Campaign Finance Reforms in India: Issues and Challenges

ORF SEMINAR SERIES 

VOLUME 1 ISSUE 8 APRIL 2012 

OBSERVER RESEARCH FOUNDATION 

Campaign Finance Reforms in India: 

Issues and Challenges 

Seminar proceedings compiled & edited by 

Samya Chatterjee 

Niranjan Sahoo 

OBSERVER RESEARCH FOUNDATION



Seminar proceedings compiled & edited by 

Samya Chatterjee 

Niranjan Sahoo 

OBSERVER RESEARCH FOUNDATION

2012 Observer Research Foundation. All rights reserved. No part of this publication may be 

reproduced or transmitted in any form or by any means without permission in writing from ORF.



Executive Summary 

India today stands as a model for emerging democracies across the world. 

Having held periodic elections since 1951, with the exception of the two-year 

Emergency period, the efficacy of the electoral structures both at the national 

and State-levels has to a great extent defined India's success as a modern 

democratic nation-State. Unfortunately, over the past two decades, the essence 

of democracy has been corroded by corruption in the electoral financing 

structure. However, corruption is not the sole reason. The other main reasons 

are criminalisation of politics and lack of genuine inner-party democracy. To 

reform the process, the "pernicious and all-pervasive" influence of illegal 

sources of money on the prevalent political culture must be addressed. 

To highlight some of the key concerns with regard to campaign finance 

reforms, the Observer Research Foundation organised a round-table titled 

"Campaign Finance Reforms in India: Issues and Challenges" on February 1, 2012. This 

was the beginning of what will eventually be a series of conferences to address 

the issue of campaign-funding as well as reforms in political parties. Flagged off 

as an introduction to understanding the basic issues that face political parties 

and the Election Commission with respect to sources of funding, the roundtable 

comprised Mr. Manish Tewari (Member of Parliament, Indian National 

Congress), Mr. Rajiv Pratap Rudy (Member of Parliament, Bharatiya Janata 

Party), Professor E. Sridharan (Academic Director, Centre for Advanced Study 

of India, University of Pennsylvania.), Mr. T. K. Arun (Editor, Opinion, 

Economic Times), Mr. S. K. Mendiratta (Consultant-cum-Legal Advisor to the 

Election Commission of India) and Mr. Anil Bairwal (National Coordinator, 

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ORF Seminar Series 

Association for Democratic Reforms, New Delhi). Some of the key 

observations which emerged at the conference were: 

• Rising Campaign Expenditure: The key issue highlighted by the 

academics, political leaders and observers of election funding was the 

rising graph of campaign expenditure. It was stated that this was driven 

by a "business proposition" that the prevalent political system in the 

country offered. Incurring excess amounts of expenditure was seen as a 

desperate attempt by most candidates to win the elections at any cost as 

it not only offered a chance to recover the amount at a later date, but to 

also earn manifold income if elected. 

• State Funding Counter-productive?: Senior representatives advising 

the Election Commission categorically held that though state funding 

was acceptable in principle, it could be counter-productive as it could 

become a source of more funds for the parties without accountability 

and transparency. It would alienate the candidates from the people they 

claim to represent, which is already a major obstacle to genuine 

representation. The Election Commission, during a recent raid, 

recovered ` 12 crore in cash and ` 32 lakh litres of illicit liquor. Also, 

hashish, opium and other drugs, being offered as inducements to voters, 

have been recovered during raids—showing how distant political 

parties have become from the actual issues on the ground. 

• Lack of Political Will: Political parties across the board are not 

interested in genuine reforms; such reforms would essentially be a 

threat to the prevalent political structure which suits their needs. The 

absence of a law on disclosure of expenditure by political parties has 

become a major reason for unaccounted funds. Furthermore, the 

provision that donations less than ` 20,000 need not be disclosed was 

being abused as a cover for illegal sourcing of funds; while declaring that 

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Campaign Finance Reforms in India: Issues and Challenges 

most of the funding was through subscriptions, in reality parties were 

receiving funds worth lakhs and crores and not making disclosures. 

• Merit of no consequence: On the question of entry of meritorious 

politicians, it was lamented that merit was an incidental factor in the 

present system. The four fundamental factors that determined the 

success of individuals in electoral campaigns were caste, class, religion 

and geographical region. If an individual happened to have some merit, 

it was not considered important—not a quality that political parties 

would have searched for in the first place. Most political parties are 

driven by the "winnability" factor—all other considerations have less 

value in comparison. 

• Party Reforms: On reforms in political parties, most panelists agreed 

that there was no legislation to govern inner-party functioning. 

According to them, there were no transparent and cogent rules of 

functioning, like for example rules that govern co-operative societies 

and gurdwaras. All political parties functioned on the basis of a 'High 

Command' culture. Instituting not only formal rules, but a culture of 

inner-party democracy was crucial to the process of overhauling 

political parties. 

• Ineffective Legislation: With regard to taming unscrupulous 

politicians, legislations like the anti-defection law were found to be 

ineffective and counter-productive. The panelists agreed that such laws, 

instead of encouraging genuine debate, had stifled debate both within 

the political parties and in Parliament. Most independent candidates 

often 'negotiate' with parties of all hues, discarding all principles of 

political morality. Moreover, whatever reforms have been introduced by 

political parties were due to public pressure. 



• Insulate Executive from the Legislature: Some panelists, especially 

the political leaders, maintained that one way forward was the separation 

of Legislature from the Executive. According to them, the policy 

paralysis, which has become a major concern in the delivery of adequate 

services to the people, could be avoided if the Executive's functions are 

separated effectively and in a decisive manner. But this was countered by 

some other panelists. To them, while the idea in principle could be 

accepted as an effective tool in the short-term, it was not going to solve 

the myriad problems with regard to political parties. A striking example 

of this is the US where the separation of the Executive and the 

Legislature has not solved the problem of campaign finance, which has 

been a recurrent theme in all presidential elections in that country. The 

debate there has been the pernicious influence of 'only' corporate 

funding as opposed to the 'judicious' mix of membership fees and 

'limited' State funding. Hence, the separation of the Executive from the 

Legislature would not solve the manifold problems and could prove to 

dangerous in the long run. 

• Make Corporate Funding Transparent and Accountable: The 

panelists felt that corporate funding, which has increased over the years 

and has been relatively transparent and accountable, was better than 

other dubious sources of funding. The electoral trust established by the 

Tatas was a model worth emulating, some pointed out. The trust gives 

funds to all political parties, recognising their need for finances for 

functioning. A similar model could well be adopted by other business 

houses. Donating to all political parties on the basis of certain minimum 

vote-share or an ascertainment of the popular support derived on 

scientific grounds could well be the criterion for donations. According 

to the panelists, the need for corporate houses to participate through 

donations in the functioning of a representative democracy must be 

recognised and such a culture should be suitably nurtured. 

4 



• Learning from the US Experience: According to the experts, India, 

which is likely to see an upward trend in corporate donations to political 

parties and election campaigns, must learn from the experience of the 

US where corporate donations are subject to strict reporting and 

disclosure laws. It should be noted that reliance on corporate donations 

has wrecked the election-funding architecture in the US–the primary 

reason for the major role of small donors in the 2008 presidential 

elections. 

• Lessons from the German Model: Scholars from Germany held that 

the German model, which was essentially a judicious mix of donations, 

membership fees and State-funding (accounting for 25-30 per cent of 

the funds), could be worth considering. Donations to political parties 

were based on the criterion of the votes they had polled in the previous 

elections. It was held that the media played a key role in ensuring that all 

political parties and their sources of funding were regularly scrutinised. 

• Need for Systemic Reforms: In conclusion, it was accepted by the 

panelists that reforms in election funding were essential to clean up the 

"rotten system". It was also recognised that "systemic reforms" were the 

key, not piecemeal, short-term solutions, to solving the monumental 

problems that faced campaign funding and political parties in India. 



Opening Remarks by the Chair: 

Dr. E. Sridharan, Academic Director, Centre for Advanced Study of India, 

University of Pennsylvania 

As you are all aware, campaign finance reforms in India is a vital issue and 

actually we should not just be discussing campaign finance, which is specifically 

an American term, but also party finance. After all, it is not only about electionfunding, 

but also about finance for sustaining parties even between elections. It 

is essentially about party-funding, and election-funding should be considered as 

a sub-text as it crops up whenever there are elections. There has been a wealth of 

experience on party and election funding reforms in long-standing democracies 

around the world; India, I think, can fruitfully study some of these experiences 

and selectively pick and choose. Ultimately, India has to frame its own system 

and design its own reforms in this regard. 

Traditionally, there are four major types of regulation on election-funding. One 

is on limits on expenditure; second is on limits on contributions, whether 

contributions from individuals, companies, trade unions or for political action 

committees like in the US; the third relates to various forms of State funding—it 

can be all-out State funding, or it can be partial State-funding or partial subsidy, 

sometimes on a reimbursement basis after elections—and the fourth on various 

systems of reporting and disclosure, which also includes, in some countries, 

legislation by which parties have to conduct their internal affairs. The parties 

have to be internally democratic and have accountability mechanisms. So, these 

are the four broad categories of regulation which usually cover the area of 

campaign and party finance. 

Mr. Manish Tewari (Member of Parliament, Indian National Congress) 

Over the past three decades as a political activist I have fought, won and lost a 

couple of elections, and participated in various election campaigns across the 

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country. I am increasingly coming to the conclusion that we will need to possibly 

do something or think radically about campaign finance because conventional 

wisdom limits thinking, and trying to gerry mander with the laws just does not 

seem to work. Over the years, this has been my personal experience; I think we 

have to think out-of-the-box on the whole question of electoral finance 

because, as I have noticed that over the years, notwithstanding the vigil of the 

Election Commission, the amount of money which actually gets spent in the 

electoral process has spiralled out of control. 

I can give you the example of the Punjab election campaign, which just got over. 

Going by some of the reports, in one of the Assembly constituencies in my own 

parliamentary constituency, one of the Opposition candidates apparently has 

spent between ` 18 and ` 20 crore. If that is the kind of money that we are 

talking about, you have a very serious situation on the ground. So, if the official 

ceiling is ` 16 lakhs, the Election Commision has not initiated any 

disqualification proceedings. The mismatch is to the extent that the perception 

is ` 18 or ` 20 crore and the reporting would have been about ` 8 or ` 9 lakh 

because the Election Commission adds about ` 3 or ` 4 lakh on its own. So you 

try and keep the expense accounts within that ceiling, providing a further 

margin of about ` 1 or ` 2 lakh. So, there is a serious problem. 

I have been wondering why somebody would spend so much of money in an 

election. One obvious reason could be that there is a certain quid pro quo which 

a person feels that he would get out of this by making the kind of investment I 

have just talked about. If you are, at the end of the day, going to be a legislator, 

whether you are on the ruling side or on the Opposition benches, I don't know 

how you are going to recoup between ` 18 or ` 20 crore. So, therefore, at the end 

of the day if we are going to have a serious look at the whole system of 

campaign finance we will possibly need to see as to how we should completely 

and absolutely divorce the Executive functions from the Legislative processes 

because as I said if inducement could be a reason, then that divorce could be a 



solution. But in most instances, as my friend and colleague Rudy would bear me 

out, it is not really so much about inducement; it is also about a certain sense of 

prestige, a certain sense of local influence which people have now started 

wanting after they have made money through legitimate means. They see it as 

the next step in the upward progression of not only their careers but themselves 

as a personality or the extended family which they have. So, the bottom-line is 

that the role of money in the electoral process, notwithstanding the vigilance of 

the Election Commission, is actually not decreasing, it is increasing. 

What is also happening simultaneously is that the vigilance of the Election 

Commission is driving a lot of this money underground; with the ban on 

posters, banners, the use of or non-use of loudspeakers and other forms of 

propaganda or dissemination of your point of view, a chunk of the money is 

going into nefarious ways of campaigning. Eventually, whether this has an 

impact or not, on the final outcome, I think the jury is really out on it. I have 

heard and various people around this table also may have heard that a potential 

voter actually takes from everybody who has a freebie to offer and then 

ultimately votes in a way that he thinks is judicious. I can relate an anecdote from 

my own campaign in the Lok Sabha poll campaign in May 2009. 

We were in the last phase of campaigning and there were candidates against me. 

They actually put out what in Punjabi is called, the shabeel—shabeel is a kind of an 

open invitation to everybody to come and drink and party. How much impact it 

had at the end of the day, I really do not know. If somebody after availing a 

freebie can still be judicious, then I think we must compliment his very robust 

commonsense and not really try and denigrate it by saying that he is selling 

himself short or he is being purchased. Possibly he is being more clever than 

everybody else put together. So, that is the other side of the coin in so far as 

increased spending is concerned. 

The third issue of course is how political parties are financed. I think there is 

increasing transparency with regard to general corporate financing because 

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increasingly more and more corporates have been moving away from the 

traditional methods of non-tax compliance to possibly a more robust way of 

trying to comply with whatever are the statutory tax limits, whether in terms of 

corporate income-tax or in other taxation statutes. That definitely is having a 

blow-back effect on political-funding. Increasingly, you would see that more and 

more money does come in through the regular, accounted cheque process than 

in briefcases or boxes or sacks or whatever other means of transportation. So, I 

think, you are possibly seeing some sort of a positive development. 

On the issue of how we can make this entire process more robust in terms of it 

being accountable, being up in the public sphere for everybody to look at and 

then be able to draw conclusions and comment about it—as I said earlier, I really 

don't have a solution. The more that I have tried to think through the process, 

the more I am coming to the conclusion that possibly the only manner in which 

we would really be able to achieve a certain amount of probity in terms of 

electoral finance or campaign finance or funding of political parties is by 

looking at a programmatic paradigm shift in the way our polity is 

structured—which is by insulating the Executive processes completely from the 

Legislative processes. 

Now, whether that is feasible or there would be a broad consensus on that, I do 

not know. These are my personal views and not the views of the Congress Party. 

I do not think by this superficial policing, even with the best of intentions, we 

are really getting anywhere in making people observe or adhere to (spending) 

limits. 

Mr. Rajiv Pratap Rudy (Member of Parliament, BJP) 

It just happened that this morning I had called Manish to discuss about Punjab 

politics. There are two of us sitting here, both spokespersons of our respected 

political parties and both have been in politics for the last 30 years. I was the 

president of my college (union), became an MLA in Bihar and have spent 25 



years doing exactly what a hardcore politician in India does. The same has been 

the case with Manish. For the last couple of months I have been thinking 

seriously about campaign finance; today, I am very happy that someone from 

across the political spectrum has spoken some keywords which are so 

important. I look at the mess which we have created in the last 64 years. Now I 

am 50, I became an MLA at 26. Looking back I feel that (a) I have wasted my 25 

years and (b) I have to do something. 

On the national canvas we see two things happening in this country which 

possibly may not be associated. One is the Anna Hazare campaign talking about 

honesty and corruption, which is obvious. We all are associating with it directly 

and we are saying that this great thing is happening, that the country needs a 

debate and there should be honesty and we should have a legislation for the 

purpose. This is urban anger which is now getting reflected against the political 

class. This anger is about many more things; there is anger about 

unemployment, about new cars, about the capacity to grow in life, etc. All that 

has got clubbed together and people say that politicians have created havoc in 

the system. 

There is another thing happening in society which possibly we are not talking 

about today. This, I have analysed and will illustrate with an example. I had gone 

for a lecture to the National Police Academy (Hyderabad); some figures for 

2001 and 2011 prompt me to make this remark. In 2001 the number of people 

who were killed in terrorist attacks or by terror actions in this country, including 

civilians, paramilitary forces, army and the terrorists, was around 3,500-4,000. 

The number of people in 2001 who were killed in Naxalite violence was around 

400. In 2011, the number of people who were killed in Naxal violence was 

around 1000, and the number of people killed in terrorist activities was around 

400. 

The writing is absolutely clear on the wall. Today, out of 642 districts in this 

country, almost 225 districts are virtually not being controlled (by the 

10 



government) but are in the grip of severe Naxal violence. I position these two 

points: The Constitution which we have adopted, which is sacrosanct., the 

Government has moved to amend it 115 times and got it amended 94 times. 

And, we have thrown up a democracy which is possibly, I believe, quite 

dysfunctional. 

When we talk about election funding, my basic question is, why does any 

individual who has to contest as an MLA/MP, why would he require so much of 

money? For example, in Goa, with four Lok Sabha seats, each candidate, 

whether from the Congress or the BJP (or other political parties), would be 

spending ` 5-7 crore on one seat. I have been in charge of Goa (affairs in the 

BJP), and we have seen money being given there. The question arises, for that 

matter even in Uttar Pradesh and Uttarakhand, why should an X amount of 

money be required to contest elections? What prompts a candidate to spend so 

much of money? Why? My requirement for an election could be that I have to 

set up a stage, I have to hire a car, I have to visit the place, my transportation 

expense could be there, I could paint a poster, I can have an ad, I can have 

pamphlets, that would cost me an X amount of money—but why do I need this 

huge amount of money? I need that money because I have to position myself in 

a manner that it becomes a business proposition. So, how can the government 

or any political funding process match the business aspiration of a politician? 

What Manish says is that in the system that we have, elected representatives 

continue to occupy Executive positions—like an MLA who gets elected from 

the majority party would further position himself to become a Minister or hold 

a position of power, have a red light, have an authority. So, his entire working 

ethos of getting elected is not on the basis of what you would call a legislator. 

Take Uttar Pradesh, where 403 MLAs have to be elected; maybe you can find 10 

good people, or even 20, 30, or 40. But what is the incentive that will attract only 

the right people to contest elections? Manish and I have chosen to be in politics. 

Most of us have not chosen to be in politics because it does not really pay you 

back. The Westminster model of government (that India has adopted) 



prescribes that in order of preference, the first criterion is caste. So, the first 

fundamental to look for in a candidate is caste. The second fundamental that 

political parties look for in a candidate is class, whether he is an OBC, Forward, 

Backward, etc. Caste would be, "I am a Thakur, he is a Brahmin" etc. The third 

criterion by which political parties choose candidates, which we have been doing 

over the years, is religion; whether he is from the minority, whether he is a 

Hindu, Muslim or Sikh, etc. The fourth criterion is geographical location, 

whether he comes from Bundelkhand, Uttarakhand, from the North, South etc. 

The last criterion, which is quite incidental, is merit. 

I have many arguments to prove the point I am making. I was looking into the 

figures of the cash recovered (by the Election Commission). In Punjab, the cash 

recovered was ` 12 crore and illicit liquor ` 32 lakh litres—7.18 lakh bottles of 

X, Y and Z. I want to understand, how would you take care of this, how would 

the State take care of this, as well as the distribution of hashish and opium? Why 

should an election process require all this? Why? Because you have created a 

system which you say is the most functional system and that the last man is 

coming to vote, etc. I think during Partition, (then British Prime Minister) 

Clement Atlee had said that India does not deserve this political (Westminster) 

system, but we politicians said, “No, no. since they are saying so, this is the best 

system.” Now, what has happened actually, where have we landed up? We are 

not picking up a debate on this subject because it suits the political class, it suits 

me, it suits Manish. 

An aspect which most of us are refusing to acknowledge is that we have already 

come to a point where we are having a referendum; it is no more a majoritarian 

form of government. You look at Tamil Nadu, the reference is between 

Jayalalitha and Karunanidhi, you look iat Bihar, the election is between Laloo 

Prasad and Nitish Kumar, you look at UP, the election is between Mayawati and 

Mulayam Singh, you look at Punjab, it is between Amrinder Singh and Prakash 

Singh Badal, you look at Gujarat, it is a platform of the BJP but the referendum 

is Narendra Modi versus others. We have already reached the point where we are 

12 



talking about referendum, we are talking about a kind of 'presidential order' 

(form of government) but are refusing to acknowledge it. The day you decide 

that MLAs and MPs will continue to be only legislators; they will only be the topmost, 

strongest, most powerful legislators; that they have to get up in the 

Assembly (or Parliament), they have to make notes, they have to prepare 

themselves, they have to talk for the people, and they can't become Ministers, 99 

per cent of the people who are getting into politics will leave politics—and then 

you don't have to look for funding—you will not require it because you are not 

going to make money or dispense favours. 

Today, since one can become a minister after being elected by the people, 

everyone asks for their pound of flesh. If Manish becomes a Minister 

tomorrow, I think he will be the worst sufferer because his is an urban 

constituency which is very demanding. My only submission is that this debate 

would be very fruitful if we can discuss the financial order. You cannot match 

present aspirations with reforms. You can match these only the day elected 

representatives are good people like you and me, sincerely care about the future 

of the nation and don't have to think, "how can I get into politics". It is my 

submission here that before we proceed further to discuss electoral reforms on 

financing, we have to discuss the political system which has been there for 64 

years. Both Manish and I know it may not happen, we may spend another 20 

years debating because regional parties and other organisations would not want 

change. But we have to build up a debate if we want right things to happen in 

politics, i.e., to segregate the legislative process from the Executive. This is the 

key and if we can't proceed with it, all our discussions will be in vain. So, this is 

my submission. I am sure we can open a debate on this. 

Chair: Let us open up the floor to an interim discussion instead of taking all the 

five speakers in a row so that we can get some questions and feedback. Please be 

very focussed in your questions. 



Mr. Mohan Guruswamy, Distinguished Fellow, ORF: I am absolutely 

delighted to hear two politicians speak this language today. For the first time in 

my long innings, I have heard this kind of dispassionate talk. Rudy raised a very 

significant point on the role of parliamentarians. There is no reference to 

political parties in the Indian Constitution, yet, when you talk about campaignfinancing, 

you go and give money to a group or an agency which is in a limbo. 

For a cooperative society you have rules of functioning, for a gurudwara there 

are rules, but there are no rules for political parties. 

So, I think you have to legislate for that because if the State is going to fund a 

political party, which I think is a good idea, then that political party must 

conform to certain norms and behaviour. Most parties have this 'High 

Command decides' culture, which is why you are increasingly seeing children, 

nephews, grandchildren, all becoming political heirs and successors. I don't 

know if political parties can conduct inner-party elections anymore, or whether 

the Election Commission should conduct these elections for them. After all, 

you have a Registrar conducting elections for cooperative societies. So, these are 

much larger issues. Just restricting it to campaign financing means you want 

sarkari paisa to do exactly what you are doing now. 

Dr. Sridharan: The notion that separating Executive power from legislative 

power will actually help you insulate from corruption is misplaced. The 

empirical evidence in the US does not support it. There are a number of 

Senators who take money, whose financing has been called into question; one 

has had to resign, or he has been sacked. You can, through the legislative 

process, carry out many Executive functions like allocation of money, do 

favours, withhold favours, do anything that currently elected representatives are 

doing while holding Executive positions. So, that is not the solution. In the 

recent Assembly elections in Kerala, the Congress party could not deploy 

helicopters for ferrying their Central leaders for campaigning because there was 

a huge uproar from the people, the political opponents and the media; they had 

to abandon the idea. So, there is a certain consciousness of the polity which 

14 



militates against the use of money power in a wanton display of the ability to 

spend money to influence voting. While you are completely right that there 

cannot be any isolated reform in funding of elections or politics in general and it 

is more a systemic thing, the solutions that have been suggested, I don't think, 

are the ones that will help you change anything. 

Mr. Anil Bairwal: As Mr. Tewari has said and Mr. Rudy has alluded to, people 

are already spending so much money on elections. Questions are being asked 

about too much power being given to the Election Commission, that while it is 

not allowing any movement of money, underground money is being used for 

campaigning. Even if the Government was to provide campaign-funding, when 

people are spending ` 18-20 crore and showing ` 16 lakh as spent, is the legallysanctioned 

spending for an Assembly poll candidate going to make any 

difference? 

Mr. Rudy spoke about trying to bring meritorious candidates into the system. 

How is this going to come about, when today there is a complete lack of 

transparency in how most parties select their candidates? Workers of a political 

party have no powers whatsoever in deciding what happens in the party; 

everything is decided by the High Command. In fact in UP our analysis shows 

that the number of candidates with a criminal background who have been given 

party tickets has actually increased compared to the last elections; from 28 per 

cent to 38 per cent. A word about the working of political parties: I completely 

agree that until we find a way to somehow regulate the functioning of political 

parties, bring in more transparency in their functioning and everything that they 

do, including inner-party politics, we are trying to just fix things which will not 

solve the basic problems that we are aiming at. 

Mr. Manish Tewari: As far as the issue of party-financing and electionfinancing 

is considered, it is important to consider the American model where 

the funds are given to intermediaries or citizen committees, which distribute 

the funds. But in the US they have a strong democratic tradition and citizens' 



participation is there at every level, starting from the primary-level to the 

national leadership convention. But in India it will be a complex situation 

because we do not have a very strong democratic tradition. In the present 

situation it would be interesting to adopt the model started by the Tata 

Foundation, in which parties are funded on the basis of their electoral 

performance. Other corporate houses and the Government can also consider 

this model. 

When we talk about electoral reforms, it is also important to talk about party 

reforms. One interesting reform, which I have been writing about in my articles, 

is that in India parties should elect their leaders at national leadership 

conventions, comprising provincial party delegates voting as individuals rather 

than as State blocs as in the US, where they elect their presidential candidate 

every four years. This will give wider support, national visibility and more 

democratic legitimacy to the leadership. It will also help in building the 

aggregation process in political parties. 

Participant: Irrespective of the political system, whether it is a parliamentary 

form of government or presidential form of government, we find a lot of 

instances of corruption, of campaign funds being misused. What we really need 

is overall political party reforms and campaign funding reforms. Various steps 

have to be taken. Campaign-finance reforms alone will not help the situation. 

Mr. Rajiv Pratap Rudy: We are talking from experience… we are talking of a 

bottom-line. Before I contest elections, I have to collect all the affidavits: that I 

am not dishonest, I have this much of property, I am not a criminal. Even the 

Prime Minister has to submit 20 affidavits saying that is he is the best man in the 

system! This is because we legislated to create a system where the Election 

Commission says that if you are filing your nomination, show me how much 

property you have, that you are not a criminal... we have devised legal ways and 

laws to say that this man is very nice because he has put it in affidavits. Now, a 

16 



person who is going to get elected has to give 100 undertakings that he is a very 

nice man. So, this is the system. 

You have a democracy where the late Rajiv Gandhi came in with 401 seats in 

Parliament; he brought in an anti-defection law which stated that only if onethird 

of the elected members of a party got together could they break that party. 

So, we were very scared that all these genuine elected people would switch 

loyalties… Then in 2003 there was my Government, an NDA Government, 

which said that you needed two-thirds majority to jump sides. You are passing 

laws just to tame politicians, where the basic (premise) is that every individual is 

eyeing for a position. 

What we are suggesting is that the present format of the electoral system is so 

messy that all the issues come back to the same point: How do you find the right 

people in politics? Why does the present system not allow the right people to 

come in politics? This is why we say we need to have a debate; we know nothing 

is going to happen. We are a part of the system. Manish will take over further 

from here. 

Mr. Tewari: I just wanted to endorse what Rudy was saying. In the political 

lexicon we have a term called 'winnability', which is a veneer that insulates a 

person from the most heinous of crimes. I think what Rajiv is advocating is 

something which needs to be looked at seriously. It may not be a perfect solution 

but it is a solution nonetheless. Till you do not have a complete hiatus, a 

complete divorce between Executive functions and legislative functions, your 

ability to be able to either clean up elections or police that clean-up is going to be 

ineffective; there is no way in which you will be able to do it. 

The Election Commission has been very pro-active for the last 21 years. We 

have also gone on television and praised the Election Commission for the 

excellent work they do; to be very honest to them, their observers and the 

people they deploy actually try and do their job to the best of their ability; but, 



then, you are sending a person from a particular State, let us say Andhra Pradesh, 

to Punjab, and the poor fellow does not understand the language, he does not 

know the lay of the land and he has been there for only five or seven days. So, he 

tries to correct the situation based on whatever little inputs he gets. But, as I was 

pointing out earlier, when you juxtapose a limit of ` 16 lakh against an expense 

of ` 20 crore, how are you going to handle the matter? 

The only way that you can possibly make a beginning is by looking at larger 

systemic reforms; you have an election for an Executive process, put that 

Executive under a Lok Pal or or whatever 'pal' you want and have the most 

robust anti-corruption laws in place. This way you may be able to get a handle on 

Executive corruption. As far as the legislative process is concerned, if you 

insulate it in this manner, you may not have a 100 per cent success rate but I 

entirely agree with Rudy that you may have to begin with a 30 per cent, 40 per 

cent or even 50 per cent success rate and you can keep on improving upon it. But 

if you continue this way, the way that we are going…it is not going to help. 

You talked about helicopters, about people's pressure in Kerala. Honestly, that is 

a miniscule expense. I think the public uproar was completely uncalled for 

because if somebody has to criss-cross a State and uses a helicopter, probably it 

is hardly any expense at all, ` 2 lakh a day or something of that sort. This is 

hardly anything compared to the amount of money which actually gets spent. If 

you take the case of Punjab, it is not alcohol any longer, not even opium; it is 

cocaine, Ecstasy and designer drugs. So, therefore, if at all we want to do 

something seriously about this, let us think very seriously about what Rudy has 

said, let us try and develop on it, maybe we will get somewhere. This artificial 

policing or this kind of a gloss which we are trying to put on, is not going to 

work. 

18 



Chair: Mr. T. K. Arun will now make his presentation 

Mr. T. K. Arun, Editor, Opinion, Economic Times 

I completely agree with Mr. Guruswamy that political parties are rather very 

lightly regulated. The Representation of the People Act is the only piece of law 

which talks about political parties and puts in some conditions on how they 

should behave. In 2008-09, the year in which parties were mobilising funds for 

the big battle in 2009, the BJP filed audited accounts for ` 220 crore as income 

for the year. 

The Congress filed an income of ` 393 crore or something like that, whereas the 

actual income and expenditure of these parties would have been much more. 

The crux of the problem is the complete lack of transparency in the funding of 

political parties. Now, can such transparency be instituted, can we bring in this 

transparency? 

To say that we should follow the 'Tata Trust model' does not really solve the 

problem because you can set up a trust and they can give you money and that 

money will be recorded—but what if someone is willing to give money and it is 

not recorded? Let us take this issue in its entire seriousness. If a company gives 

money to a political party or to multiple political parties "off the books" of that 

company, you are making nonsense of the practice of auditing accounts of the 

company, you are making nonsense of corporate governance, you are making 

nonsense of the function of having independent auditors, audit committees 

and their reports. Everything is being undermined by the way you fund politics 

in this country. 

The question is, how can we realistically change this? If you have the political 

will, the starting point must be the monitoring of expenditure. If you make it 

mandatory for every political party to file a monthly expenditure statement in 

the first week of the following month, starting from the village and panchayat 



levels, and make it open to challenge by watchdog bodies and by other political 

parties, and institute an expanded body of the Election Commission as the 

moderator who will actually validate the expenditure, things can change. Sure, 

some money that is spent on buying drugs that are illegal might not be reflected 

but a large part of the expenditure of political parties would be reflected 

because other parties and watchdog bodies could contest the low claim of any 

party. This expenditure should be explained in terms of source. There is no 

reason why this cannot be done. 

You might say Mayawati claims that the vast majority of the money she collected 

came through small contributions from people and could not be recorded. This 

might have been a possible excuse 20 years ago. Today, it is possible to have 

small, hand-held machines that can be connected to some computer server that 

can record every single contribution by any donor, even in smaller 

denominations of ` 5 and ` 10, and generate a receipt for it. The question is: do 

we have the political will to do this? We have already reformed the economy to a 

large extent. State discretion now exists only in some sectors, primarily land and 

mining lease, or wherever natural assets are involved. The more you bring in 

rules of transparency in conducting Government business and reduce the role 

of arbitrary discretion, more transparency will prevail in political funding. The 

reason why there is so much of support for Anna Hazare and his reformers is 

because now those sections of society have emerged which are prospering 

without any Government patronage. They are victims of extortion; they pay 

money to politicians and to civil servants. They are doing it not because they 

have got patronage but because they are victims, they just have to pay. They are 

actually getting nothing from the system but they are made to pay, and this is 

getting articulated as support for the demand for a Lok Pal. 

It is completely within our ability to clean up the system, starting from 

monitoring expenditure to forcing parties to disclose their sources of finance. 

We should regulate political parties, have a separate law to govern the conduct 

of political parties, make inner-party democracy mandatory, make selection of 

20 



candidates on the basis of primaries as is done in the US, i.e. the candidates 

actually have to win the support of registered party members. Radical reforms 

will require possibly the right to recall, the right to reject a candidate; you would 

have proportional representation; you can have various changes in the polity but 

even without such thorough reforms, it is possible to greatly reduce corruption 

in politics. 

Mr. S. K. Mendiratta, Legal Advisor, The Election Commission of India 

As has been rightly said, the law relating to disclosures by political parties is 

absolutely absent today. Under the law there is a ceiling fixed for the expenditure 

of a candidate but there is no ceiling on the expenditure of any political party. 

Some question was raised about ` 16 lakh being the spending-limit and ` 20 

crore being spent; if you see our record, in 95 per cent of the cases in the last 

elections, the returns from the candidates show that most of them have spent 

only ` 8 or ` 9 lakh. Beyond that nobody has spent. So, we should ask the 

question, why should we not reduce the limit if you are able to contest elections 

with ` 8-9 lakh? 

On transparency in funding, for the last 15-20 years we have been asking for a 

beginning with an annual audit of political parties' accounts by a panel cleared 

by the Comptroller and Auditor-General (CAG) or the Election Commission, 

which would be made public. In 1998, the Government set up the Indrajit 

Gupta Committee on State funding. I happened to be the Secretary of that 

Committee. One of the issues related to the audit and publication of political 

party funds by independent auditors. There were nine political parties; all major 

political parties were represented on that committee; our present Prime 

Minister Dr. Manmohan Singh was a member; so were Mr. Somnath Chatterjee 

and Mr. Vijay Kumar Malhotra. Every political party said the present system was 

okay: they had very competent chartered accountants, they got their accounts 

audited, so what was the need for independent auditors and why should the 

political parties publish the audited accounts? This was a very minor thing for 



them. The present law says that parties that collect more than ` 20,000 in 

donations have to send an annual list to the Election Commission before filing 

returns with the income-tax authorities. Most political parties are not submitting 

the list; they say all their individual collections are of less than ` 20,000. Parties 

that have filed, even if they have collected crores of rupees, hardly show a few 

donations above ` 20 lakh. This is the situation. 

The Election Commission can go only by the law which is given to us by 

Parliament; we can't do anything on our own, though sometimes we have done 

something that is not provided for in the law. Sometimes we get the flak for that, 

and sometimes we get appreciation also. This particular exercise which we are 

now undertaking regarding the seizure of money and keeping a check on the 

flow of cash and other things during the current round of elections, even for 

that at least 10 or 12 petitions were filed before the Madras High Court. They 

were saying, "even while walking on the road or travelling, we are being 

subjected to harassment". We had to explain it all to the court, and fortunately 

for us the court was very sympathetic to us. It observed: “If you have to bear a 

little inconvenience and if more public good is served, you please bear with it.” 

That is why the Election Commission was able to collect about ` 70 crore. Even 

in the last elections in Punjab, at least 37 kilos of heroin was seized, and so were 

bottles of liquor and other things. Punjab used to be known as the land of five 

rivers. Now they say sharaab has become the sixth river . 

'Winnability' has been raised as one of the issues. If you say that the other party 

has put up a dacoit, so I will also put up a dacoit, then nothing can be achieved. 

Since 1998, we have been suggesting that those candidates who are facing 

serious charges of murder, dacoity, rape, etc., where the punishment is more 

than five years and the court has framed the charges, they should be temporarily 

barred from contesting elections. We took care and further suggested that the 

charges should have been framed at least one year before the election so that if 

somebody is aggrieved he can go to a higher court and have the charges set aside 

or stayed. 

22 



This matter was considered by a committee of Parliament. They said our 

jurisprudence is that a person is presumed to be innocent unless convicted. If 

you go by that logic and jurisprudence, then why is it that lakhs of people are put 

in jail and are not even being given bail? They are not convicted so they are still 

innocent. Why do you put people behind bars under preventive detention law? 

They are not yet convicted, they are all innocent as per jurisprudence. They 

cannot live with their families, they cannot meet their children, they cannot earn 

for them; their family members may be starving. If you can deprive them of all 

those fundamental rights, what is so great about the right to contest an election? 

We have also been demanding a law, a separate law, on regulating the functioning 

of political parties: How they should work, how there should be internal 

democracy and periodic elections and publication of accounts and other things 

so that there is transparency. All this we have been demanding but unfortunately 

we are not in a position to do anything on our own. I will give you another 

example. Somebody was saying that the candidates are being asked by the 

Election Commission to disclose their assets, liabilities, etc. That was actually 

not our order. 

That was an order given by the Supreme Court. Some concerned citizens went 

to the Supreme Court and said that, "at least you ask them to disclose assets". 

The Supreme Court took the view that every voter has a 'fundamental right' of 

expression, the vote is an expression of that right. For making that right 

effective, he should be able to make an informed choice, and for that informed 

choice he should be provided at least the basic information about the 

candidates. Voters should know what type of criminal antecedents the 

candidate has, how many assets, liabilities, what educational qualifications he 

has, etc. The Supreme Court gave a direction to the Election Commission to get 

this information and disseminate to the people at large. 

We thought that if the law is amended in manner that this information comes in 

the nomination paper, it would be better. We wrote to the Government, asking 



them to provide these things in the nomination paper. The Government 

convened an all-party meeting and there was a unanimous view that nothing 

should be made known to the people except convictions. Parliament amended 

Section 33(V) of the Representation of the People Act 1951 overruling the 

earlier judicial order on criminal antecedent disclosure. So, candidates will file an 

affidavit giving only the information with regard to convictions and more than 

one-year prison-term. They said this would be the case, notwithstanding 

anything contained in any judgment of the Supreme Court, High Court, etc. 

The second round then followed before the Supreme Court. The Association 

of Democratic Reforms (ADR) and others went to the Supreme Court, which 

struck down the particular provision. This is how now the Commission's order, 

or whatever you may call it, instructs that candidates must file an affidavit giving 

relevant information. You will be surprised, Sir, that when this matter was being 

discussed in Parliament, there was a lot of opposition from some parties, some 

very important parties, who asked why should a candidate state how educated he 

is. 

We pointed out to them that if you see the Constituent Assembly debates on this 

issue, Dr. Rajendra Prasad (as the Chairman) closed the arguments by saying 

that at that juncture 84 per cent of the people were illiterate, very few candidates 

were literate and most of them might not be having any formal degree. “If you 

provide any educational qualification as a condition we may be out, but the time 

will come when the Parliament can do that”, he had said. In 2001, the move was 

being opposed. 

24 



Mr. Anil Bairwal, National Coordinator, 

(ADR) 

Association for Democratic Reforms 

A lot of things have already been said about criminalisation, about political 

parties, the need to bring more transparency and inner-party democracy. I would 

like to touch upon a couple of other points. One thing is about ticketdistribution. 

This goes to the core of this money-power issue. The tickets are 

given by political parties to people knowing that these are the people who can 

spend more money than others. At least this time a lot of candidates were 

named well in advance. But there are times when till the last moment, you do not 

know to which political party a particular gentleman belongs because he is 

negotiating with every party; he is probably trying to join the party from which 

he can get the ticket with the least money. It again goes down to the need to 

regulate the functioning of political parties. Mr. Mendiratta said a lot of 

proposals have been sent to the Government over the years; several 

commissions have been set up. But I think political parties have not done their 

due; what people were hoping them to do. I am also not sure what they would do 

if some recommendations were to go from here. 

Mr. Arun gave the example of Kerala where helicopters were not used. The only 

thing that works with the political parties is public pressure. I think State funding 

would isolate political parties from voters. To some extent, I think they are 

already detached from the masses. State funding would detach them even more 

because they would not have to look for funding. Some political parties now say 

that they don't take funds from big business, they concede that they are taking 

money from common people. So, if we say, “You get this percentage of votes, 

we will give you this amount of money”, they will sit back and relax. 

The third issue is that political parties need money. That is for sure. They cannot 

carry out the functions that they are supposed to carry out without money. Now 

the question is whether the State should fund them, or whether we should make 

other provisions to bring in white money. I agree that we need to tighten the 



system instead of bringing in State money; nobody is going to control the 

current happenings. They will continue to happen. But maybe we could find a 

way to increase the component of white money in the electoral process so that it 

just does not thrive on black money alone. 

The Election Commission is a body with constitutional status but it does not 

even have the right to make election rules. Every time they have to make a minor 

change they have to send their request to the Law Ministry. Even the report 

about political parties from the Institute of Chartered Accountants of India has 

been sent to the ministry. The ministry has been sitting on it and it does not 

matter that it is a Congress Minister right now; the BJP has done similar things 

while in power in the past. I think most parties play the same game. 

Finally, I would just like to comment on disclosures. A lot of political leaders 

don't like disclosures. But there is a need to bring in more disclosures. One of 

the disclosures is of register of interest which is currently in the Rajya Sabha. 

The Political Ethics Committee decided not to make it public and CEC had to 

issue a compliance notice. When we are talking about probity and how to bring 

in better candidates and better people into the system, the Lok Sabha still does 

not have anything related to register of interest. Mr. Rudy was talking about 

separating Legislative and Executive functions, and how to make it less 

attractive for people to come in into the political system. One way may be 

disclosures, particularly for elected representatives, like in some other countries. 

In the US, every Senator's income-tax returns are on his website. From ADR, we 

have asked for the income-tax returns of 20 MPs whose assets have increased 

the most between 2004 and 2009. All the 20 MPs have said they will not disclose 

and the appeal is currently pending with the CEC. Things happen here only if 

the CEC comes in, or a court comes in. I think all of us are looking forward to a 

time when political parties will pro-actively take some steps to reduce the 

incidence of some of these problems. 

26 



Chair: Before opening up the floor to questions and comments, I would like to 

give the issue some historical perspective. The origin of the malaise, of the 

dependence, enormous dependence on unaccounted money and of extremely 

high levels of election expenditure, unaccounted election expenditure, may 

have been in 1969, when corporate donations to political parties were banned. It 

was made legal again, under Section 293 of the Companies Act, only in 1985. In 

1969, in the context of a highly regulated import-substituting economy, 

corporate donations were banned; the question arose as to where an adequate 

legal source of funds would be available for political parties. 

State-funding was introduced in a range of countries through the 1960s, 1970s 

and 1980s; you can have a range of designs for State-funding; it can be full Statefunding, 

on a vote-share basis, on a per-vote basis, on a reimbursement basis; it 

can be partial, on a matching-grant basis or against private funds raised. In 1969, 

when you banned legal corporate funding of political parties without 

substituting it with State-funding, you created a huge vacuum, which meant that 

parties were willy-nilly forced to go under the table, to the black money 

economy, and were dependent progressively on unaccounted funds. 

Then you have another development in 1975, when in the 'Kanwarlal Gupta vs 

Amarnath Chawla, case, the Supreme Court said that party expenditure should 

also be counted into a candidate's expenditure-limit. The Government 

amended the law and appended explanation (i) to Section 77(1) of the 

Representation of the People Act, to say that party spending will not be counted 

for the purposes of the candidate's expenses limit and, therefore, parties can 

spend any amount. The candidate has a fixed limit which has been revised 

progressively, which for a Lok Sabha seat is now ` 40 lakh, which is a very small 

amount compared to the actual amount that gets spent. Effectively, you 

removed all expenditure limits because parties could spend as much as they 

liked; even after the 2003 amendment brought in by the NDA Government, 

where candidates had to declare what their party spent on them, if a party claims 

that it does not mention the name of the candidate, does not associate its 



funding with the candidate, it says it is just propagating the party programmes, 

then it falls outside the spending limit for a candidate. 

The combination of what happened in 1969 and then in 1975 was that you had 

no adequate legal source of spending till corporate-funding was reintroduced as 

legal in 1985; you had a highly regulated economy where the licence raj was very 

much in place; you also had unlimited party-spending, which meant that you had 

an arms race between parties at the time of elections. Even the re-introduction 

of corporate-funding in 1985 really made no difference because by that time the 

dependence on unaccounted money had become deeply entrenched in the 

system; also, until 2003, there was no tax incentive. There was the fear of lack of 

anonymity, and of being penalised by the party which you did not fund, if it 

came to power some time in the future. So, the entrenchment of political parties 

in the unaccounted economy became very deep. Although, as Mr. Manish 

Tewari said, the 2003 amendments have introduced a degree of transparency, 

and more and more companies are now contributing by cheque and claiming 

tax-deduction, it is still a small percentage of the actuals. 

Now, what do we do about this? As I said at the beginning, there are four types 

of regulation of elections and parties: limits on expenditures, limits on 

contributions like in the US and public-funding of some kind or the other. It 

can be designed in various ways and forms with different types of reporting and 

disclosure requirements. So, in principle, one way is to tightly monitor 

expenditure and also link it to a tight monitoring of contributions, like what Mr 

Arun suggested. But you have other systems also. In the US, there is no limit on 

expenditure, but it is relatively clean. You don't have this kind of corruption 

because there are very strict reporting and disclosure requirements. 

Remove what is basically a farcical cap on expenditure. Why have candidate- 

limits of ` 40 lakh when you exempt parties, and effectively make it a 

meaningless limit. Why have it all then? Do away with it and focus on having 

strict disclosure. There are cash and unaccounted contributions; even if you 

28 



contribute by cheques of ` 19,999, you don't have to disclose it to the Election 

Commission as it is less than ` 20,000. So, this is also farcical. If you have a strict 

system, every contributor has to be identified and the contribution recorded. So, 

even if you don't have expenditure limits, and you have a very strict system of 

reporting and disclosure, you can clean up the system to a considerable extent. 

The other way is to introduce public-funding of some kind. This can be 

designed in various ways. I would encourage our guests from Germany to say 

something about this. We could learn from the systems that exist in Germany 

and other countries in Europe. It could be on a matching grant basis, which is 

not totally divorced from the people as you said. If it is just dependent on voteshare, 

you don't have to go out to the people to raise money but you can say that 

if you raise X amount of money we will match it, 1:1 or 1:2. Give them some 

incentive to show their credibility in terms of raising money, in terms of masssupport, 

in terms of getting contributions and match it with State funds to some 

extent. Along with this, as others have said here, introducing strict 

accountability measures and internal democracy within political parties has to 

be mandatory because you cannot give a State fund to, say, a leader who is totally 

unaccountable to his party. You can have different packages designed. The 

totality of the package and the incentives is what really matters. 

Participant: What about separating legislative functions from the Executive? 

Chair: I don't think in a parliamentary system that can be done. In a presidential 

system there is separation of powers. If you are a member of Congress in the 

US, you cannot become a member of the Executive. Here in India the ministers 

are drawn from the Legislature, from Parliament or the State assemblies. 



Question & Answer Session 

Mr. Mohan Guruswamy: In the early part of the Republic, after elections the 

defeated candidates could file petitions challenging the election on excessivespending. 

There have been plenty of cases, like the celebrated case of Dr. 

Channa Reddy, the then Union Minister of Steel. Within six months of 

becoming Minister, his election was thrown out for corrupt practices. So, there 

was an incentive for candidates to collect information about one another and be 

ready for court cases. 

Now the judicial process is so long and extended that these things are never 

resolved. I have the case of a friend of mine, Ram Bahadur Singh, who 

contested the parliamentary elections from Bihar in 1984. He led in all Assembly 

segments, but was declared lost owing to political pressure on the Returning 

Officer. He fought for five years, he won the case after the term of Parliament 

was over. You need to combine all what has been said here with quick judicial 

processes. Maybe you need separate fast-track courts; within 3-4 months you 

should have a verdict. Otherwise, people are denied their right to 

representation. 

Dr. Lukas, Political Counsellor, German Embassy: I am from the German 

Embassy and I would like to take up your invitation to say a few words on how 

we deal with the system or with the parties in general. We don't have campaignfinancing, 

we have party-financing. We have a mix of ways in which we have 

party-financing; we have public-financing by the State, financing by membership 

fees, financing through donors, donations by private persons as well as 

corporate donations. The public finance depends on the party but if you look 

up the website of the German Parliament, public-financing is limited to 

somewhere between 25 and 30 per cent for each party. That is a major part of 

financing but it is not the bulk. The bulk actually is made up either by 

membership fees or by donations. Some parties, I have to add, also have some 

30 



economic activities. There are parties who have publishing houses, etc. This is 

regarding the financing. 

Maybe a line on the way public financing is being done. It is strictly in correlation 

to the success or the votes the party gained in the previous elections. For 

example, for every vote a party gets it gets a certain amount of money, and it also 

is in correlation to the membership fees. For every euro a party gets as 

membership fees they get a certain amount of cents in public-financing. So, all 

in all, there is a complex system. 

Having said that, we also have a very strict system of accountability and of 

disclosure. In fact, every party has to disclose its income and its expenditure, 

annually, and these disclosures are being supervised or checked by the 

administration of Parliament. It is obviously bad to be under the scrutiny of an 

administration but it is even worse to be under the scrutiny of the media. Yet, no 

system is perfect. In Germany, we have had several cases of black money 

pouring into political parties. The good news is that those cases have been made 

public in the media and they led to big changes in domestic politics, which led to 

the resignation of politicians. So, I would agree with what some people said here 

that the key is accountability and disclosure, and German history has shown that 

the media plays a key role in pointing fingers at things that go wrong. I will finish 

by saying that in my personal opinion, the question whether you have a 

parliamentary system or a presidential system must be de-linked from the 

question how you finance parties because in any system you would have parties 

and in any system you would have parties that gather money and that want to 

spend the money in their favour. 

Participant: You have heard a political science perspective; I would like to give 

an economist's perspective. India is a very complex democracy, at different 

stages of building but the crux of the matter is that you have to reform vested 

interests by vested interests. Each political party thinks tomorrow it will come to 

power. So, all the loopholes should be retained so that when a party comes to 



power, it can make money. It is very important to note that politics has become 

business. Economists never thought that public expenditure would be treated 

as a milch cow. We thought there would be benign governments, Welfare States, 

people full of character and people who would not extract money. In foreign 

countries there is the State, but here we have made common people the main 

donor. Even if you collect ` 10 per person imagine how much it comes to. 

We are not debating merits and demerits; there are so many other concerns and 

in a holistic fashion you have to count them. From an economist's angle, we 

assume that the system is fair, assume that there are enough checks and balances 

and accountability and transparencies which are the pre-requisites of any moral, 

political, ethical system of governance, including elections. The idea of 

economists was that if parties start collecting money, particularly from business, 

businessmen also treat it as an investment. If a businessman gives ` 1 lakh, he 

will expect ` 10 lakh in return, sooner the better. The pay-back periods are 

getting reduced. Mr. Rudy said the black money component in campaignspending 

is going up. We are already seeing in every transaction that the black 

money portion is going up. So, the idea is not to influence public policy through 

money power, it is particularly for influencing business policies, economic 

policies to the advantage of a particular corporate house. This is the main idea. 

If you isolate it, and if elections are genuinely funded outside of vested interests 

who turn public policy for their personal and corporate benefit, the logic of the 

economists still remains valid. 

But this has now manifested itself in so many other ways that we are simply 

overtaken by corruption, we are overtaken by black money; economic reforms 

have not helped simply because political reforms, which we all economists now 

recognise, are a pre-requisite for good governance. Economic reforms are not 

enough by themselves. It has been well said that just focussing on election 

campaign funding will not be enough. It will be a brick, an important 

component. Don't reduce it to nothing, but for heaven's sake, as Mr. Mendiratta 

and others have said, you have to first make sure that there is political will and 

32 



minimum agreement among all political parties for not violating this code of 

national responsibility towards cleaning up the system. As of now, no party is 

interested. Each party wants to play the same game, “Ab tumari baari, aglee baar 

hamaari baari aayegi”. A corporate would say, “reform others, not me, tax others”. 

Vested interests are tied up together and no one is seriously interested in 

reforms, everyone is interested in putting obstacles or leaving enough loopholes 

to reap the benefits from non-regulation. 

Certainly we need a regulator. If we have learnt anything from reforms, leaving 

it to markets would not help, leaving it to Government will not help. Each has a 

vested interest, each has fundamental weaknesses of its own—market failures, 

State failures, and people's failures. People too would like not to pay taxes. No 

one is honest to the core. So, under such circumstances the first pre-requisite 

will be political reforms of the parties and candidates. Good candidates have to 

be certified by various parameters, and people at the grass-root should decide 

who should be fielded or not, not the political parties. 

Participant: As has been rightly said, apart from public pressure, nothing 

works on political parties. I have been in touch with the political system for over 

three decades; every time there was a question on whether criminals could be 

fielded or not, every political party would find one logic or the other to evade it. 

Political parties think that they are above all. That is the most unfortunate thing. 

Unfortunately, the entire political class is being seen as a villain, which is not true 

because political parties, after all, don't descend from heaven. They also come 

from the society. So, society at large has also to be viewed in context. But 

political reforms, as has rightly been mentioned, is one vehicle through which 

we can achieve many things. 

What do we mean by a political party? They, like all other organisations, need to 

be audited, need to be regulated. Then comes the question of what kind of 

candidates? I am really appalled when political party leaders say that if a 

candidate has not been convicted, how can he be debarred from contesting? 



This is absolutely ridiculous and every political party, every political leader 

speaks the same language. We have seen the recent issue on the Lok Pal, with all 

kinds of arguments to derail the whole process. Somebody talks of federalism; 

suddenly federalism becomes such an important issue. Even those parties that 

are highly supportive of a strong Centre, they are also talking of federalism. We 

have to all agree that unless public pressure is built, political parties are not going 

to agree to anything. 

Dr. Niranjan Sahoo, Senior Fellow, ORF: Just two issues which caught my 

imagination, based on what Mr. T. K. Arun said about disclosures. We can 

actually begin with the panchayati raj institutions, egging on others to disclose 

more and more information. But here I sincerely feel that the media is actually 

missing in action in terms of reporting, in terms of playing the activist role 

which it is playing on many other policy issues, be it on the Lok Pal, be it on many 

of the other issues relating to environment and other concerns. Some process 

has already been started on disclosure, criminal antecedents and many other 

things. Now, routinely, a lot of things are coming to public knowledge, like 

corporate donations to different political parties. But why are we not getting 

actually deeper and looking at it in terms of who donates and whether it has any 

linkages to influencing policies adversely or in any one's favour. I am talking 

about the crony capitalism aspects, which have come out vividly in the 2-G case. 

So, this needs a thorough probing. 

Of course, a research organisation like ours and many others also have to play a 

role because we don't have much empirical work on this issue, like how much 

money is involved, what kind of role it plays in influencing elections or 

determining the outcome. We don't know much about it in India unlike in 

Europe and the US. They have reams of empirical work to validate many such 

arguments. The time has come to actually take this issue very seriously on our 

part, apart from expecting the political class and the civil society to take the lead. 

Here I sincerely request the media to play an active role because if they don't 

34 



raise this issue, we will get to hear about it only during election time and that too 

would pass. 

Mr. T.K. Arun: But media has other priorities now. 

Dr. Niranjan Sahoo: I know, but this is the mother of all the corruption. It is 

not just the Lok Pal. You need systemic reforms on campaign-funding and 

restructuring or redesigning of the system so that good candidates are chosen. 

This would attract better talent into the system and infuse new blood through 

inner-party democracy. This is not happening. There is a typical feudalism that it 

is being practiced in the political system. How to break it? Making a beginning is 

very important. 

Dr. Klaus Julian Voll: I have a question for Mr. Rudy. In the late 1980s, your 

party showed a great interest in the German model of party-financing and also 

the mixed electoral system. At that time the BJP was a smaller party. You have 

obviously lost interest now. If you are so sincere about reducing these 

anomalies, wouldn't it be better to start by talking about financial reforms with 

regard to political parties? Wouldn't you have to go and see such models which 

have been, let us say, practiced in democracies like in Germany? 

We have a famous German political philosopher who developed the law of 

'eternal oligarchy'. It is there in each power system, and perhaps what you 

discussed here about unanimity among political parties is like what a German 

theoretician calls 'post-colonial State class' with various symptoms that you all 

have mentioned. The question really is how to transform this. I remember 

Vajpayee in the 1990s spoke for a presidential system, exactly along your lines, 

but suddenly the whole debate was completely closed. 

Mr. Rudy: Whatever you all are saying is perfect. If the product that you are 

talking about in the system is an MLA or an MP or a councillor, no political party 

in the present system would agree to reforms because the numbers have to be 



achieved. All this would prevent that individual, the electability of that 

individual, the positioning of that individual. 

I am a part of it, I am seeing the disease all around me Yes. We will fail this 

country if the elite who are here and many more who I am talking to, if we do 

not start. I don't expect this change to happen in my lifetime, I am sure about it, 

because the regional political aspirations, individuals, all have come together to 

protect (the system). Today in the Punjab elections there was 80 per cent voting, 

but the average poll percentage in this country, if you take in last 50 years, has 

not crossed 50 per cent. Out of the 50 per cent, the person who gets elected gets 

30 per cent. So, a person who gets 1,75,000 votes out of a total of 10 lakh votes 

(in a Lok Sabha constituency, for instance) is the elected representative while 

those of the 7.5 lakh people who have not voted have no role to play. In urban 

constituencies, the literate people, people who can participate in elections, 

amidst us, they don't vote. Why don't they vote? In rural areas, those people who 

are not so privileged, they vote because of the aspirations, because "this man 

(the candidate) is my lifeline. He is going to decide my future, he is going to get 

me a job, he is going to get me money". 

In Goa, you can check out, on the day of the election the newspaper vendor has 

` 2000 in currency notes rolled which he throws into houses. Even as we are 

talking about it, we are indulging in it. We need a debate. A political party that 

does not have the pressure to have such people elected will definitely subscribe 

to all what you are saying. They will put the changes into the system. 

We are all talking about transparency. But the end product which you are 

demanding is so complicated and is so litigated. The basic assumption of an 

individual is so low that we cannot make it, because my electability, my 

'winnability' would be completely lost when I put all those formulae that you are 

suggesting, into practice. 

36 



Dr. Rekha Saxena, Delhi University: I just want to speak about the Lok Pal 

episode and how centralised parties are talking about federalism. The situation 

has changed now. India started off as a centralised federation where 

parliamentary features overshadowed the federal features of the Constitution. 

But since 1989, with the transformation of party system, judicial interpretations 

favouring the cause of State autonomy, privatisation, globalisation of the 

economy, creating pressure for the integration of national economy with the 

global economy, and pressure for decentralisation of power to the grassrootslevel, 

a new dynamic has emerged in the manner politics is run. Now India is 

moving towards greater federalism and the Lok Ayukt has had a direct impact 

on the federal structure. I work on federalism, I have written extensively on this. 

I think the Government should have brought it (Lok Pal) like in the case of 

panchayat, in the form of an enabling Act and asked the States to pass a 

conforming act. 

Dr. Iqbal Husain, Jamia Millia Islamia: I am an academician and teach law at 

the Jamia Law Faculty. I am seeing from the academic point of view the election 

system and when I go back 65 years, when our country had great leaders, they 

were very honest and all of them wanted prosperity and freedom of the country. 

After the British left we started governing ourselves; the quality of the leaders 

that we got went down. Two months back I attended a seminar of corporates in 

in-house councils. They admitted that they were making contributions to 

political parties, but when asked where were they taking this money from, they 

said they were raising the donations from the people by over-pricing. I fail to 

understand then why we have legalised ` 40 lakh as expense-limit for candidates 

contesting Lok Sabha elections. Especially when parties are spending beyond 

the expenditure limit and the Election Commission unable to take action. 

Secondly—this is the most disturbing point—where is the reservoir of 

candidates for parties to choose from? I am an academician. I cannot contest 

elections because I do not fulfil the criteria, the kind of compulsions, and do not 



have the kind of things which are required to win an election. In the past, every 

university, every college used to have a students' union. At least within the 

academic culture, student leadership used to be created. At the time, we had 

most of our leaders coming from the student leadership and they had a little bit 

of etiquette—had some consciousness, and would not go beyond a limit. What 

is happening today? The leadership is coming from the gonda elements of the 

locality and the good people are being excluded. 

That is why every serious talk must address this issue. It is not as if we are not 

moving in the right direction. We are encountering problems and most of the 

problems are the contribution of all the parties. As we all have agreed, the 

parties themselves do not want change. One of the leaders here asked what 

kind of political administration can be expected if 75 per cent of the people 

were not voting. Yes, it is true that happens, but what is the repercussion? The 

candidate who has paid ` 5 crore, to get the ticket, he is getting elected through 

corruption. Is it not? At the time of election the people are silent. But when they 

are subjected to corruption they come along with Anna Hazare. That is the 

reason. So, if politicians keep on making excuses about different political 

systems, different political theories, and try to remain in the power by whatever 

the means, if they are not honest, certainly a day will come when we will have a 

revolution in this country. 

Mr. Samya Chatterjee, Research Assistant, ORF: I will just focus on the US 

campaign finance system because two remarks were made about how there has 

been more transparency or accountability there. That is not true. They face 

almost similar problems that we face. Of course, not on the same scale but the 

problem of unaccounted money remains. In 2009, there was a US Supreme 

Court decision which legalised corporate contributions without limits. 

Previously, there were limits to those contributions. In fact, if you followed the 

last presidential elections in 2008, the rise of small donors was a direct result of 

the disproportionate amount of influence that corporate contributions had. 

38 



To expand on this, in the US the problem essentially is that when a corporate 

makes contributions, it does so through lobby groups and they have the concept 

of soft money; they have fund-raising dinners and that is how they influence and 

change the policies. It is a very different and far more sophisticated form of 

corruption that takes place there. It has the same effect that we are talking about, 

the disconnect between the people and the elected representatives. That, I think, 

was identified as the fundamental problem affecting all polities. In fact, it is there 

in the United States. So, when we look to the US, it is not a rosy picture. The 

same problem exists in the UK. But one of the biggest differences is that the 

media there plays a very pro-active and reformist role. 

If it is a general election, the total amount of money spent will be on the front 

pages. There, they dissect the amount of money being spent, from whom it is 

coming, and it is discussed throughout the election period. You can find out the 

details in every local and national newspaper as to who are the corporates who 

are funding and how much money is being donated. That way, the electorate is 

more informed, compared to the lack of information as in this country. 

Thirdly, in the US, the disclosure laws are very strong and the courts are very 

stringent about it, and therefore you have a far better system. But coming back 

to corporate funding—and this is a warning because now corporate funding is 

being seen as the panacea for all the ills—in our Indian context, if we compare it 

to all other sources of funding, it is relatively clean. You need a judicious mix of 

State-funding, corporate funding and you lay down limits, membership fees, etc. 

It is a continuous process, so there is no one-size-fits-all approach. 

Dr Niranjan Sahoo: We need something like the Clean Money Act in the US. 

Be it, $5 or $2 or $3, it is all recorded. But unfortunately we are not making a 

beginning. At least, a beginning can be made at the panchayat-level, where most 

of the political parties would probably find an ideal setting because most of the 

experiments are happening there—including 50 per cent reservation for 



women. That was actually acceptable at the panchayat-level, not at the Assembly 

or parliamentary level. 

Mr. Samya Chatterjee: Just to give you another example. The US has been 

passing laws. I am taking this example because it is seen as the democracy which 

functions well. It does in so many other respects, but the point is that it is a 100- 

year process. Every 15 years they have to come up and change the laws because 

no matter how many laws they make, people will find ways to break them. The 

latest example was in 2001. There was a law called the Bipartisan Campaign 

Reforms Act. It was passed by members from both the political parties, and it 

was a very difficult Act to pass as it tried to ban essentially soft money and fundraising 

dinners, etc. In India, the biggest problem today is that we just talk about 

limits on contributions and limits on expenditure, inner-party reforms, etc. You 

have to put a cap on political party spending at some level because as long as you 

keep even one channel open, everything is going to be funded from there. The 

caps have to exist at all levels. 

Chair: We will have the speakers respond or make whatever observations they 

want to make. 

Mr. T. K. Arun: About the media reporting and analysing of corporatefunding, 

there is no data whatsoever. A prerequisite for it is that parties should 

report how much money they receive and that money should be received on 

record from companies. Then media can analyse which company has donated 

how much, and how far have policies changed in favour of which company or 

industry. We recently ran a couple of stories where we listed corporate-funding 

to political parties. This could be misused. So, first of all, you need stringent laws 

on reporting and disclosure. Only then you can analyse what effect this has. Let 

me tell you that the situation is far from hopeless. 

Thankfully in politics, apart from political parties and institutions and research 

funds and media, there are the people. Ultimately, only when the people mature 

40 



politically do things change. If the DMK lost the elections in Tamil Nadu, it was 

not that it did not have access to money. Here also newspaper vendors threw 

money to the tune of ` 5000/- with the morning paper. But DMK candidates 

lost. Ultimately, when people begin to have respect for themselves and resent 

the idea they can be bought, they react differently. This is exactly what happened 

in Tamil Nadu. 

There was a time when people could be bought with money. But beyond a point 

people say they have had enough, and that is happening all across the country 

right now. It is an overall process of maturing of politics; people's own sense of 

self-worth and awareness of their rights have ultimately changed things. I think 

that is actually happening and these are all various ways of crystallising and 

institutionalising the urge for basic self-empowerment of the people. Without 

that you can do nothing. Hopefully, there are signs that this is actually 

crystallizing. 

Mr. Mendiratta: What is needed now? The need is for stringent laws. But who 

will make the laws? Why should parliamentarians make a law that would go 

against them? Why should they do it? That is the difficulty. Unless there is some 

public pressure for them to do some thing, they won't do anything. 

Participant: Lack of political will. 

Mr. Mendiratta: No, I won't say political will. There is unanimity of political 

will because they don't want to do anything. 

Participant: I totally agree with that. In fact, State-funding is actually the only 

clause in the entire electoral reforms on which there is political will among 

political parties. You have every political party saying this is something which if 

done would be very good. For everything else, they are just saying this has that 

problem, that has this problem, etc. At least Mr. Rudy was very honest in saying 

that nothing is going to happen and if there is some public pressure where 

people raise a hue and cry, maybe things will happen. But otherwise we are going 



to continue as in the past. We can debate and do a whole lot of things, Sir, but 

until they agree and do something about it, nothing is going to happen. 

Chair: I think we will bring the seminar to a close. 

********************* 

Samya Chatterjee is a Research Assistant and Niranjan Sahoo a 

Senior Fellow at Observer Research Foundation, New Delhi. 

42 


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Campaign Finance Reforms in India: Issues and Challenges

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