Thoughts on economics and liberty

Accounting of Political Party Funds and Election Expenditure

One could well ask: how am I so confident about my claim that election expenditure accounts of virtually all the serious candidates are either an incomplete or untrue record of reality? Where is my evidence to show that legal limits are flouted, given that declared accounts don’t show that? I agree that I only have circumstantial evidence; but given similar evidence from a number of sources, I suggest that we can reasonably deduce that this claim is true.

Secondary reports from knowledgeable people provide compelling circumstantial evidence. The following are two important secondary sources:
  • Mr Seshan, the former Chief Election Commissioner, spoke in 1994 of cases where the actual campaign expenses, based on information informally gathered by him, exceeded the official limit by orders of magnitude. ‘Seshan revealed that he had been personally told by a woman candidate for the Delhi assembly elections that she had spent Rs 55 lakhs on election expenses even while stating in the mandatory government form that she spent a mere Rs 483. Another candidate for a parliamentary seat had told Seshan that he had spent Rs 50 lakhs and one Telugu candidate reportedly confided to him that he had spent 8.5 crore rupees on his elections’ (Mr M V Kamath reporting in News India Times on 4 February 1994).
  • Arun Kumar’s 1999 book, The Black Economy of India,[i] provides a detailed analysis of actual electoral costs based on interviews with 14 politicians. Many of these politicians ‘commented that their first act after winning elections was to tell a lie’.[ii] The average expenditure per constituency came to Rs. 1.29 crores, hence exceeding the then prescribed limit of Rs 15 lakhs by over 8 times. This expenditure included voluntary contributions and expenses borne by the state and local committees, noting that no unauthorized expenditure is allowed to be made by anyone. If a candidate knew about these expenses, then these should be deemed to be authorized; hence these candidates flouted the law quite badly.
My conclusion is also informed by first hand circumstantial evidence; information I have personally come across between 1983 and 2000 in various roles. My evidence includes the following:
(a)   As a junior officer (Assistant Commissioner), I observed significant misuse of the government machinery by ruling parties in Haryana and Assam. This misuse included taking thousands of people to political rallies in buses commandeered, and in one case, paid for, by the district administration. This is an illegal subsidy for political purposes.
(b) Among my other duties as Sub-Divisional Magistrate (Sadr) of Guwahati, it was my job to supervise the Guwahati Circuit House in 1984–5. In August 1985, Rajiv Gandhi announced the Assam Accord and the subsequent elections in Assam. With the election fever came a huge inflow of money to local units from the Congress (I) ‘high command’. A room bearer who serviced the room of a nationally renowned young central Minister told me that he had seen a briefcase full of hard cash in the Minister’s room. As this was a common occurrence for the room bearer, that observation was mentioned merely in passing. I haven’t seen the ‘smoking gun’ myself, but I have no reason to disbelieve the room bearer since I have directly witnessed, elsewhere during the same period, the handing out of Rs 100 notes in a major political leader’s office in Assam to villagers who had brought in various petitioners from villages. In 1985, a Rs 100 note was a very big thing. Such liberal use of cash (most likely black money) by very senior politicians indicates that their expenditure statements of elections are likely to be fraudulent. Cash flows like water around big politicians.
(c)   As a Commissioner in Shillong, during a conversation with one of my more friendly Ministers in 2000 on a long trip by road and air from Shillong to Delhi, the Minister told me how he had spent well beyond the limit in his election. This person was a fine gentleman. His source of funds seemed to be genuine. I believe he falsified his accounts only because the law forced him to do so. Without such limits, he would have disclosed the full amount.
(d) In observing the behaviour of most of the Ministers with whom I have worked, I found them ceaselessly engaged in making money through corruption of all sorts. In one case I was summarily dumped from my role as Director of Rural Development in Assam when I did not follow a particular (very senior – hint!) Minister’s directive to award a cement contract to a particular private sector company. I was asked to ‘cook up’ reasons to reject the lowest bidder and to give the contract to the private company even though its cement would cost more. While this does not tell us about election expenditures, it tells us about the incessant generation of black money by politicians. And where else do they really like using it except in elections?
(e)  In 2007, a worker of a major political party met me to discuss this book. He agreed with many of the things I have written. He told me in passing about how he had distributed Rs 35 lakhs in cash during a single night among voters in Mumbai a few years ago, along with his fellow party workers. Apparently that was to no avail as his party lost that election. (This point additionally supports the argument that voters are not stupid; they do not vote only on the basis of the money a party throws at them.)
With all this evidence coming from different directions, I am sure you’ll agree with my conclusion that electoral expenditure accounts are almost invariably falsified.
* * *
But leaving aside the issue of actual expenses, which I really wouldn’t care about if these were not based on black money or corruption, let me talk of the much more important issue of account keeping. Election expense accounts are required to be declared under Section 77 of the Representation of the People Act, 1951. An inspection or a full copy of these accounts costs only one rupee.[iii] But since all of us ‘know’ that electoral accounting laws are violated, not many of us seem to bother to actually get a copy of these accounts.
I spent one rupee on 1 December 1999 to obtain a copy of the election expenditures declared by candidates to the 1999 Shillong Parliamentary Constituency elections. A brief letter to the Returning Officer of Shillong along with a formal receipt for one rupee lodged with the appropriate account in the district Treasury did the job. I received a complete photocopied set of the accounts on 3 December 1999. The data were illuminating, indicative of potentially serious issues both with account keeping and with the overall system of monitoring of accounts. I have summarized these accounts in Appendix 2. As this information is (was) readily available to any member of the public at extremely low cost (well below cost, in fact), I am deeming this information to have been published, and have not hidden the candidates’ names from my analysis. I am discussing systematic issueshereand so the names are entirely incidental. To be perfectly clear I would like to state that I am not in any way pointing fingers at the named individuals; on the contrary, I applaudthem for having the gumption to contest elections despite the barriers imposed by our laws. They deserve to be thanked for keeping our infant democracy alive and ticking.
Anyway, back to the issue of accounts. These accounts actually raise more questions than they answer. My discussions with the then Chief Electoral Officer of Meghalaya and with a Deputy Chief Election Commissioner in Delhi did not answer my questions either. While I note that some improvements have subsequently been made to the system of accountability, most of my initial comments are still valid.
  • One of the candidates spent Rs 4.5 lakhs from his or her own personal account, while that candidate’s political party reportedly spent nothing. That is not believable. Why would a candidate agree to represent a party that does not offer even the minimal financial support for the campaign?
  • There was one candidate whose party spent Rs 6.05 lakhs while the candidate spent nothing on his own. I don’t believe this either, as political parties tend to demand at least some co-contribution; there is an element of risk-sharing involved.
  • Five of the nine candidates provided incomplete accounts, or accounts that were improperly filed. Three of the nine did not submit accounts at all till the date I received a copy of these accounts – these were definitely delayed beyond the mandatory 30 days.[iv]
  • The information provided did not permit me to cross-check whether expenses declared to have been incurred by political parties had been recorded in the expenditure statements of those parties. The reason this can’t be done is because no political party in India discloses its accounts publicly (Loksatta party has disclosed an outline of its accounts on the internet recently: well done!). Of course, such disclosure is a given in most Western societies. Further, political party income tax returns (which can’t be a substitute for such detailed accounts) are deemed confidential in India and therefore even the Election Commission does not have access to them.
  • In order to determine whether the payments mentioned had actually been made by cheque or were otherwise traceable one needs a level of detail that is not available. The Election Commission also does not audit these accounts, nor asks them to be audited before submission.
  • The Deputy Commissioner of Shillong informed me verbally on 24 April 2000 that no action was contemplated against any of these prima facie violations which I had noted and circulated in the form of a discussion paper[v] among all senior officers in the Meghalaya Government including the Chief Secretary and Chief Electoral Officer.
The violations I found were of two types: (a) failure to submit accounts, and (b) improper accounts. That no one audits these accounts at all is another issue.
Failure to Submit Accounts
If the Election Commission had agreed to launch an inquiry into the cases of candidates who did not lodge accounts, it could have, under section 10A of the Representation of People Act,1951, disqualified those candidates for a period of three years. As on 1 March 2004, 114 persons were barred across India from contesting Lok Sabha elections, although, in my opinion, many more should have been disqualified if diligent compliance were to occur in India. The problem is that this penalty is too low and therefore meaningless. One can spend crores of rupees, not lodge accounts, and still get to contest in the following elections which usually take place after five years. In my view the failure to submit accounts – and accounts will be needed even when election expenditure limits are scrapped – should be treated as a serious criminal offence leading to imprisonment for at least six months. Our trust should not be trifled with by candidates so lightly.
Improper Accounts
On thisissuethe position is murky. There are penalties including imprisonment of up to three months for some types of electoral offences, but it is not clear upon a casual perusal of the law whether improper accounts will attract a penalty. Under the current law it would appear that if, after due processing, accounts are found not to have been kept, the Election Commission could prosecute the errant candidate under s.171 I of the Indian Penal Code. A successful prosecution would then lead to a fine of at most Rs.500! Expenditure limits: Rs. 25 lakhs. Penalty for failure to keep accounts: Rs. 500! (The law says: ‘Failure to keep election accounts: Whoever being required by any law for the time being in force or any rule having the force of law to keep accounts of expenses incurred at or in connection with an election fails to keep such accounts shall be punished with fine which may extend to five hundred rupees’.)
Note that this law doesn’t talk of improper accounts, or of exceeding election limits. I suspect the Commission has probably not tried to prosecute anyone under this section, since it appears to be too hard and not worth the effort. If our honest Mr. Harishchandra had been prosecuted for disclosing an expenditure of Rs.25,00,001, the court would probably have dismissed the case since complying with the limit appears to be irrelevant under this particular law. All that is relevant is whether Mr Harishchandra kept accounts; which he did.
For the philosophy of freedom, deeply grounded in the principle of accountability, the current situation involving weak monitoring and toothless enforcement is unacceptable. The current accounting system is a total farce. While I strongly disagree with putting limits on political or election expenditures, we should expect complete disclosure and independent audit of all political receipts and expenditures. Accountability in a free society cannot be made into a plaything; our most basic freedoms are at stake here.
In brief, our rotten system requires candidates to falsely swear allegiance to socialism, to lose money in the process of serving the country, to tell lies in their electoral accounts statements and to compromise their personal integrity in innumerable ways throughout their political career. Each of these is a legal requirement! Why would any good person want to join Indian politics?

[This is an extract from my book, Breaking Free of Nehru]

[i] Kumar, Arun, The Black Economy in India, Penguin India, 1999, pp.272–82, 296–8.

[ii] Ibid., p.272.

[iii] Rule 88 of the Conduct of Election Rules, 1961, states: ‘Inspection of account and the obtaining of copies thereof – Any person shall on payment of a fee of one rupee be entitled to inspect any such account and on payment of such fee as may be fixed by the Election Commission in his behalf be entitled to obtain attested copies of such account or of any part thereof’.

[iv] Under s.78 of the Representation of People Act, ‘Every contesting candidate at an election shall, within thirty days from the date of election of the returned candidate or, if there are more than one returned candidate at the election and the dates of their election are different, the later of those two dates, lodge with the district election officer an account of his election expenses which shall be a true copy of the account kept by him or by his election agent under section 77’.

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