associated with bonds, and so one can map a purchase to a donation or a contribution. But if you read the fine print in the judgment, they don’t explicitly spell that out.

So I think a lot of people are hoping for explosive revelations, could be disappointed, because we’ll get a lot of big numbers about bonds that were purchased, a lot of big numbers about bonds that were deposited, but not necessarily a mapping to go from A to B, not because it can’t be done, but because it just simply hasn’t been provided, and I think there’s a little bit of a loophole in the way the judgment was written.

Leah – Going back to what you brought up in the beginning of the conversation, which is expenditure on elections. You know, so far we’ve been talking about donations.

I’d like to touch upon expenditure as well. So what are the Election Commission’s guidelines on campaign spending and how effective have they been?

Milan – Well, you know, I wrote about this in a piece for the Hindustan Times this past week, in which I said, look, I don’t think there’s any reason for us to mourn the death of electoral bonds. As I mentioned before, they were operating on a bizarre definition of transparency, which essentially meant transparency only to the ruling party and nobody else, which is not at all the direction I think that those of us who are interested in governance and democracy should be encouraging.

At the same time, one shouldn’t romanticize what existed before, which is where we are now, which was the status quo ex ante prior to bonds. What did that system look like? That system looked like a lot of cash exchanging hands without disclosure. It looked like a lot of under-the-table funding.

It looked like political parties, which still to this day, bonds or no bonds, face no independent audit scrutiny. And of course, now we have this additional provision of the change to the FCRA law, which could potentially open up the door to foreign funding, which has not been addressed in this judgment. So this is not a happy, good, bright place.

This is not a place with a lot of transparency or clarity. That doesn’t mean electoral bonds were an improvement, but it means that it is up to the government now to frame a new system that is going to be better than what we’re left with.

Leah – Going back to a topic that you had mentioned in the beginning, which is electoral spending.

I mean, so far, we’ve been talking about how elections are funded. So what are the election commission guidelines on campaign expenditure and how effective do you think they are?

Milan – So, as I mentioned before, really not much in the way of party expenditure. The only caveat there is that parties can spend an unlimited sum on an election if they are spent for the explicit benefit of a candidate who is running.

Then that expenditure has to come under the individual candidate’s ledger. And again, as I mentioned, candidates do face limits. So in 2019, parliamentary candidates could spend as much as 70 lakh rupees, while I think candidates to state assembly elections could spend up to 28 lakhs.

There’s some variation based on the state and the nature of the constituency as an open constituency or reserved constituency. But I think even if we take those limits at face value, the spending limits on paper bear very little resemblance to the spending undertaken in practice, right? And I want to emphasize that this isn’t just an India-specific challenge. There are many democracies with patchy enforcement mechanisms which suffer the same fate, right? There’s a well-known paper on campaign finance in Brazil, for instance, which talks about the rule of 10.

That is, political candidates are spending 10 times more than what they actually disclose to election authorities, right? I think that multiplying factor may be 50 or 100 times now in some places in India. Despite the fact that these limits are laughably low, and they are laughably low, and candidates complain about them all the time, if you actually look at candidates’ expenditure statements, they’re not even spending up to those laughably small limits. So I remember the data point from 2014 particularly, I think it’s fairly similar in 2019, which is that on average, victorious candidates, so candidates who ended up winning a seat to parliament, spent just 58% of the allowable limit, right? Which I think nobody can hear that number with a straight face.

Leah – And now a lot of parties have these political consultancies, which manage their campaigns, and I’m guessing that the expenditure by those consultancies is also not accounted for in the spending limits.

Milan – Yeah, I mean, the whole domain of third-party expenditure, which is outside candidates and parties is really difficult to tackle. And I think consultancies come into this, media marketing comes into this as well.

I mean, I remember very vividly an example from the 2014 state assembly elections in Andhra Pradesh, which I was on the ground to observe in a couple of constituencies. And I remember an instance where a candidate who was running for MLA elections took out an advertising purchase from a marketing company and was essentially invoiced for half of what the campaign cost. The other 50%, which never showed up on a receipt anywhere, was just an in-kind contribution from the firm to the party slash candidate, right? So that sort of third-party spending is very, very difficult to pin down.

Leah – Zooming out a little from India, Milan, are there models in other countries of fair and transparent systems of electoral financing that we can draw on?

Milan – It’s a good question. It’s a really hard question. You know, I think there’s scattered examples of innovations that could sort of work, right? So take the example of Brazil, for instance.

Brazil several years ago passed a new law on vote-buying. It was actually brought to Congress via a popular referendum, which made vote-buying on the eve of elections an electoral rather than a criminal infraction. That’s an important distinction because by making it an electoral infraction, Brazil’s election commission could rule on whether this infraction took place or not.

That election body can move faster than the courts and they can trigger a disqualification of the candidate. Now, Brazil’s election commission has a tribunal-like element. In fact, it’s called the Supreme Electoral Tribunal.

That is something that India doesn’t have, but it’s an interesting innovation to basically say, once this ends up in the courts, we know that it’s going to take years and years and years and facts are going to be created on the ground. If we can make this something that comes under the jurisdiction of election commission, which can take a decision in a reasonable amount of time, we can start to tackle some of these illicit modes of political funding. Now, there’s another interesting example from the United States, which doesn’t, let’s face it, have a great reputation on political finance, but we’re seeing some innovations take place in the domain of states.

So in two states in the Northeast, Maine and Connecticut, there were laws passed essentially to incentivize public funding of elections by forcing candidates who stood for state office to raise an initial batch of small donations from individual voters as a demonstration of their popularity and grassroots support, which then allowed them to qualify for public funding. Public funding was not mandatory. It was voluntary, but we’ve seen data that suggests that eight out of 10 aspirants to public office opted for public funding rather than taking private funding.

And public funding really has been the way in which many European democracies have moved. So in some cases, completely banning outside money. Now, we often have this discussion about whether we should have public funding in India, and I don’t know that we’re ready for that, right? A lot of countries which have public funding systems have much stronger, more robust institutional and audit mechanisms than India possesses at the present time.

So the danger would be that you introduce a public funding system and that parties then take money from the public coffers, they continue to take money in the black, unreported or from private sources, and then they basically have their cake and eat it too, right? So I think it’s a good end state to aspire towards, but I’m not sure the conditions are in place today for India to go from here to there.

Leah – Yeah, that makes sense because, you know, our institutions aren’t that robust. And we’ve seen that, you know, whether it’s the Election Commission or courts, I mean, neither has really been able to crack the whip on malpractices by political parties.

Milan – And just to add to that, I think it’s why it’s really important that the Election Commission remain an impartial body that is above the fray, right? There was a recent controversy over the appointment of election commissioners and chief election commissioners with the court saying that this should not simply be in the purview of the executive. They had suggested a three-person panel consisting of the prime minister, the leader of the opposition and the chief justice of the Supreme Court. The government has instead passed a law which has a three-person panel selecting election commissioners, but instead of having somebody from the Supreme Court in the third slot, they put another minister from the government, which of course then tilts the balance toward the executive.

So we don’t know where that’s going to end up. That could be constitutionally challenged again in the courts. But certainly I think making sure that the people who are in the Election Commission, the two commissioners and the chief, are impartial arbiters is very important for people to have faith in the nature of electoral integrity.

Leah – Milan, this has been a great conversation. I could go on for another hour on this topic, but I think that would upset our producers tremendously. So to just round off this discussion, I’d like to end with your views on an ideal framework for electoral financing in India.

Milan – Well, you know, I’m going to define ideal downwards to what I think might be a more pragmatic and workable solution. Because, you know, again, I think public funding could be ideal, but I don’t think we’re quite there yet. So here’s what I would suggest.

Leah – Something between jugaad and ideal.

Milan – Exactly, exactly. There are sort of three principles.

The first is that going forward, there should be complete transparency with respect to each and every rupee of political giving. And I do think the best way of ensuring this is for parties to go completely digital. You know, remember after demonetization, the entire country was asked to go digital, but yet parties weren’t asked to do anything when they are much better set up to do this than almost anyone else, right? To deter those who would want to game the system, those who would like to contribute could be required to submit, whether it’s their PAN number, their Aadhaar number, some form of unique identification that goes on record.

And cash should be abandoned altogether. I mean, in the changes the Modi government made in 2017, the ceiling on cash donations to political parties was lowered from 20,000 rupees to 2,000 rupees. But why should cash be allowed at all? I mean, that should just go down to zero.

And what’s interesting about that change is that although the ceiling on cash was lowered from 20,000 to 2,000, the disclosure requirement was set at 20,000. That never changed, right? Creating a weird sort of loophole there. So that would be point number one.

Point number two is if parties are willing to adhere to forms of greater transparency, I think it might be time to be realistic and substantially loosen the limits on candidate spending, right? Because at the end of the day, if you have a set of unreasonable rules, they’re going to lead even reasonable people to flout them, right? And I do think that the ECI needs to think about this very seriously. I think revising expenditure limits upwards is possible if candidates agree to submit expenditure statements in a timely manner with clear penalties, including being debarred from holding office in the case of severe transgressions or violations. And the third principle is that I think as far as political parties are concerned, the biggest reform has to do with auditing their books.

The Election Commission has been on record for years and years and years saying that the documents that political parties submit detailing their income and expenditure cannot be taken at face value because they’re just audited by their own handpicked chartered accountant. Real transparency would mean that either the comptroller and auditor general or a set of auditors approved by the CNAG would do a third-party audit of political party finances, right? So I think going digital, dealing with political party accounts, revising spending limits upwards to make them more realistic, coupling them with better disclosure with teeth if they fail to live up to those standards is where I would start.

Leah -Great suggestions.

We hope that the people in power are listening. Thanks a lot, Milan. It’s been a great discussion.

Milan – Thank you so much for having me.

Leah – Thanks for listening to this bonus episode. We will be back with season three of our podcast soon.

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