Why in news?

The estimated total expenditure for the upcoming U.S. presidential and Congressional elections in November 2024 is approximately $16 billion (around ₹1,36,000 crores).

In contrast, the total expenditure by various political parties for the recent general election to the Lok Sabha in India was about ₹1,00,000 crores, according to the Centre for Media Studies (CMS). This raises various debates surrounding campaign finance (election expenditure) in India.

What’s in today’s article?

• Legislations Governing Campaign Finance in India
• Election expenditure limit in India
• Associated challenges
• Way forward

Legislations Governing Campaign Finance in India

• Background
  • The issue of election funding was not specifically addressed during the Constituent Assembly debates (1946-1950).
  • The first significant laws governing election funding were the Representation of People Act, 1950, and Representation of People Act, 1951.
• Representation of People Act, 1951
  • It does not impose limits on expenditure for political party leaders in disseminating messages.
  • Candidates must maintain accounts of their election expenditures, but political parties are not required to maintain such accounts for promoting official programs.
  • However, parties must disclose contributions over ₹20,000 to income tax authorities and cannot accept donations from government companies or foreign sources.
• Election and Other Related Laws (Amendment) Act, 2003
  • The 2003 Amendment introduced Section 29C, requiring political party treasurers to prepare annual financial reports detailing donations over ₹20,000.
  • These reports must be submitted to the Election Commission before submitting audited accounts to the Income Tax authorities.
  • Non-compliance leads to disqualification from tax relief under the Income Tax Act.
• Companies Act, 1956
  • Under Section 293-A of the Companies Act, 1956, corporate contributions to political parties are limited to five percent of the company's average net profits over the last three years.
• Foreign Contribution (Regulation) Act, 1976
  • FCRA prohibits political organizations from receiving foreign contributions.
• Income Tax Act, 1961
  • Under the Income Tax Act, 1961, contributions to political parties are deductible from income tax calculations.
  • Section 13A mandates that political parties submit annual audited accounts to the Income Tax authorities by a specified date.

Election expenditure limit in India

• Existing limit
  • The election expenditure limit for candidates is ₹95 lakh per Lok Sabha constituency in larger States and ₹75 lakh in smaller States.
  • With respect to Legislative Assemblies, they are ₹40 lakh and ₹28 lakh for larger and smaller States respectively.
  • These limits are set, from time to time, by the Election Commission (EC). There are no limits on the expenditure of political parties during elections.
• Purpose and Reality of Expenditure Limits
  • While limits aim to minimize the influence of wealth in elections and ensure a level playing field, the effectiveness is questionable.
  • The Representation of the People Act mandates candidates keep accurate spending records within these limits and submit affidavits post-election.
  • However, analysis from the Association for Democratic Reforms (ADR) shows most candidates report spending far below the limits, raising doubts about transparency.

Associated challenge

• Political Party Spending — The "Elephant in the Room"
  • Currently, no cap exists on political parties’ expenditures during elections, which can indirectly favor wealthy candidates.
  • Experts argue that real reform requires transparency in party finances and internal democratization to achieve genuine equality for all candidates.
• Possible gap between actual and reported costs
  • The official expenditures declared by the BJP and Congress for the 2019 election were ₹1,264 crores and ₹820 crores, respectively. However, according to a report by the CMS, ₹50,000 crore was spent by various parties during the 2019 election.
  • The report suggests that 35% of this money was spent on campaigns and publicity, while 25% was illegally distributed among voters.
• Unholy nexus between the elected representatives and donors 
  • Elections across the world democracies have become very expensive.
  • Such increased expenditure that is met primarily through large donations creates an unholy nexus between the elected representatives and donors who seek favours. 
• Creates an entry barrier into electoral politics
  • Expensive elections act as an entry barrier into electoral politics for many well-meaning citizens.

Way forward

• Advocacy for State Funding of Elections
  • The Indrajit Gupta Committee (1998) and the Law Commission report (1999) have proposed state funding of elections,
  • They suggested that the government should partially cover the election expenses of candidates nominated by recognized political parties.
  • However, doubts remain regarding the feasibility and implementation of this measure in the current context.
• Simultaneous Elections as a Solution
  • Simultaneous elections are often viewed as a potential solution to the rising costs of elections.
  • While this approach may help reduce campaign and publicity expenditures, it faces challenges related to federalism and the need for constitutional amendments.
  • Moreover, without effective measures to curb illegal cash distribution to voters, simultaneous elections alone may not significantly impact overall election expenditures.
• Proposed Electoral Reforms
  • The Election Commission's 2016 report on proposed electoral reforms outlines practical steps to create a more equitable environment concerning election expenditures:
    • Regulating Financial Assistance: Amend the law to ensure that any financial assistance provided by political parties to their candidates falls within the candidates' prescribed expenditure limits.
    • Ceiling on Party Expenditures: Establish a ceiling on the total expenditures of political parties, set at no more than the expenditure limit for individual candidates multiplied by the number of candidates from that party contesting the election.
    • Expediting Legal Processes: Appoint additional judges in High Courts to facilitate the speedy disposal of election-related cases, serving as a deterrent against violations of expenditure norms.
• Need for Bipartisan Support
  • These reforms require bipartisan political support and prompt implementation to be effective in addressing the challenges associated with election financing in India.