Funds for parties

Legislative changes brought by the NDA government have failed to ensure transparency in corporate funding of political parties.

FORMER Prime Minister Atal Bihari Vajpayee, in one of his candid off-the-cuff remarks while in office, said that janatantra (democracy) could degenerate into dhanatantra (oligarchy of the rich). Although Vajpayee did not elaborate on his concern over the growing corporatisation of Indian politics, his government took some decisive steps to make the funding of political parties a little more transparent than it was earlier. The Election and Other Related Laws (Amendment) Act, 2003, was one such measure which promised major changes in the financing of political parties and their candidates for elections.

Under Section 293 A of the Companies Act, companies (excluding government companies and those less than three years old) can donate funds to any political party or for any political purpose to any person in any financial year, in amounts not exceeding 5 per cent of the average net profit in the three immediately preceding financial years. However, such contribution can be made only after a resolution authorising such action is passed at a meeting of the company's board of directors. The Companies Act also requires the disclosure of the details of such contributions in the company's profit and loss accounts. Any contravention of these requirements would attract stringent measures, including fines up to three times the amount contributed and three years' imprisonment of the officer responsible for the default.

However, these provisions have failed to ensure transparency of the funding process. The prospect of shareholders' opposition at annual general meetings and bad publicity in its wake has dissuaded the corporate sector from making legal contributions to political parties. Besides, there was the threat of victimisation by the winning party if its rival had received more and it got to know about it.

The 2003 Act deleted Explanations 1 and 3 of Section 77 of the Representation of the People Act, 1951, which were found to be at the root of much of the electoral corruption. Explanation 1 clarified that expenditure by a political party or any other association or body of persons or any individual (other than the candidate or his election agent) in connection with the election of a candidate would not be deemed to be that candidate's expenditure for the purpose of ceiling. Explanation 3 laid down that expenditure incurred in respect of any arrangements made or facilities provided by any government servant would not be part of a candidate's expenditure within the ceiling imposed by the law. In general, the ceiling for a candidate for a Lok Sabha constituency is Rs.25 lakhs in the 22 States that have more than two seats each in the Lok Sabha. The ceilings for assembly constituencies vary from Rs.5 lakhs to Rs.10 lakhs.

The Act replaced these Explanations with one indicating that the expenditure incurred on general party campaign by leaders of political parties on account of travel by air or otherwise shall not be deemed to be expenditure incurred or authorised by a candidate of that party or his election agent. The Act provided that while computing the amount of income tax on the total income of an Indian company, the amount contributed directly or indirectly to a political party or for any political purpose may be allowed as deduction from the amount of income tax.

The Act extended a similar tax relief to individuals, Hindu undivided families (HUFs) and other entities or juridical persons. However, these provisions hardly proved to be an incentive for corporates to make their contributions public.

The Act also raised the limit of income of a political party from voluntary contributions in cash from Rs.10,000 to Rs.20,000 under Proviso (b) of Section 13 A of the Income Tax Act, 1961. The treasurer of the political party will have to prepare a report of donations and submit it to the Election Commission. If this is not done, the political party shall not be entitled to tax relief allowed under the Act. More important, the accounts in respect of donations, together with the audited report, shall be laid on the table in both Houses of Parliament. This was expected to make for greater public scrutiny.

State funding of elections and strict enforcement of the ceiling on expenditure are measures aimed to ensure a level playing field among political parties and candidates. The Act, based on the decision of the Group of Ministers constituted to examine the Indrajit Gupta Committee Report on State Funding of elections (1998), did not address any of the recommendations of the committee. The committee had recommended state funding of elections in kind.

Former Chief Election Commissioner B.B. Tandon has said that "slush" money is being used in elections despite statutory ceilings on expenditure. He has identified the absence of ceiling on the expenditure that can be incurred by political parties as a serious loophole in checking subversion of the democratic process through money power. He has emphasised that the audit of political parties should be done only by agencies registered with the Comptroller and Auditor-General of India.

The United Progressive Alliance (UPA) government has approved in principle state funding of polls in kind for recognised political parties, and various suggestions have been put forward to the Election Commission by political parties.

Several measures, such as provision of rent-free accommodation with a rent-free telephone to recognised political parties for their headquarters, time distribution among parties on private cable television networks and the electronic media, allotment of specified quantity of petrol, diesel, paper and postal stamps of specified value, and provision of one set of loudspeakers and one telephone with a specified number of free calls to every recognised party candidate for each Assembly segment have been proposed.

However, one cannot be certain that such measures will help limit political parties' dependence on the corporate sector for funding and the consequent dominance of sectional interests in the polity, leaving the parties politically and intellectually infirm and excessively partisan in their conduct.