The roots of corruption lie in the way our political system works.  Last months column[i] argued that parties had become personal satrapies and that this is what has led to the trading of favours for funds which the leader uses to establish and reinforce his dominance.  This is particularly true for several regional parties that now play so large a role in national coalition politics.  These fiefdoms are preventing the emergence of a truly pluralistic interplay of interests, which is what democracy is all about.  That is why we have to reform the way in which political parties and their electoral activity is financed if we want our democracy to evolve with our society.

Most democracies have had to struggle with this problem and hardly any has fully solved it. The huge Elf scandal in France, Kohl’s transgressions in Germany, the current furore in Canada, the role of Enron in US politics show that the problems of political finance are not unique to us.  But at least, in these countries political corruption, when uncovered, becomes a scandal while we take it as an unavoidable and even normal part of the political game.  This has been so for some time.  As a young boy in the fifties I remember asking my uncle whether contractors became Congressmen or whether Congressmen became contractors.  But now it is worse.  Even the margin between criminal activity and politics is getting blurred.  And there is total impunity.  The one rule that holds for Indian politics is that you cannot keep a bad man down.

The world of business is implicated in this. The WEF surveyed executives in 102 countries to assess three types of business and politics interaction – the payment of bribes to secure policy changes, the prevalence of illegal contributions to political parties/candidates and the policy impact of legal contributions.  The countries were grouped into three categories of low, medium and high political corruption for each of the three types of interaction.  Most countries fell into the medium category and so did India for two of the three.  However, on one count, the prevalence of illegal political donations India falls into the high corruption category, a result that should not surprise any observer of the political scene.

Public funding of parties and electoral activity does not eliminate the role of private funds.  Even in Germany, where the scale of public funding per voter is exceptionally generous, Chancellor Kohl felt the need for a more private source of political funds.  In the 2004 election in the USA, the $150 million provided in public funds did not stop the two principal candidates from raising some $500 million in private money.  But it can allow us to implement with greater vigour the disclosure and transparency requirements we already have on the statute book.  Today we treat these obligations lightly because we cannot see how political activity can be conducted without all these illegal donations. 

The mobilisation of funds by political parties and operators is a wildly competitive exercise in a very uneven playing field.  Incumbent governments, operators with local power (legal or illegal) and wealthy individuals start off with an advantage.  Public funding for elections will not eliminate this fight to get a financial edge over the competition.  What it can do is to ensure that such funds mobilisation is not absolutely necessary for sustaining party political activity. Public funding thus helps to level the playing field in favour of the parties and social forces who do not have the access to wealth which the incumbents (and the prospective incumbents) have.

In a large number of countries which have public funding the focus is on the regular funding of political parties regardless of whether an election is imminent or not.  This arrangement is found in Austria, Brazil, Czech Republic, Germany, Greece, Japan, Portugal and Sweden.  In some countries, public funding kicks in for elections as is the case in the USA, Canada, France, Italy (since 1993), and South Africa and in some, like Hungary, Israel and Mexico, both types of public funding are found. The UK and the Netherlands do not have any system of public funding.

Generally, the funding is made available to the political party rather than the candidate, though the distinction is tenuous in a presidential system like the USA.  In Canada, which has a parliamentary system, there are two separate categories of election subsidy, one for individual parliamentary candidates, the other for the national party organisations.

Usually, the central organs of a political party receive public payments. This serves to increase their influence and reinforces the trends towards centralisation of power.  However, in some cases, lower levels of government are also authorised to provide public funds to local parties.

There is a great deal of variation in the amount provided per eligible voter (to normalise for scale).  It is around $1 in North America, around $3 in Japan and in Europe, the range is from less than $1 in France to about $7 in Germany.  In South Africa, the rate works out to less than half-a-dollar per voter.

In India wages, are lower and political costs are way below what they are in the developed countries.  The law allows an expenditure of roughly Rs.2 per eligible voter in the Lok Sabha election, a limit which needs to be changed.  The actual expenditure is perhaps ten times this level.  Taking this into account, we could start at a level of Rs.5 per voter which translates into a sum of Rs. 300 crores, an amount that we can surely afford.  The scheme for distributing this has to balance the interests of party hierarchies and the interests of individual candidates.

Parties must be required to mobilise resources directly from their members and supporters, at least for routine organisational purposes.  Manmohan Singh had proposed this in his report on funding for the Congress Party.  The focus of public funding should be on the high costs incurred by parties to fight elections.

A two-part election funding system could be considered.  The first part would give a certain amount of money to recognised political parties in proportion to the votes secured by them in the seats where they won or saved their deposits.  The seats which they contest, but where they lose their deposits, have to be ignored.  This is to prevent parties from putting up candidates in hopeless seats simply to increase their vote tally.  The second part would give funds to all candidates who save their deposits so as to make it easier to challenge the incumbents without having to finance the less credible and possibly frivolous candidates.

The quid pro quo of public funding has to be a rigorous system of disclosure and scrutiny by the Election Commission and severe penalties for violation of the law.

How can such a change be brought about?  If we leave it to Parliament than the differing interests of national and regional parties and of party hierarchies and individual parliamentarians will lead to a stalemate.  Yet there is a growing realisation that something needs to be done.  One way of moving ahead would be to appoint a Commission of former Prime Ministers (and we have a few of those) chaired by a former President and ask it to consult with the public and recommend a scheme, which Parliament would be asked to endorse and approve without debate.  Manmohan Singh changed the paradigm of Indian development at the beginning of the nineties.  He must now do the same for our politics by starting to clean up the way it is financed.