Campaign Finance in India - Economist
"Credits how AAP is doing it with clean money setting an example. For both BJP and Congress, most of the funding sources are unknown - which we all kind of know where"
WITH seven of nine phases of voting finished, there is still argument about the “Modi wave” that looks likely bring Narendra Modi of the opposition Bharatiya Janata Party (BJP) surging to victory. Is it in fact a tsunami, to sweep away the Congress party and its allies—or something less than a ripple, as a Congressman claims hopefully? Landfall is due May 16th, when the results are tallied.
In the past few months, at least 14 of India’s biggest industrial houses have taken advantage of a new law to set up electoral trusts, hoping to make wavelets of their own by giving money to their favourite political parties. The legal framework for these trusts was introduced in January 2013, ostensibly with the idea of bringing transparency to the way campaigns are funded. For the first time, in this election private firms can donate money to political parties without any restriction—in exchange for disclosing what they have donated.
Wave or not, there has been an immense sloshing to and fro: picture the elections as a dark sea of liquid assets, mostly undocumented cash (and a lot of liquor too), overspilling the dykes that were meant to keep it in check. An estimate by the Centre for Media Studies in Delhi puts the total cost of this season’s campaigns for seats in India’s parliament and state assemblies at $4.9 billion. That would make it the second-most expensive in world history, trailing just behind America’s of 2012, which cost $6 billion. According to some estimates India’s election will cost even more; total expenditures could exceed 0.35% of national GDP. The money raised by the electoral trusts is only 2.2% of the total reported by the parties; a drop in the bucket—but a limpid drop, with its donors and recipients clearly labelled.
In America the game of raising and spending billions in pursuit of maximising vote share is called “campaign finance”. The understanding is that the citizens and firms who give money to politicians seeking office will seek to influence the candidates who become public servants. Regulation (at which America’s Supreme Court is chipping away) is supposed to protect everyone from the donors’ influence, mainly by means of keeping tabs on who gives money to whom.
India strikes a more puritanical pose. Here the term of art is “money power” and it is the role of the state to eliminate it, lest the better-funded candidates benefit against their rivals. The Election Commission (EC) takes its mission to be curbing the role of money power, as well as that of “muscle power”—the kind that threatensphysical safety of the voters and voting apparatus.
Money power has proven to be the more powerful by far. The EC sets limits on both fundraising and expenditures, but they are laughably ineffective. Political parties and candidates must break the rules in order to stand a chance of winning. This drives them into the arms of the criminal underworld, especially at the local level: that is where they find the men who have ready access to the “black money” that escapes the official banking sector, and the networks to disperse it.
A former prime minister, Atal Bihari Vajpayee, is often cited as having said that “every legislator starts his career with the lie of the false election return he files”. The cap set by the EC has been revised upwards but never beyond a pitiful fraction of what it takes to be competitive. This year the limit is 70 lakh (7m) rupees ($115,000) per campaign for a parliamentary seat. In fact a candidate might spend 50 to 100 times more money than that, if he hopes to win. Even the Chief Election Commissioner knows it.
In a remarkably frank conversation sponsored in 2012 by a think-tank, the Observer Research Foundation, parliamentarians from both Congress and the BJP discussed spending as much as 20 crore rupees ($3.3m) to awin seats where the official limit is 16 lakhs ($26,000). The EC obsesses over the rare cases in which they catch candidates overspending. It chases them around the districts, totting up the costs they can see and adjusting the candidates’ filings by a few lakhs. Where the margins of error are vast, enforcement is capricious. One candidate’s jeep is stopped for using two loudspeakers instead of one; meanwhile a national party takes out front-page ads on every daily newspaper the day Delhi goes to the polls. (Maddeningly, there is no limit to what the parties may spend.)
There is almost nothing a politician cannot use to try buying a voter’s loyalty in the days before an election. The most visible expenditures are the least of it: transport, billboards, seats and refreshments for rallies—this is what catches the EC’s watchful eye. But discreet wads of cash and chits for liquor are the mainstays of this shadow economy. The EC stops vehicles during the election and bust up safehouses, boasting of its haul. “Foreign currency worth 92 lakh in Bihar”; in the southern states alone 161 crore rupees; more than 13m litres of alcohol. In all 2.6 billion rupees have been seized. As in the “war on drugs”, such seizures are hard to celebrate. And don’t forget drugs: also 104 kg of heroin—especially useful in Punjab, a centre of addiction. More wholesome gifts abound elsewhere, including fried chickens and stacks of saris. “An Undocumented Wonder”, an engaging new book by a recent EC chief, lists 40 ways to beat the expenditure police (#34: “Distributing free seeds and manure”). As for other forms of free bullshit, legitimate media costs are rising everywhere too, especially online and on cable TV. So is “paid media”, a polite term for bought coverage.
The indignity of a democracy fuelled with free booze is perhaps a distraction. Whatever spending is used to sway sceptical voters, their votes are cast freely. Even in a notorious state like Bihar, a strong majority believes in the sanctity of the secret ballot (cited here, p 129). It is still the case that no amount of money can guarantee victory. There is still a pure competition for votes—as well as for money.
The rules that govern contributions are even flimsier, and ultimately more dangerous. They make it a mystery who pays India’s politicians. E. Sridharan, the director of the University of Pennsylvania’s Institute for the Advanced Study of India, explains that it began in 1969, when Indira Gandhi ran a socialist government that faced a serious challenge from Swatantra, a pro-business party. She banned corporate donations outright, and ever since the parties’ scrounging for monies has gone below-board. Reforms in 1985 made it possible for firms to give up to 5% of their average net profit from the past three years directly to parties. But today 93.8% of the income reported by Congress, and 91.3% of the BJP’s, comes from unlisted sources.
Black money pours through many loopholes, but one is so gaping as to make the others redundant: parties are not required to account for any contribution worth less than 20,000 rupees ($330). In practice, this means they are not required to account for any contributions whatsoever: 100,000 rupees can be given in five blocks of 20,000 each (or 19,999, to be fastidious) and so on. Then the only hurdle to moving it into the pockets of the voters is the physical transfer of banknotes; hence the EC’s obsession (and occasional success) waylaying lorries stuffed with cash.
An area of darkness
The academics who try to measure campaign funds devise ingenious proxies for this invisible movement. Having noticed that real-estate developers are especially dependent on the favour of elected politicians, in a famous study from 2011 Devesh Kapur and Milan Vaishnav found a cyclical correlation between election seasons and the price of cement. With all of their available resources poured into politicians’ campaigns, the builders have nothing left to spend on building. (Sure enough, this quarter the biggest cement-makers are complaining of weak demand.) Mr Vaishnav is curious to see whether zoning certifications rocket after this election.
Others count the losses run by sugar mills in Maharashtra, to see how certain industries boost their liquidity when elections are nigh. The exercise threatens to become comical, and the democracy cynical. Adani Enterprises, an industrial giant based in Mr Modi’s home state, seems to be flying their favoured candidate to his rallies every day. Adani’s valuation has shot up 30% this year, no thanks to its fundamentals but presumably with many thanks to the expectation that Mr Modi will form the next government.
None of the parties are eager to tackle the problem of opaque financing. The new, reformist Aam Aadmi Party (AAP) is an exception. With no sordid past to haunt them, they have called on all parties to adopt their practice of identifying all donors, no matter how small. Amounts of less than 20,000 rupees might have been a pain to tally back in the 1970s, but with modern computing power the AAP seems capable of doing so gracefully. (The odds against their winning many seats are equally impressive.)
Transparency is the chokepoint. The new electoral trusts are supposed to marry the public good of audited contributions with the private good of audited business expenses. Tata Group, India’s biggest business house, established the model in 1996. Many of Tata’s firms are publicly listed; the original point was to help them account openly for their contributions. The new law means that any company that calls a subsidiary an “electoral trust” can use it to make tax-deductible donations to any party in any amount.
As India’s big businesses become bigger and more international in their reach, the great hope is that their internal needs for fair auditing will restrain them from muddying the waters of Indian democracy. Jagdeep Chhokar, a founder of the non-profit Association for Democratic Reform, is doubtful. He reckons the new electoral trusts are but another ruse on the part of the political and corporate players; everyone in the game has too much to gain by keeping it hidden.
Coming clean would certainly cost these firms in the short term, if only for the reason that they would have to admit to both national parties—the BJP and Congress—that they are also giving to their opponent. So presumably they would owe more to each if they were to achieve the same influence, as American corporations tend to do to the Democrats and Republicans. Mr Sridharan points out that of the 36 firms that gave funds legally to either the Congress or BJP, 24 gave funds to both. They are not about to relinquish their money power. But were they to reveal how much they are giving, and to whom, they would be giving the ordinary voter something very valuable indeed. more
WITH seven of nine phases of voting finished, there is still argument about the “Modi wave” that looks likely bring Narendra Modi of the opposition Bharatiya Janata Party (BJP) surging to victory. Is it in fact a tsunami, to sweep away the Congress party and its allies—or something less than a ripple, as a Congressman claims hopefully? Landfall is due May 16th, when the results are tallied.
In the past few months, at least 14 of India’s biggest industrial houses have taken advantage of a new law to set up electoral trusts, hoping to make wavelets of their own by giving money to their favourite political parties. The legal framework for these trusts was introduced in January 2013, ostensibly with the idea of bringing transparency to the way campaigns are funded. For the first time, in this election private firms can donate money to political parties without any restriction—in exchange for disclosing what they have donated.
Wave or not, there has been an immense sloshing to and fro: picture the elections as a dark sea of liquid assets, mostly undocumented cash (and a lot of liquor too), overspilling the dykes that were meant to keep it in check. An estimate by the Centre for Media Studies in Delhi puts the total cost of this season’s campaigns for seats in India’s parliament and state assemblies at $4.9 billion. That would make it the second-most expensive in world history, trailing just behind America’s of 2012, which cost $6 billion. According to some estimates India’s election will cost even more; total expenditures could exceed 0.35% of national GDP. The money raised by the electoral trusts is only 2.2% of the total reported by the parties; a drop in the bucket—but a limpid drop, with its donors and recipients clearly labelled.
In America the game of raising and spending billions in pursuit of maximising vote share is called “campaign finance”. The understanding is that the citizens and firms who give money to politicians seeking office will seek to influence the candidates who become public servants. Regulation (at which America’s Supreme Court is chipping away) is supposed to protect everyone from the donors’ influence, mainly by means of keeping tabs on who gives money to whom.
India strikes a more puritanical pose. Here the term of art is “money power” and it is the role of the state to eliminate it, lest the better-funded candidates benefit against their rivals. The Election Commission (EC) takes its mission to be curbing the role of money power, as well as that of “muscle power”—the kind that threatensphysical safety of the voters and voting apparatus.
Money power has proven to be the more powerful by far. The EC sets limits on both fundraising and expenditures, but they are laughably ineffective. Political parties and candidates must break the rules in order to stand a chance of winning. This drives them into the arms of the criminal underworld, especially at the local level: that is where they find the men who have ready access to the “black money” that escapes the official banking sector, and the networks to disperse it.
A former prime minister, Atal Bihari Vajpayee, is often cited as having said that “every legislator starts his career with the lie of the false election return he files”. The cap set by the EC has been revised upwards but never beyond a pitiful fraction of what it takes to be competitive. This year the limit is 70 lakh (7m) rupees ($115,000) per campaign for a parliamentary seat. In fact a candidate might spend 50 to 100 times more money than that, if he hopes to win. Even the Chief Election Commissioner knows it.
In a remarkably frank conversation sponsored in 2012 by a think-tank, the Observer Research Foundation, parliamentarians from both Congress and the BJP discussed spending as much as 20 crore rupees ($3.3m) to awin seats where the official limit is 16 lakhs ($26,000). The EC obsesses over the rare cases in which they catch candidates overspending. It chases them around the districts, totting up the costs they can see and adjusting the candidates’ filings by a few lakhs. Where the margins of error are vast, enforcement is capricious. One candidate’s jeep is stopped for using two loudspeakers instead of one; meanwhile a national party takes out front-page ads on every daily newspaper the day Delhi goes to the polls. (Maddeningly, there is no limit to what the parties may spend.)
There is almost nothing a politician cannot use to try buying a voter’s loyalty in the days before an election. The most visible expenditures are the least of it: transport, billboards, seats and refreshments for rallies—this is what catches the EC’s watchful eye. But discreet wads of cash and chits for liquor are the mainstays of this shadow economy. The EC stops vehicles during the election and bust up safehouses, boasting of its haul. “Foreign currency worth 92 lakh in Bihar”; in the southern states alone 161 crore rupees; more than 13m litres of alcohol. In all 2.6 billion rupees have been seized. As in the “war on drugs”, such seizures are hard to celebrate. And don’t forget drugs: also 104 kg of heroin—especially useful in Punjab, a centre of addiction. More wholesome gifts abound elsewhere, including fried chickens and stacks of saris. “An Undocumented Wonder”, an engaging new book by a recent EC chief, lists 40 ways to beat the expenditure police (#34: “Distributing free seeds and manure”). As for other forms of free bullshit, legitimate media costs are rising everywhere too, especially online and on cable TV. So is “paid media”, a polite term for bought coverage.
The indignity of a democracy fuelled with free booze is perhaps a distraction. Whatever spending is used to sway sceptical voters, their votes are cast freely. Even in a notorious state like Bihar, a strong majority believes in the sanctity of the secret ballot (cited here, p 129). It is still the case that no amount of money can guarantee victory. There is still a pure competition for votes—as well as for money.
The rules that govern contributions are even flimsier, and ultimately more dangerous. They make it a mystery who pays India’s politicians. E. Sridharan, the director of the University of Pennsylvania’s Institute for the Advanced Study of India, explains that it began in 1969, when Indira Gandhi ran a socialist government that faced a serious challenge from Swatantra, a pro-business party. She banned corporate donations outright, and ever since the parties’ scrounging for monies has gone below-board. Reforms in 1985 made it possible for firms to give up to 5% of their average net profit from the past three years directly to parties. But today 93.8% of the income reported by Congress, and 91.3% of the BJP’s, comes from unlisted sources.
Black money pours through many loopholes, but one is so gaping as to make the others redundant: parties are not required to account for any contribution worth less than 20,000 rupees ($330). In practice, this means they are not required to account for any contributions whatsoever: 100,000 rupees can be given in five blocks of 20,000 each (or 19,999, to be fastidious) and so on. Then the only hurdle to moving it into the pockets of the voters is the physical transfer of banknotes; hence the EC’s obsession (and occasional success) waylaying lorries stuffed with cash.
An area of darkness
The academics who try to measure campaign funds devise ingenious proxies for this invisible movement. Having noticed that real-estate developers are especially dependent on the favour of elected politicians, in a famous study from 2011 Devesh Kapur and Milan Vaishnav found a cyclical correlation between election seasons and the price of cement. With all of their available resources poured into politicians’ campaigns, the builders have nothing left to spend on building. (Sure enough, this quarter the biggest cement-makers are complaining of weak demand.) Mr Vaishnav is curious to see whether zoning certifications rocket after this election.
Others count the losses run by sugar mills in Maharashtra, to see how certain industries boost their liquidity when elections are nigh. The exercise threatens to become comical, and the democracy cynical. Adani Enterprises, an industrial giant based in Mr Modi’s home state, seems to be flying their favoured candidate to his rallies every day. Adani’s valuation has shot up 30% this year, no thanks to its fundamentals but presumably with many thanks to the expectation that Mr Modi will form the next government.
None of the parties are eager to tackle the problem of opaque financing. The new, reformist Aam Aadmi Party (AAP) is an exception. With no sordid past to haunt them, they have called on all parties to adopt their practice of identifying all donors, no matter how small. Amounts of less than 20,000 rupees might have been a pain to tally back in the 1970s, but with modern computing power the AAP seems capable of doing so gracefully. (The odds against their winning many seats are equally impressive.)
Transparency is the chokepoint. The new electoral trusts are supposed to marry the public good of audited contributions with the private good of audited business expenses. Tata Group, India’s biggest business house, established the model in 1996. Many of Tata’s firms are publicly listed; the original point was to help them account openly for their contributions. The new law means that any company that calls a subsidiary an “electoral trust” can use it to make tax-deductible donations to any party in any amount.
As India’s big businesses become bigger and more international in their reach, the great hope is that their internal needs for fair auditing will restrain them from muddying the waters of Indian democracy. Jagdeep Chhokar, a founder of the non-profit Association for Democratic Reform, is doubtful. He reckons the new electoral trusts are but another ruse on the part of the political and corporate players; everyone in the game has too much to gain by keeping it hidden.
Coming clean would certainly cost these firms in the short term, if only for the reason that they would have to admit to both national parties—the BJP and Congress—that they are also giving to their opponent. So presumably they would owe more to each if they were to achieve the same influence, as American corporations tend to do to the Democrats and Republicans. Mr Sridharan points out that of the 36 firms that gave funds legally to either the Congress or BJP, 24 gave funds to both. They are not about to relinquish their money power. But were they to reveal how much they are giving, and to whom, they would be giving the ordinary voter something very valuable indeed. more
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