It is by now well-recognized that excessive, unaccounted and illegitimate election expenditure is the root cause of corruption. This high and illegal expenditure forces parties and politicians to extort money from a variety of sources, legitimizes corruption, encourages political recruitment of those willing to spend large amounts of ill-gotten black money, discourages public-spirited citizens from contesting, leads to a vicious cycle of corruption, greed and extortion, and undermines our democracy. Most political players are victims of this vicious cycle. The frequent change of governments and public representatives hardly makes a difference until the norms of election funding are altered fundamentally.

It is estimated that about Rs. 7000 crores is spent by all major parties and candidates in Lok Sabha and State Assembly elections over a period of five years in India. In most constituencies the actual expenditure incurred is several times the ceiling limits prescribed by law. The political system can be sustained only if the returns are about ten times the investment, considering the high risk, opportunity cost, the need to maintain an entourage, the escalating cost of future elections, the cost of upkeep of the politician and the greed to amass personal fortunes. The bulk of the requirement of Rs. 70,000 crores which the political system needs to survive is often collected by the vast army of bureaucracy through extortion and rent-seeking from citizens. This translates itself as 'rent' or bribe for most public services, and harassment of hapless citizens using the power of law and nuisance value. As rent-seeking employees out-number politicians by 2000 to one, retention of even a small collection fee by employees results in actual bribe collections ten times higher, or Rs. 700,000 crores over five years. The citizen pays much more on account of the state of anxiety and uncertainty in which he is kept to sustain this chain of corruption. People are forced to cough up bribes for fear of losing much more if they resist. Clearly, electoral campaign finance reform is the key to curbing corruption.

Political activity needs money. Politics in a true sense is a noble endeavor promoting human happiness. Our political system, by not encouraging honest and transparent funding for legitimate political activity has made most election expenditure unaccounted and illegitimate. This in turn is translated into huge corruption siphoning off money at every level. This ubiquitous corruption has altered the nature of political and administrative power and undermined market forces, efficiency and trust on a much larger scale. As a result economic growth is retarded, and democracy is distorted.

Problems with present legal provisions.

1. Explanation 1 added in 1974 to section 77 of the Representation of the People Act, 1951 made a mockery of the election expenditure ceiling, by excluding the expenditure incurred by parties and others from the purview of ceiling limits.

2. The income of a political party is exempt from income tax under 13 (A) of the IT Act. Parties, in return, are bound by law to maintain accounts regularly, record and disclose names of donors contributing more than Rs. 10000 and have their accounts audited by a qualified accountant as defined in Sec 288 (2) of the IT Act. Under 139 (4B) of the IT Act, inserted in 1978, parties shall furnish returns of income to the IT authorities. However, there is neither provision for public auditing and full disclosure, nor are severe penalties attached to non-compliance. Given the power and primacy of parties, the IT authorities are reluctant to act against parties for violations of law, despite clear rulings of the Supreme Court

3. Since 1985, companies are permitted to contribute upto 5% of the profit to political parties. But in the absence of strict disclosure norms backed by severe penalties for non-disclosure, both parties and donors find it expedient not to disclose these contributions. Donors are afraid of possible political retribution from other parties. Parties and donors also do not wish to let the public know the link between a political contribution and favours doled out to them by a party in power. Also parties and candidates are loath to disclose funding as most expenditure is both illegal (beyond ceiling limits) and illegitimate (for buying votes, bribing election officials and hiring musclemen).

4. There are no asset and income disclosure norms applicable to candidates while contesting and to elected representatives while assuming public office. In the absence of public scrutiny and severe legal penalties there are many rags-to-riches stories in politics, and the assets of many politicians far exceed the known sources of income. Weak laws and ineffective enforcement made political corruption an integral part of our system.

5. Even where laws exist, absence of severe penalties and an effective mechanism to enforce them makes them ineffective. We need to dramatically increase the risks of non-compliance and make them unacceptable in order to enforce a fair degree of compliance. The obligation to disclose should be imposed on the donors as well as recipients and the penalties must be very severe for both.

6. Political activity, electoral contest and people's representation are legitimate public activities. If the cost of these activities has to be borne by the candidates themselves, or a few donors, then political participation will be limited to those who can marshal resources. Two consequences follow: most of the time of politicians will be spent in mobilizing resources for political activity; and corruption will be an inevitable result. Therefore public funding should be considered as a serious option. However there are two problems of public funding: the mechanism devised should be fair, transparent, practical and acceptable; there should be strict monitoring to ensure that politicians do not cheat by using public funding even as they raise unaccounted resources and buy their way into public office.

These legal infirmities made elections a high-cost, high-risk, high-profit investment for many unscrupulous elements. The result is an unending spiral of corruption, abuse of office, electoral malpractices and mal-administration. Several committees have already made valuable recommendations to set right the situation and cleanse our public life. Dinesh Goswami Committee, Election Commission, Law Commission, Inderjit Gupta Committee, National Commission to Review the Working of the Constitution, and the Supreme Court have made several insightful observations. Based on these, the following are the contours of practical, enforceable, tangible reform in campaign finance.

Contours of reform

1. Political activity is a noble endeavour, and citizens and corporate bodies should be encouraged to fund legitimate political activity. Toward this end, all individual contributions to candidates and parties for political and election activity should be exempted from income tax, subject to a reasonable ceiling of say, Rs. 10,000 for individuals, and 5% of profit for corporate bodies. Individuals may contribute more, but tax exemption will be limited to the ceiling of Rs. 10,000.

2. There should be full disclosure of all individual and corporate contributions to candidates or political parties for any political activity. Both the donor and the recipient shall be obliged to make full disclosure to the Election Commission as well as Income Tax authorities. Penalties for non-disclosure or false-disclosure should be:

   • Donors: fine equal to ten times the contribution and imprisonment for six months
   • Candidates: disqualification for six years; fine equivalent to ten times the undisclosed amount; and imprisonment for at least one year.
   • Parties: derecognition and deregistration for five years, fine equal to ten times the amount not disclosed, and imprisonment of office bearers for three years

   The parties shall file returns every year, and after every election. The Election Commission shall get them publicly audited. The candidates shall file an audited statement after the election. All information regarding contributions and expenditure shall be made public through print and electronic means.

3. The Explanation 1 under Section 77 of the Representation of the People Act 1951 should be repealed. There should be reasonable ceilings imposed from time to time, and all expenditure by parties, candidates and their friends should be included in the ceiling limits. Any illegitimate expenditure to give inducements to voters, bribe officials or indulge in electoral irregularities will invite fine equal to ten times such expenditure, disqualification for six years and imprisonment for three years.

4. Every candidate shall disclose his income and assets along with those of his family members at the time of the nomination. There shall be annual disclosure of income and assets of elected legislators and their family members. Non-disclosure or wilful false disclosure will invite confiscation of undisclosed properties and assets, disqualification for six years and imprisonment for three years.

5. The Election Commission shall be the final authority to receive statements of income, assets and expenditure, their verification and auditing, and determination of false disclosure or non-disclosure. The Commission's determination of noncompliance order on an application or suo motu shall automatically invite penalty ten times the amount and disqualification for six years, and in case of parties, derecognition and deregistration for five years. Ordinary criminal courts or special courts appointed for the purpose will have jurisdiction to try related offences and sentence the guilty to imprisonment.

6. There should be fair, practical, non-discriminatory public funding for candidates and parties as follows: indirect public funding to candidates of recognised parties in the form of free media time in government and private electronic media mandated by law, and supervised by the Election Commission; and mandatory live debates on electronic media before the elections, supervised by the Election Commission or agencies appointed by it; direct public funding to candidates or political parties obtaining votes above a threshold limit of, say 10% of the valid votes polled in the constituency, with the candidate / party being reimbursed a fixed amount of Rs. 5 or Rs 10 for every vote obtained. Recognised political parties will be given an advance of 50% based on the votes polled in the earlier election.

These reforms are vital to cleanse our electoral process, but are not enough to eliminate corruption. Decentralization of governance, instruments of accountability, and swift and exemplary punishment to the guilty are the other necessary reforms needed to curb corruption. But campaign finance reform is indisputably the vital starting point in our fight against corruption.

There is an impressive consensus in our country in favour of these campaign finance reforms. All parties have publicly committed themselves to these reforms. All governments have promised them. The Parliament, in its golden jubilee special session in 1997 has unanimously resolved to carry out meaningful electoral reforms. Despite these public commitments, the Parliament could not legislate these reforms on account of the sheer inertia of the political system and the fear of parties that they will be held to account if campaign finance reforms are introduced.

As the political system is in logjam, the civil society needs to seize the initiative and compel reform. Campaign finance and electoral reform is too important to be left to politicians alone. People cannot be idle spectators in the face of mounting corruption and growing disenchantment with the political process. Lok Satta has therefore decided to launch a civil society initiative to mobilize public opinion infavour of campaign finance and electoral reform.

The citizens campaign for Electoral Reform envisages the following steps:

• Prepare an acceptable statement of reform objectives
• Identify and assemble a core group of 15-20 eminent and reputed Indians of unimpeachable credentials to finalise a reform agenda and to provide leadership to the campaign
• Obtain endorsement of a large number of reputed Indians in all walks of life.
• Signature campaigns in several States in support of campaign finance reform.
• A media campaign including public broadcasting capsules and advertisements
• Mailing of letters (ordinary as well as email) in an agreed format to the president, prime minister, presiding officers of both houses and leaders of opposition in both houses
• Public meetings in State capitals and district towns
• Representations to high functionaries
• Other mass-mobilization techniques