Gowda, M., and E. Sridharan. "Reforming India’s Party Financing and Election Expenditure Laws". Election Law Journal, Vol.11, No.2 (2012): 226-240.

Gowda, M., and E. Sridharan. "Reforming India’s Party Financing and Election Expenditure Laws". Election Law Journal, Vol.11, No.2 (2012): 226-240.

• The liberalization programs initiated in India in 1991 where meant to the solve the corruption and economic mismanagement that has been endemic in the country since at least the 1970s, but the country continues to suffer from widespread corruption and scandals (226).
• The liberalization initiative did not curb Indian corruption because it did not actually end the control of the Indian government over many sectors of the economy and their regulation, and because campaign finance laws in India continue to incentivize political parties to exploit their political positions to financial gain (226).
• Political parties are essential to a well-functioning democracy because they integrate and mobilize citizens for political action, articulate common interests, generate public policy, recruit potential political leaders, and organize parliaments. Parties can only perform these functions, however, with adequate finance (227).
• Political parties in India traditionally financed themselves through membership dues and private donations, including corporate contributions. The 1951 Representations of the People Act imposed limits on the amount that could be spent on campaigns. By the 1960s, however, elections had become dominated by 'black money', or illegal and untaxed revenues, channeled from businesses into political campaigns (227).
• To reduce the influence of large corporations in politics, Indira Gandhi banned corporate donations to political parties in 1968, a move also calculated to deny opposition parties potential sources of funding. Political parties replaced previous legal corporate donations with even more illegal 'black money' to fund campaigns (227-228).
• In the 1970s, the main developments in campaign financing were intensified corruption. In 1974, the Supreme Court ruled that personal candidate expenditures must be included in campaign funds in the Kanwar Lal Gupta v. Amar Nath Chawla case. This ruling was then overturned by the Lok Sabha in 1975. In 1979, a law was passed exempting political parties from income and wealth taxes (228).
• The prohibition on corporate donations to political campaigns was ended in 1985, although it was now legal under more limited circumstances, including a requirement that all expenditures be listed in public accounting sheets (228).
• In 1990, the Janata Part government set up a committee under Dinesh Goswami to recommend campaign reforms. The Dinesh Goswami Committee recommended that corporate donations to campaigns be prohibited, and that funding for campaign expenses instead be provided by the state. The Confederation of Indian Industry made a counter proposal in 1993, recommending that all corporate political donations be made tax deductable (228).
• The recommendations of the Dinesh Goswami Committee were never fully implemented. In 1996, the government reduced the period of campaigning from three weeks to two weeks as a proxy for costs, but did not actually pass any of the campaign finance recommendations (228).
• In 1996, the Supreme Court issued a ruling in the Common Cause case that current laws would only be applicable to political parties provided that they release account records to the Income Tax Department, somethings which they had refused to do for years without punishment. The mandate of the Supreme Court did restore some accountability over political party finances (228).
• In 1998, the government agreed to start providing all candidates with a set allotment of television and radio time on public stations, an indirect form of subsidy. This move was based on the recommendations of the committee on election finance under Indrajit Gupta, although Mr. Gupta's other recommendations to provide fuel, transport, telephone, and postage stamps were not implemented (229).
• In 2000, the Supreme Court ordered the National Electoral Commission to begin collecting information about the criminal records and personal finances of all candidates. Despite challenges from the legislature, this initiative was implemented by 2003 (229).
• The 2003 Election and Other Related Laws Amendment Act, passed by the National Democratic Alliance coalition, made all political contributions totally tax reducible, for both companies and individuals. This created an incentive for companies to give legally rather than illegally, making net campaign donations easier to track. The actual effect of this reform on reducing illicit spending is not clear, however (229-230).
• The United States does not have any limitations on campaign expenditure -- which were struck down for individuals in the Buckey v. Valeo case in 1976, and for corporation in the Citizens United case in 2010, as a violation of free speech -- but does impose limits on the size of individual contributions. Corporations and trade unions have also been prohibited from contributing directly since 1947, having to donate through third parties (230).
• Political parties must disclose all spending and sources of finance, information which must be made available in the public record (231).
• Most European countries have both direct and indirect subsidies for political campaigns. Some countries have prohibited corporate donations or any donations above a specific amount. Requirements to disclose sources of financing are strict (231).
• The authors conclude that, based on the opinions of Indian politicians, the effects of Indian campaign financing laws have been perverse and promoted corruption (231).
• The 1968 ban on corporate funding of political campaigns created a dearth of legal financing for political parties, prompting them to increasingly turn towards illegal donations through black money. The intense regulations of business during this period, often called the 'license-permit-quota raj', created huge opportunities for bribery and incentivized companies to make these donations to secure proper documentation (232).
• The delinking of party campaign spending and candidate campaign spending in 1975 contributed to a massive increase in the total amount spent on campaigns. This new competition created an even greater demand for funding among political parties, increasing their dependence on black money and illicit financing (232).
• The problem of illicit financing of political parties was not resolved by the lifting of the ban on corporate financing in 1985, as the patterns of illicit financing had already become entrenched, meaning that there was no incentive to get rid of them even after the initial reason for their creation was removed (232). Moreover, the pressure on all sides to underreport campaign spending was still present due to the existence of a limit on total expenditure (233).
• For the same reasons, the 2003 introduction of tax incentives to contribute legally to political campaigns did not significantly reduce the amount of illicit financing, because there were still reasons to engage in both legal and illegal forms of campaign finance (233).
• The massive extent of political corruption in campaign finance in India means that voters often prefer independently wealthy candidates since they are viewed as not needing to depend on corruption campaign finances and thus be more dependable. This has resulted in an increase in the number of very wealthy politicians (235-236).
• The core issues with the Indian campaign finance system are the existence of ceilings on campaign spending that seem to encourage an unhealthy culture of concealing actual spending records, the absence of public subsidies to replace illicit corporate funding, the lack of any transparent system of recording party finances, the restrictions on corporate financing that encourage more money to be channelled through illicit financing, and that no incentives exist to favor small donations over corporate largess (236-237).
• Corporations continue to contribute to the corrupt system of party financing because, despite liberalization, operating a business still requires many permits and licenses from a corrupt bureaucracy. This means that corporations still have big incentives to contribute to political campaigns to keep the government on their side and approve their business activities (237). Because their most important aim is keeping the bureaucracy placated, most businesses will contribute to all political parties in an election (238).
• The authors suggest introducing public subsidies for electoral expenses to reduce the need for illicit funding while also creating incentives to receive small private donations from individuals, encouraging greater public involvement in party financing. Raising or abolishing limits of corporate financing of elections might also help reduce the pressure to hid money and promote more transparent accounting (239).
• The initiative to promote smaller donations from a wider base of party supporters would have to account for the fact that in the past Indian politicians have used these schemes as a ruse to legitimate other funds, paying for the membership dues of supporters themselves to launder illicit funds (239).