In the current climate of electoral reforms that are being widely discussed in the media and the recent revelations on the alleged unholy nexus between the government and certain sections of the corporate sector as a consequence of the infamous Niira Radia tapes, the time is apt to discuss the role of corporations in electoral funding and how to develop a consensus on maintaining a ’healthy’ distance between the political class and the corporate sector. The "Niira Radia tapes" should not be seen as a singular instance. While of late it has been the 2G scam, prior to this were the illegalities in the defence purchases in 2001 during the NDA regime and the infamous Bofors scam during the Congress government of 1984-1989. At the core of all these scams was an unholy nexus between political parties and business houses, which is a consequence of the role of "big money" in the electoral funding in India.
Money’s influence on the political process in any democracy has always been a concern and the challenge before the legislatures in a parliamentary democracy is how to reconcile basic notions of political equality, such as the principle of "one person, one vote", with the unequal distribution of economic resources and the willingness of a relatively small group of citizens to participate financially in political campaigns. In this context, the role of corporations and funding of elections in a democracy has always been a contested arena. In the past, electoral reforms in the United States, United Kingdom, France, Germany and India have always been brought about as a consequence of electoral funding scandals involving officials elected to public office. Electoral funding scandals on the other hand have always been a result of the pernicious influence of monetary power by bigger corporations and an unholy nexus between business and politics. This sort of covert funding has often twisted policies in favour of a wealthy few and has been more often than not detrimental to the larger "public good". Efforts to keep these two institutions at a healthy distance have been moderately successful, especially in those countries which have banned corporations from donating to individual politicians and have encouraged both political parties and individual politicians to raise funds through membership fees, state subsidies and donations from individuals subject to a certain legislative cap.
In India, donations from corporate houses were legalised in 1985 via the re-introduction of Section 293 A of the Companies Act. This was after a period of 15 years of complete ban on donations from companies since 1969. After 1985, there have been no cogent legislations on whether the approval of the shareholders is necessary for such donations. The disclosure legislations vis-à-vis campaign finance is patchy, to say the least, and the reportage by the media on donations by corporate houses is sparse. In the light of this backdrop, it is necessary to understand how other functioning democracies have dealt with the spurious nexus of money and politics.
A few illustrative examples from other functioning democracies can serve as guidelines for a robust discussion on the role of the corporation vis-à-vis election funding in our country. In the United States, the world’s largest democracy, "big money" contributions were banned in the first legislation passed vis-à-vis restrictions on campaign finance i.e. the Tillman Act of 1907. In order to stem the growing influence of large donations, the Act made it illegal for corporations and national banks to make financial contributions to candidates running for public office. While this ban has survived to this date, business groups and wealthy donors found other means via which they contributed funds and influenced policies i.e. through soft money, interest groups as well as political action committees. All the above-mentioned tools were used to circumvent the ban on corporate funding and use these forums as backdoor mechanisms to funnel illegal funds into the election process. The Bipartisan Campaign Reforms Act, 2002 has laid down strict guidelines to curb soft money, role of interest groups and political action committees as well as regulations to prevent the abuse of "issue advocacy" (advertisements supposedly aimed at informing the public about a certain issue, but in practice makes use of funds to support/oppose a particular candidate). Since the introduction of the BCRA in 2002, there has been an upsurge of small donors, especially via online donations during the U.S. Presidential Elections in 2008. But the humongous cost of such elections as was evident in 2008 (according to the non-partisan Center for Responsive Politics, it costs $2.4 billion) underscores the point that elections which have the support of "big money" through whatever channels is an expensive affair. The current strain of thought for most Indians is to constantly refer to the United States for guidance on electoral reforms which if looked at closely has been colossally ineffective in curbing the influence of money, but their strong disclosure laws is of immense importance to our polity.
In the United Kingdom, the first legislation regulating campaign finance was passed in the year 1883 and the underlying philosophy behind it was propounded by the Earl of Northbrook who held: "Not only could it be said that corrupt practices had increased, but the expenditure incurred at the last Election was excessive. The expenditure was not only detrimental to the public interest by deterring persons who would have been excellent representatives of constituencies in the House of Commons from standing for election, but also had the effect of accustoming those engaged in elections to consider that an election was simply an affair of money, and thus leading to corrupt practices."
With respect to donations, legislations in the United Kingdom do not prescribe an upper limit on the amount of donations, but have certain guidelines vis-à-vis permissible donors. These include an individual registered on an electoral register, a registered political party, a registered company, a registered trade union, a registered building society or an U.K. based unincorporated association. All these provisions ensure that the influence of "big money" from registered legal entities is curtailed. Another provision in the PPERA (Political Parties Elections and Referendums Act, 2000 - the governing legislation vis-à-vis campaign finance in the United Kingdom) banned donations from companies without prior approval of shareholders. The "shareholder approval" approach has been directly credited with the decline of corporate donations and the pernicious influence of "big money" in the United Kingdom.
In France, for the first 30 years after the formation of the French Republic, the electoral funding architecture had a distinctly laissez-faire approach. Following a series of scandals in the 1980s and ’90s, this approach was discarded in favour of an effective system of state control with the stated objective to "moralize" public life. As of date, bulk of funding is incurred by the state. Business houses are prohibited from donations including corporations and other legal entities. Back in the 1980s, the politicians in France were perceived by the French people to be conniving, immensely corrupt and unscrupulous, quite similar to the Indian political class in today’s times. Due to introduction of state funding, subsidies, strict disclosure legislations, robust reporting of the donations to political parties by the media and the ban on corporate donations, they are perceived to be more honest and disciplined by the general public.
Germany on the other hand is an interesting case study to appreciate even how state funding can wreck the electoral funding system in a country. Reliance on state funding alienated the masses from the political parties who felt no need to connect with the majority of the population. In 1994, a Constitutional Court held that over-reliance on state funding is not an effective tool. Instead, it encouraged private donations from small donors, membership fees and even reduced the tax deductibility of corporate houses. As of date, the existence of public subsidies, memberships and donations have all contributed to reduction of the influence of "big money" whereas the corporate donations do not play any unsavoury and disproportionate role in influencing policies and so more acceptable to their polity.
Therefore, when considering the electoral reforms in India, it is necessary to appreciate that the major sources of "big money" are the corporate donations (unspecified amounts as well as unreported) and black money. In this context, state funding, small donations, public subsidies, membership fees alongwith strict disclosure and reporting requirements must be encouraged and assiduously pursued to ensure that the role of "big money" in influencing elections as well as influencing policies in favour of a certain sections of the society is banished from the Indian polity.
(Samya Chatterjee is a Research Assistant at Observer Research Foundation)
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