Ceiling on legitimate election expenditure is too low

Black money plays a major role in Indian elections in multiple ways and for multiple reasons. Experts point out candidates have no chance of limiting their campaign expense to Rs 70 lakh - the ceiling set by the election commission - as the constituencies are so big.

Rajeev Gowda, Professor, Centre for Public Policy, Indian Institute of Bangalore, says that the Election Commission's limit on openly allowed political campaign expenditure is unrealistically low at for constituencies with around 2 million voters. So expenditure gets driven underground and there it's a cash economy, i.e., black money.

"Election Commission puts the onus on the government. Governments typically does not want to convey the impression that elections are beyond the reach of the common man, so it sticks to such unrealistic expenditure limits." Nirjan Sahoo, Senior Fellow at Observer Research Foundation says that the means of elections are such that a candidate has to please voters through freebies. "If a candidate does not, he is at odds." With every election, rising inflation, more star candidates, election expenditure is rising every year.

In addition, politicians need a lot of money to fight elections and conduct political activities throughout the year. Without any certainty that they will win, why do politicians invest so much in campaigns? Sahoo says in the last 20 years, we have had fragile coalitions.

"Even with a few seats, a party can be a king maker. Until the last ballot is counted, you are still in the game. Even with a few seats a regional party gets, they can get huge amount of monopoly and dictate terms. This creates an incentive for making huge investment." Therefore in the last 20 odd years, elections have been all about money. Former Chief Election Commissioner, N Gopalaswami agrees, "Politicians treat this expenditure as an investment, which will generate returns later."

Arun Kumar, professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University estimates black economy today at 50 per cent of GDP at Rs 55 lakh crore. (India's GDP is 120 lakh crore.)  "It cannot be generated until politicians, executive and business are not a party to it. This nexus forms at the time of elections." He estimates that the entire black economy is in the hands of 3 per cent of the population. "The bigger the guys the more influence they spread through black money. At Rs 50,000 crore even as black money in elections is a small part of the overall black economy of the country, however it has a significant impact as it controls politics."

Interestingly professor Kumar's 1998 study on black money pointed out how a proportion of expenditure was spent by candidates in putting up an alternative candidate to confuse the voter. Therefore the candidate had to incur entire campaign cost of the dummy candidate which is also paid entirely in black.

Today, most of the money in the electoral process is black. Experts say the key source of funding is from business in areas such as mining, natural resources, which boomed after liberalization. Also a substantial flow is coming from less regulated sectors such as real estate. Professor Kumar points out that politicians generate lot of black income when in power which businessmen help to invest, makes the nexus more strong.

"The businessman is the conduit though which politician and executive invest black money." Independent studies in this Quid Pro Quo between real and estate and politicians point towards the nexus. Devesh Kapur and Milan Vaishanav in their study of cement consumption highlighted how politicians park their illicit assets with builders and how during elections, builders need to re-route funds to politicians. Converting black to white and white to black is not a difficult proposition.

Observers also say that the latest move by the government of withdrawing Rs 500 and 1000 notes printed before 2005 will not make any impact to the black economy of elections. "This move will be coming in only after July, till then the cash will easily move and get absorbed in the system."

Former CEC S.Y. Quraishi says that the EC in tandem with revenue intelligence even found that money was taken in the cars of the ministers, and senior police officers as nobody would stop them. "Money was also conveniently carried in helicopters and private planes which were landing wherever. Secretary civil aviation was roped in to monitor helicopters and map details." Quraishi says that with increased vigil every election, EC makes seizures of cash, but that amounts to just 5 per cent of total cash used during lections.

"If there is no claimant, then the money is forfeited or else the claimant has to prove that the money was not meant for election purpose." 

Former CEC Quraishi sites that in some cases it was observed that claimants started producing certificates from banks saying that the money was being sent to be put in an ATM. "We later discovered that they were misusing branch managers for white washing totally illegal activity. We spoke with the RBI Governor on it, as four cases happened in quick succession. Proper guidelines were enforced on carrying ATM money with proper certificates and security." He affirms that it has become a cat and mouse game. "We try to catch and they come up with a new modus operandi every time."