India: What is wrong with how political parties are funded?

The clearest thing about India's political funding system is that it is opaque to the public, with both politicians and electoral officers repeatedly and openly acknowledging their failure to achieve transparency. 

In mid-February, the Supreme Court of India struck down the electoral bonds scheme, which allowed donors to send unlimited funds to their parties of choice, and to do so anonymously.

The tool was set up six years ago. Many have since called it unconstitutional, with the Supreme Court eventually agreeing and proclaiming it eroded people's right to information. The landmark ruling defies the stance taken by the government of India's Prime Minister Narendra Modi.

Even without electoral bonds, however, the system remains problematic. 

"While the proponents of political reforms were celebrating the Supreme Court judgement, we have gone back to the pre-electoral bonds system where 70% of all donations were in cash," S.Y. Quraishi, the former Chief Election Commissioner of India, told DW.  "We are back to square one."

India is gearing up for general elections due by May.  Prime Minister Modi's Bharatiya Janata Party (BJP)  is seeking a third consecutive term in power.

The election is shaping up to be India's most expensive ever, with rivalling campaigns and state expenses for organising the election reaching a combined cost of $14.4 billion (€13.27 billion) according to the estimate by the Centre for Media Studies in New Delhi, which monitors political spending.

Breaking up large donations into small cash gifts

The Election Commission requires all political parties to disclose direct contributions larger than 20,000 rupees ($241/ €222) in their annual reports. But donors are known to break up their contributions in cash sums below this threshold, which requires no disclosure at all. And this scheme accounts for the lion's share of political funding. 

"The problem lies with those contributions which are below 20,000 rupees which nobody is talking about. There was a hue and cry about electoral bonds but these donations are also very problematic," said Shelly Mahajan, Head of the Political Party Watch at the Association of Democratic Reforms (ADR).

Election watchdogs like ADR have been calling for more transparency on funding, insisting it was the key to free and fair elections. In a study spanning 11 years, ADR showed that over two-thirds of all funds received between 2004-2015 by national and regional parties were from "unknown sources" and hence could not be traced.

Other forms of direct contributions include the sale of coupons and miscellaneous funds collected by parties during rallies. While these account for a smaller piece of the pie, they are also not regulated, which makes them untraceable. 

Experts say the opaque system breeds quid-pro-quo transactions and corruption, some of which have been uncovered by the Indian media.

Parties drowning in 'black money'

The use of "black money" in the elections is an open secret. In India, "black money," also known as "dirty money" refers to untaxed or illegal income. 

A leading authority on the black economy, retired Professor Arun Kumar of Delhi's Jawaharlal Nehru University, estimates that India's black economy accounts for about 62% of India's gross domestic product. In order for this economy to survive, black money is poured into elections to bring dishonest parties and candidates into power, he wrote in a recent article for Indian op-ed publisher The Leaflet.

While it is difficult to gauge the amount of black money in elections, its impact is immense, making legal limits on political donations next to meaningless. Donors are believed to be paying 20 to 30 times the maximum legal amount in "black money" donations, Quraishi told DW.

Bribing the voters

Local media has often reported how parties distribute alcohol, food, drugs, cigarettes and even direct cash to gain votes. Politicians also pay to gather crowds of thousands in rallies to portray strength and popularity. In the run-up to the 2019 general elections, the Election Commission of India (ECI) seized drugs, alcohol and precious metals worth hundreds of millions of dollars from party members. 

"We found that money was even being taken in ambulances, milk tankers, cars and aeroplanes of police officers and ministers," Quraishi said.

Retired Major General Anil Verma, currently leading the election watchdog ADR, suggests that much of this funding comes from black money sources.

"It is all for everybody to see. The Election Commission sees it. They appoint election observers and all that but it's like a cat-and-mouse game between the politicians and ECI officials," Verma said.

No desire for reforms

Experts describe the situation as a vicious cycle, where people with the power to reform election financing are the same ones who are benefiting from the broken system.

"There is a definite lack of political will," Quraishi said.  "Parties have come and gone, governments have come and gone, and no one has even bothered to look at our proposals. If they brought in some reform, it was a disaster," he said.

He recommends creating a national election fund where money donated by the public is distributed to parties based on their electoral performance. 

ADR head Verma agreed that reforms are unlikely unless politicians are forced to enact them. "They are all happy, they are making money," he said. "It's all about money." 

The electoral bonds verdict has shown, however, that changes are possible. Now, activists like Verma and Quraishi hope for other such verdicts from the Supreme Court where several other petitions on the funding system are pending.

Mahima Kapoor is an India Digital Correspondent with DW News. She has previously worked with The Morning Context and BloombergQuint.

Disclaimer: This article first appeared on DW, and is published by special syndication arrangement.