When Crime Pays

by Milan Vaishnav

  The financial rents parties collect can be directed toward legitimate purposes, like covering the costs of campaigning, as well as illegitimate ones, like lining the pockets of party bosses and their family members. In the first instance, the money a candidate is able to bring in on his own acts as a cross-subsidy, either explicitly or implicitly, of lesser-endowed candidates. A self-financing candidate who covers the costs of his campaign, thereby freeing up party resources for other candidates who really need party funds, is providing an implicit subsidy.

  If candidates provide funds to the party itself, it can also act as an explicit subsidy of other candidates contesting under the party’s banner. Furthermore, there is nothing to stop crooked party leaders from pocketing some of the rents they extract from self-financing candidates for themselves. This could take the form of party bosses simply skimming money off the top or actually requiring that well-resourced candidates provide funds directly to the party for the privilege of running under its aegis. In either scenario, self-financing candidates improve the fiscal position of parties.

  Wealthy, self-financing candidates are not only attractive to parties, but they are also likely to be more electorally competitive. Because contesting elections is an expensive proposition in most parts of the world, a candidate’s wealth is a good proxy for his or her electoral viability. As one scholar of politics in the United States put it, “Private wealth can be a distinct asset to a legislative career, particularly in entrepreneurial political systems where candidates must raise their own campaign resources.”16

  If parties are truly motivated by rents, it could lead to an influx of candidates with questionable backgrounds but who have access to resources and are willing to deploy these resources in the service of politics. As icing on the cake, such candidates might also have no qualms about engaging in run-of-the-mill corruption on behalf of parties, either contributing ill-gotten gains to party coffers or helping to protect the party’s illicit wealth.

  Supporting Conditions

  The likelihood that rent-seeking parties might be drawn to wealthy, bad politicians increases when two supporting conditions are in place. A party’s rent-seeking motivation is potentially strengthened by the fact that elites often dominate party recruitment, especially in developing democracies or in underinstitutionalized party systems.17 When intraparty democracy is weak—that is, where parties lack primaries or effectively empower elites to handpick candidates—selection can be a highly opaque, connections-driven process. “Where candidate selection is structured to maximize the power of party elites,” Besley writes, “this process could allow bad candidates . . . to use their influence.”18

  Furthermore, if ideology is not a significant factor in the political system in question, this reduces the qualification requirements of prospective candidates. This is especially likely in developing democracies, where there is ample evidence that ideology plays a minimal role as a screening mechanism for parties and voters. Political economist Phil Keefer has observed that in young or poor democracies “political party development and other indicators of credibility in political systems are often weak. Parties have little history and no identifiable positions on issues.” Where parties do not rely on a prospective candidate’s ideological proclivities as a litmus test, opportunistic candidates gain an advantage.

  FINANCING ELECTIONS IN INDIA

  The rent-seeking logic sketched out above jibes nicely with the realities of contemporary Indian politics. The financial pressures of elections in India, as Chapter 3 showed, have grown considerably over the years. At the same time, parties have struggled to find legitimate sources of funding, reflecting a general decline in their organizational strength. Consistent with the supporting conditions thought to lead to an influx of opportunistic candidates with deep pockets, most political parties in India lack any semblance of intraparty democracy. By and large, parties are top-down enterprises that function with minimal input from the masses. Furthermore, ideological considerations are largely an afterthought, with politicians switching parties with relative abandon. In such an environment, those with the deepest pockets have ready access to political power.

  Soaring Election Costs

  Five underlying structural factors have contributed to the rising costs of elections in India. First, the country is home to one out every six people on the planet, or 1.25 billion residents according to 2013 data. By the year 2022, the United Nations projects that India will surpass China as the most populous country on the globe. As India’s population has grown, the size of political constituencies has ballooned. The average parliamentary constituency in 1952, when India held its first post-Independence election, had fewer than 400,000 voters; in 2014, each parliamentary constituency was home to roughly 1.6 million voters, on average (figure 4.5). The growth in the size of the electorate over time has meant that candidates have to spend more money on electioneering as they seek to reach and woo an ever-larger pool of potential supporters.

  Second, there has been a marked increase in the competitiveness of Indian elections. In the 1952 general election, 55 parties took part; in 2014, 464 parties entered the fray. This surge in political competition began in the 1980s—the number of parties contesting elections jumped from 38 in 1984 to 117 in 1989. The decline of the Congress system and the dawn of the coalition era in Delhi incentivized the growth of regional parties, whose leaders recognized that they could wield considerable influence in the formation of governments with a relatively small number of seats in Parliament.19

  As the number of parties seeking—and winning—representation in Parliament has steadily increased, so has the competitiveness of elections. By 2009, the average margin of victory in a parliamentary contest registered at 9.7 percent, the thinnest margin since independence (figure 4.6). In 2014, elections actually were less competitive (average margins reached 15 percent), but it is not yet clear if this is a reversal or merely a statistical anomaly. Either way, it contrasts with the 32 percent average margin of victory in the 2012 United States congressional elections or the 18 percent margin of victory in Britain’s 2010 parliamentary elections. Competition adds significantly to electoral uncertainty, meaning that parties find it increasingly difficult to calculate the returns to every rupee spent. In this environment, the incentive is always to spend more.

  Figure 4.5. Average size of electorate in Lok Sabha constituencies, 1952–2014. (Author’s calculations based on data from the Election Commission of India)

  Third, and perhaps less discussed, is the fact that the scope of elections has increased dramatically over the last two decades. The Seventy-Third and Seventy-Fourth Amendments to the Indian Constitution (1992–93) formally established a three-tier system of democratic governance at the local level, meaning that India’s democratic patchwork went from having a little over 4,500 elected positions to nearly 3 million virtually overnight. Political parties field candidates at all three levels, even at the village level where formal partisan affiliations are prohibited (though regularly brandished). Each election, in turn, requires campaign resources. State-level politicians have been openly reluctant to devolve real power to the local level, remaining content to use the new third tier of governance as a supply chain for lower-level functionaries, or “brokers,” as well as for election funds.20 For their part, candidates in local elections compete for proximity to higher-ups (and their resources) on the political food chain. But the interdependence flows in both directions; state-and national-level politicians also must help fund the campaigns of these local officials or risk alienating their grassroots organizational base.

  Figure 4.6. Average margin of victory in Lok Sabha elections, 1952–2014. (Author’s calculations based on data from the Election Commission of India)

  Fourth, state and national elections in India now occur on independent political calendars. This was largely the result of Indira Gandhi’s decision to call an early national election in 1971, motivated by a short-term desire to separate state-level issues and vote ban
ks from national ones.21 The decision had long-term ramifications, however, as it led to separate fundraising cycles for state and national elections. As a consequence, parties and politicians were forced to collect money more frequently, and contributors could no longer get away with a one-shot gift for “elections.”

  Finally, the expectations of Indian voters for election “freebies” has increased as parties have engaged in a competitive bidding process. For many decades, it was standard practice for candidates to offer voters free bags of rice or grain, country liquor, or small sums of cash in advance of elections as positive inducements.22 As political competition has surged, India has experienced vote-buying inflation: voters’ expectations for what they can extract from parties has risen, and parties have tried to outdo one another with increasingly lucrative pre-election “gifts.” As one major party candidate from Bihar told a news reporter ahead of key state elections in 2015: “Five years ago, 151 rupees was considered a decent amount as [a] gift. . . . Now if you give anything less than 501 rupees, you face ridicule and therefore, run the risk of losing potential voters.”23

  Ineffectual Regulation

  The reality of increasingly expensive elections has occurred against a backdrop of very weak regulation of election finance.24 These regulations, many of them well-intentioned, have often had counterproductive, even perverse impacts on the electoral system.25 In the previous chapter I discussed some of the broad trends in the regulation of funds for elections. At a microlevel, the ECI places strict limits on candidates’ campaign expenditures. The expenditure ceiling is a maximum of 7 million rupees (or $106,000) and 2.8 million rupees ($42,000) for parliamentary and assembly elections, respectively (although the precise limit varies by the size of the state). Any expenditure by a third party (to include political parties) in connection with a candidate is attributed to the candidate, but third parties can spend without limit on promoting the “party’s program.”26 At present, there is no system of public financing of elections, short of the government providing tax incentives and limited giveaways (for poll materials) and television time for recognized parties on the basis of past performance.

  In terms of contributions, there are no limits on individual contributions, while tax-deductible corporate contributions are capped at 7.5 percent of the company’s average net profits for the preceding three years. Foreign contributions are prohibited under Indian law.27 Following the conclusion of elections, candidates have 30 days to disclose their detailed campaign expenditures, but parties face no such requirement. Parties are required to disclose all contributions greater than 20,000 rupees ($300), but do not need to maintain records of contributors below this threshold.

  Some of these regulations may appear reasonable on paper, but in practice they have resulted in a great many perversities.28 For starters, the candidate spending limits prescribed under law are laughably small, even though they were revised upwards as recently as 2014. Next, because parties face no limits on their expenditure on the “party program,” and because the line between party and candidate-focused spending is often blurred, the effective cap on candidate spending is actually moot, rendering candidate expenditure “meaningless and almost never adhered to.”29 This is a problem the ECI acknowledged as far back as 1962: “The fact that the expenses incurred by the political parties on the electioneering campaign of individual candidates or groups of candidates do not require to be included in the accounts of the latter, makes the prescribed maxima quite unreal and meaningless.”30 One MP from Andhra Pradesh allegedly told a U.S. diplomat in 2009 that the spending limit imposed by the Election Commission was a “joke,” claiming that he planned to spend his entire limit for the general election on Election Day alone.31

  Furthermore, because parties only need to disclose contributions greater than 20,000 rupees, donors who wish to preserve their identity while contributing large sums of money can divide and disguise large donations in a number of smaller contributions. In fact, one of the oldest tricks in the book is for savvy donors to make a large number of donations, each worth no more than 19,999 rupees. Finally, parties are not required to submit independently audited accounts to the Election Commission, which means that their internal numbers need not add up.

  The end result of this disarray is that the election finance regime in India today is farcical. There is a widely acknowledged gap between candidates’ stated expenditures and reality. Former BJP prime minister Atal Bihari Vajpayee famously captured this fact when he remarked, “Most legislators embark on their parliamentary career with a gross lie—the false election returns which they submit.”32 Politicians regularly lambaste the strict limits on their campaign expenditure for being unreasonably low, yet candidates still report falling far short of this cap in post-election finance disclosures. According to one independent analysis, winning candidates from the 2014 parliamentary election reported spending 58 percent of the authorized limit on average. Of these MPs, 33 percent declared spending less than 50 percent of the legal limit in their constituency.33 Even more troubling, many candidates do not comply with the requirement to file expenses, banking on the fact that once the election is over officers on temporary election duty will have returned to their day jobs.34

  One academic who once embedded himself into the campaigns of several MP candidates seeking election in rural Uttar Pradesh reported that the “statutory limit of election expenses for candidates has no sanctity whatsoever.”35 Another study carried out in the early 1990s, with state legislators from five states, reported that MLAs spent well over twenty times the legal limit on elections.36 An independent audit of a representative sample of 25 parliamentary constituencies in 1999 found that viable candidates spent more than five times the amount allowed by election authorities. The authors concede that even this was a serious underestimate since it did not include “underhand or non-visible” items of electoral expenditure.”37 Economist Arun Kumar carried out a similar exercise during the 1998 election. Not only were candidates’ reported expenditures typically well above the respective limits, they were also orders of magnitude smaller than what Kumar himself estimated they spent. For instance, in one urban constituency in north India, a candidate estimated he spent around 4 million rupees ($61,000) for the election when Kumar roughly calculated he had spent nearly 33 million rupees ($500,000).38

  In fact, according to some estimates, candidates contesting local elections often exceed the spending limits for much more consequential state and national elections. One 2013 news report, citing the views of political money managers, estimated that a municipal councilor’s election in a major metropolitan city runs between 3 and 5 million rupees ($45,000 to $76,000), with the upper bound exceeding the spending limits in parliamentary elections. The report estimates the cost of a state election at around 10 to 50 million rupees ($150,000 to $760,000) and a parliamentary election at between 100 and 250 million rupees ($1.5 million to $3.8 million).39

  Another study placed the total expenditure on India’s 2014 general election around $5 billion. Although estimating the true cost of elections is impossible given the opacity of campaign spending, assuming this figure is in the ballpark, it would make the 2014 polls one of the most expensive elections ever held, second only to the 2012 presidential election in the United States.40

  Hollowed-Out Parties

  As the costs of elections have grown, political parties in India have simultaneously experienced a decline in their organizational effectiveness.41 As illustrated in the previous chapter, this decline is not unique to political parties; India’s political institutions across the board witnessed a progressive weakening stemming from Indira Gandhi’s personalistic rule of the 1970s.

  In broad terms, parties in India do not function as mass membership organizations, as they do in many advanced democracies. The possible exceptions are the Left parties, such as the CPI(M), and the BJP, which serves as the political wing of the Rashtriya Swayamsevak Sangh (RSS), a Hindu nationalist cultural and volunteer organization. F
or most parties, data on party membership are hard to come by, but anecdotal evidence suggests that the figures swell immediately before elections but are otherwise of dubious value.42 As one commentator noted, “There does not seem to be any relationship between a party’s membership and its capacity to spend.”43 Most parties do not report or even maintain proper records on their membership, an oversight that is symbolic of their internal shortcomings.44

  With weak membership norms, party leaders struggle mightily to leverage their organizations to raise funds to cover operating costs and the costs of electioneering. However large (or small) the membership figures are in reality, party membership dues are a negligible contributor to overall party coffers. The BJP, for instance, charges a nominal annual membership fee of 1 rupee (in 2015, this is less than $.02). After two years in the party, members can apply for “active membership,” which requires a 100 rupee donation ($1.5). The Congress Party charges an annual membership fee of 5 rupees ($.08) for up to five years, while the newly established Aam Aadmi Party charges 10 rupees ($.15).45

  The “Iron Law” of Oligarchy

  The German sociologist Robert Michels, in his famous 1911 treatise on the nature of political parties, argued that the control of a party apparatus by a small clique of elites, or oligarchs, was an “iron law” of any democratic organization. Faced with the pragmatic necessities of decision making and governing, oligarchic control over parties was, to a certain extent, inevitable.