Opaque political financing could cost democracy dear

The discourse around political finance in India usually revolves around the issue of corruption. We see this in the political contestation over the introduction of electoral bonds. It is either presented as a pious instrument for ‘cleansing’ politics, by routing funding through legal channels, or as a murky mechanism for legitimating ‘institutionalised corruption’.

Thus, the corruption frame locks the issue of political funding into a superficial binary of ‘clean’ versus ‘dirty’, expressed in moral or legal terms. This framing precludes any focus on the structural relationship between the nature of political funding and the shape of our political system — conveniently so, for the relationship implicates almost every political party, whether it is ruling or in the Opposition. Corruption is merely one symptom of this structural relationship, rather than being a driving factor.

How it plays a pivotal role

In any country, the nature of political finance is an important determinant of the structure of political competition. The structure of political competition can be studied around three axes: institutional (the regulation of competition between ruling and Opposition parties); organisational (the regulation of competition within a party); and ideological (the role of ideas in determining competition between parties).

All the three axes of political competition are substantially influenced by the nature of political finance. One, the degree of transparency of political funding informs the efficacy of institutional safeguards. For example, the inherent opacity of electoral bonds renders the power of the Election Commission of India (ECI) irrelevant in terms of ensuring a level-playing field. Meanwhile, the information asymmetry between the ruling and the Opposition parties gnaws at the fairness of electoral processes.

Second, the extent to which political funding is centralised within a party determines whether power in the party is drawn from organisational structures or exercised in a personalistic manner. For example, membership-funded parties such as the Dravida Munnetra Kazhagam and the Bahujan Samaj Party of an earlier era were highly organised parties where leaders wielded power in a responsive, programmatic manner. Similarly, we can chart the transformation of the Labour Party in the United Kingdom over the course of the 20th century, from an organisationally-driven mass party to a centralised elite party, as (among other factors) the balance of party funding shifted from Labour unions to corporate houses.

Third, the political financing regime also shapes the role of ideas in grounding political competition. Admittedly, this relationship can proceed in varied ways according to the contingencies of different political contexts. But, as a general matter, when political finance is anchored to a narrow concentration of economic capital, the ideological basis of political competition tends to become severely corroded.

Bonds as advantage to ruling party

Having constructed this framework of analysis, let us come back to the issue of electoral bonds. How do we expect the rise of electoral bonds, as a major source of political finance, to affect the prevailing patterns of political competition? At the outset, one must note the remarkable speed with which electoral bonds have colonised at least the declared sphere of political funding. Within two years of its introduction, electoral bonds were said to cover 52% of the total income of national parties and 53% of the total income of regional parties, according to an analysis by the Association for Democratic Reforms (ADR).

There are two salient features of electoral bonds we must consider to gauge its impact on political competition.

One, the design of electoral bonds, perhaps more than any other instrument of political finance, leans to the advantage of the ruling party. It is not surprising that the ruling Bharatiya Janata Party (BJP) in 2019-20 got over 75% of the total electoral bonds sold, as opposed to the meagre 9% share of the Congress, according to ECI data. As the political scientist, Milan Vaishnav, has written, electoral bonds invert the concept of transparency and openness in political funding, whereby only the government, and presumably the ruling party, have access to the transaction trails. The information asymmetry and barriers to institutional scrutiny thus created considerably skews the channel of electoral bonds towards the ruling party. Second, electoral bonds centralise political funding towards the national units of political parties, further entrenching the leverage of national leadership over the State and local units. As a reply to a Right To Information (RTI) query revealed, out of the ₹5,851 crore of electoral bonds sold in 2018-19, 80% of the bonds were redeemed in Delhi. Electoral bonds were introduced alongside significant legal amendments, such as the removal of erstwhile limits (7.5% of net profit) on corporate donations. These changes in the legal architecture of political finance enable the prospects of an alliance of national political elite and big business conglomerates squeezing the space for both local elites and regional capital.

These two features of electoral bonds signal an important break, harking back to another turning point in the history of political finance brought under the Indira Gandhi regime. As Mr. Vaishnav and Devesh Kapur have written in their book, Costs of Democracy: Political Finance in India, Indira Gandhi banned corporate donations in 1969 in order to limit the growth of the Swatantra Party and the Jana Sangh, who she feared were increasingly attracting corporate backers. These changes in political funding melded well with her wider strategy of tightening the grip of the state (and hence the ruling party) over big business through the project of dialling up licence/controls and nationalisation of key industries. At the same time, the Indira Gandhi regime also cultivated personalistic relationships with big business elites in order to marginalise the regional strongmen which had till then controlled the organisational structure of the Congress party.

Centralisation of power

Yet, the centralisation of political power seems even more commanding in the present time. Even as Indira Gandhi completely subordinated the Congress elite in the Hindi-speaking States, she allowed a measure of autonomy to leaders such as Yashwantrao B. Chavan in Maharashtra and D. Devaraj Urs in Karnataka, who were backed by important sources of regional capital. Similarly, while Rajiv Gandhi changed Chief Ministers in Uttar Pradesh on a whim, he coaxed a rebellious Sharad Pawar back into the party fold. Today, Prime Minister Narendra Modi commands unquestionable authority even in these States, sidelining B.S. Yediyurappa from the Karnataka unit and coercing Devendra Fadnavis into accepting a secondary role in the Maharashtra government, without provoking a squeak of protest. Meanwhile, the Bharatiya Janata Party now possesses the autonomy to bring in measures such as demonetisation and Goods and Services Tax (GST) that hurt its traditional backers (small businessmen and trading castes), because they now contribute an insignificant speck to its political treasury.

To be sure, the new political financing regime only builds on the political pathologies already prevalent in our system (crumbling organisations; political centralisation; a business-politics compact fuelled by rent seeking and cronyism) rather than creating them from scratch. Even so, it is important that independent institutions (such as the ECI and the Supreme Court of India) step in to layer the seeming black hole of electoral bonds with a minimum level of institutional safeguards, lest this “reform” of political finance goes down in history as a significant marker in our story of democratic decline.

It is important that independent institutions check the black hole of electoral bonds with a minimum level of institutional safeguards