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On regulating campaign finance

On regulating campaign finance

Discussion about campaign finance has gained momentum with the general elections around the corner. Jhalak Kakkar, an analyst with PRS Legislative Research, spoke with us about the regulation of campaign finance in India and other countries.

The edited transcript of Ms. Kakkar’s talk is below.

During an election campaign, political parties and candidates require funding. An increase in funding could significantly enhance their electoral outcome and facilitate greater access to voters. Candidates therefore, have an incentive to collect higher levels of funding but this behaviour may have negative implications for good governance. Good candidates, unable to raise sufficient funds, may get blocked out of campaigning and the electoral process. Funds from private sources often come with strings attached and this may result in elected politicians taking decisions that benefit special interests rather than the larger public interest. Politicians in power may in turn exert pressure on potential sponsors to contribute to the electoral campaign. Now, to restrict these adverse possibilities, most democracies regulate the financing of election campaigns.

Campaign finance is regulated around two aspects — (1) individual and group contributions to the electoral campaign funds of both candidates and political parties, and (2) expenditure by candidates and political parties. Both expenditure and contributions are kept in check is by disclosure requirements placed on candidates and political parties. There are civil and criminal penalties for the contravention of these regulations. The framework for regulating campaign finance in India is contained in the Representation of Peoples Act, 1951 and the Conduct of Election Rules, 1961.

Regulating campaign contributions — individuals, groups, and direct public funding

Contributions can come from three broad sources — direct public contributions, individual contributions, and group contributions including those from companies, societies, and trusts. Indian regulations focus largely on contributions by individuals and companies.

Individual contributions: There is no limit on the individual contributions that can be made. This is similar to the position in the U.K. It is interesting to note that in the U.S. and in Canada, there is a limit on individual contributions.

Group contributions: Group contributions and contributions made by companies are regulated under the Companies Act, 1956. Corporate contributions have to be capped at five per cent of the company’s average net profits during the three immediately preceding financial years. Incidentally, in the U.S., there is a ban on direct campaign financing by corporates, banks, and unions.

Foreign contributions: There is also a complete ban on foreign contributions to candidates and parties under the Foreign Contribution Regulation Act, 2010.

Disclosure requirements: Political parties have to disclose all contributions received by them and file them in their income tax returns. A donor, who has contributed more than Rs. 20,000/- has to be disclosed, and these disclosure requirements are largely in line with international practice.

Direct public funding: There is no direct public funding of campaigns in India. There is indirect funding for parties through the allocation of time on television and radio networks for campaigning. The time allocated is proportional to their performance in past elections. In addition, pre-electoral rolls and other documents are distributed to political parties.

Countries like Canada, U.K., and France have varying levels of direct public funding for elections. In India, the question of whether we should move towards a system of direct public funding for electoral campaigns has been debated time and again — for instance, by the Santhanam Committee in 1964 and the Wanchoo Committee in 1971 — especially given the concern that there is a significant flow of black money into campaign financing. The Law Commission in 1991, and the Administrative Reforms Commission in 2007 agreed that there should be partial state funding of campaign finance. On the other hand, the National Commission to Review the Working of the Constitution cautioned that state funding should be deferred until there is a fool proof regulatory system that will check violations by political parties of the financial limits that have been set and that this should be broadly subject to the effective functioning of political parties themselves.

Regulation of campaign expenditure

There are limits to the campaign expenditure that can be made by a candidate. At the Parliamentary constituency level, the limits vary from ten lakh to twenty-five lakh rupees from state to state and at the State Assembly constituency level, it varies from five to ten lakh rupees. Incidentally, there is no limit on expenditure for propagating the party. Any other expenditure by the party however, is deemed to have been made by the candidate.

Different countries have addressed this question differently. The U.S. does not have any restriction on campaign expenditure. The U.K. has placed restrictions on campaign expenditure by a political party but not on campaign restrictions by a candidate. There are certain disclosure requirements though, at the campaign contribution level and at the campaign expenditure level.

The Election Commission of India maintains a check on campaign expenditure. Candidates have to lodge expenditure accounts with the District Election Commissioner within thirty days of incurring the expenditure. Secondly, candidates to disclose their income and assets to the Election Commission of India, which puts those details up on its website.

Penalties

There are civil and criminal penalties for non-compliance with both contribution and expenditure regulations. If a candidate has failed to lodge election expenses or has spent more than the permitted amount, he will be disqualified. If a company has made contributions in excess of the specified limit, they will be fined up to three times the amount contributed. A person who accepts foreign funding even though it has specifically been banned can be imprisoned up to five years, or fined or both.

 

(Aju John is part of the faculty at myLaw.net)

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