India has the highest number of political parties in the world, and this number is growing. At last count, more than 2,500 parties were registered with the Election Commission of India (ECI). It’s a different matter that many of these parties have neither fielded any candidate nor fought any elections.

Political parties play a central role in the functioning of India’s vibrant and often noisy democracy. Given their centrality, it is imperative that their functioning be subject to some regulation or public scrutiny. The agenda for reforming the political and electoral process is a long and unfinished one. It is to ensure that the process is truly free, fair and untainted as envisaged in our Constitution for a representative democracy.

While threats of muscle power and coercion in elections may have receded over the years, newer challenges like money power and influence of the media, including social media, have emerged. The issue of inner party democracy, and also transparency of finances, are critical agenda items too. This column is too short to provide a comprehensive list of all pending reforms. A useful starting point is a letter written in July 2004, by the then chief election commissioner to the prime minister. Parliament needs to take cognizance of that pending list and push the reform agenda through appropriate legislation. The Election Commission by itself cannot drive this electoral and political reforms agenda. Its mandate is confined only to the conduct of free and fair elections. If it has achieved more, it is by sheer moral force, and often fortified by landmark judgements of the Supreme Court.

Given the topicality of demonetisation, the great currency-swap currently under way, and the churn in India’s cash economy, it will be appropriate to focus on the reform agenda for funding of elections and political parties.

It is well known that cash plays a big part in elections. A few years ago, a prominent politician revealed in a public speech that he had spent Rs8 crore in an election that he fought in 2009. This was when the official spending limit was only Rs25 lakh.

He was expressing his helplessness, not bragging. So almost by definition, 95% of his spending was illegal, and ipso facto black money. The Election Commission immediately sent him a notice, but he later claimed that he was misreported. Now just from this single anecdote, imagine the scale of unaccounted money across elections of all categories. That number is mind-boggling.The spending limit is not set by the Election Commission, but decided by the legislature. So the first reform is to raise the limit to a more reasonable level. However, this must be accompanied by requirement of more transparency. The irony is that most candidates across all elections in their mandatory disclosure to the Election Commission, report severe underspending. At least on official documents they are not even able to spend up to the limit that’s allowed. So on one hand there is clamour for higher spending limits, but on the other the record shows underutilization of existing limits.

The second reform is regarding submission of reports. As per subsection (1) of section 29C of the Representation of the People Act, 1951, all registered political parties have to submit an annual statement of income and expenditure to the Election Commission. The compliance on this, in the stipulated time limit, has been tardy, although it is getting better. No action is taken against parties for delayed compliance or non-compliance. We need more teeth and consequences from the Election Commission. Notably, the state election commission of Maharashtra recently deregistered several parties for non-compliance on this count.

The third reform relates to filing of income tax. Parties enjoy double income exemption, i.e. both donor and recipient get tax relief. But this is valid only if the party files with the income tax department. Non-compliance on this is rampant. The tax-exempt status should be stripped away in such cases. This power does not however vest with the Election Commission.

The fourth reform relates to receipt of cash donations. Even in the officially filed income statements, most parties report receipt of donations from unknown sources. This is because as per current law, for donations less than Rs20,000, no disclosure is needed. It can be in cash. This needs to be changed immediately.

As we progress toward a less-cash society, enabled by micro-payments through digital wallets, every donor to political parties must be identified, and donations must be accepted only by electronic means or by cheque. Not by cash.

The parties have to give a detailed account of income and expenditure during the elections to the Election Commission. This is from the date of announcement to the completion of the election. If the report is not submitted within 30 days by the winning candidate, that election can be declared null and void.

Across 71 state elections held over 12 years, a report by the Association for Democratic Reforms (disclosure: this writer is a co-founder of ADR) shows that 60% of the expenditure was in cash. Surely this must change to fully cashless.

Demonetisation and the push toward a less-cash society have put the spotlight on the role of cash transactions, especially those that are evading taxes. Political parties are tax-exempt entities anyway. So they should lead the charge toward going cashless, at least for donations, and later for expenses. The compliance on expense and income-tax filing needs to be tightened, with stricter actions against delinquents.

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