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Report No. 255

E. Legal Lacunae and the Under-reporting of Election Spending

(i) Understanding the reality of election financing today

2.27.1. Although there are legal provisions limiting election expenditure for candidates and governing the disclosure of contributions by companies to political parties, the same is not properly regulated, either due to loopholes in the law, or improper enforcement.

2.27.2. This is evident from the 2001 Consultation Paper of the NCRWC on Electoral Reforms, which estimates that actual campaign expenditure by candidates is "in the range of about twenty to thirty times the said limits."93 In fact, one of the major concerns regarding expenditure and contribution regulation is that the apparently low ceiling of candidate expenditure increases the demand for black money cash contributions and drives campaign expenditure underground, causing parties to conceal their actual source of funds and expenditure.94

93. NCRWC, A Consultation Paper on Review of Election Law, Processes, and Reform Options, January 2001,
<> at para 14.1 ("NCRWC Consultation Paper").

94. Ibid., at para 14; M.V. Rajeev Gowda and E. Sridharan, Reforming India's Party Financing and Election Expenditure Laws, 11(2) ELECTION L.J. 226, 232-235 (2012).

2.27.3. Interestingly however, the Association of Democratic Reforms (hereinafter "ADR") in its election expenses analysis for the Lok Sabha 2009 elections found that on average, the Members of Parliament declared election expenditures of 59% of the total expenses limit.95 Of the 6753 candidates (of a total of 8028 candidates) whose summary statements of expenses were available, only four candidates exceeded the ceiling and only 30 spent up to 90% of the expenditure limit.96

On the other hand, 1066 candidates declared election expenses of less than Rs. 20,000 and 197 declared expenses less than Rs. 10,000.97 Given the distortion between the reported and estimated candidate expenditure, increasing the expenditure limits further (from the 2014 increase) might not necessarily provide an answer.

95. ADR, 129 (30%) MPs declared Election Expenses of less than 50% during Lok Sabha, 2009,

96. ADR, Lok Sabha 2009 Election Expense Analysis: A Report,
<>, at 4.

97. Ibid., at 3.

2.27.4. Additionally, in their analysis on the sources of funding for political parties, ADR found that more than 75% of parties' sources are unknown, while donations over Rs. 20,000 comprise only 9% of parties' funding.98

98. ADR, Electoral and Political Reforms,
<,%20Political%20Reforms%20and%20ADR.pdf >

2.27.5. To try and remedy the situation, the ECI's transparency guidelines, effective from 1st October, 2014 state that no income tax deductions are permissible for cash contributions to political parties by an individual or a company under section80GGB and 80GGC, IT Act and that all cash donations should be duly accounted in the account books. Further, parties are stipulated to maintain names and addresses of all donors, specifically those donating during public rallies (except petty sums and hundi/bucket collections).99

99. ECI Transparency Guidelines and Clarifications, supra note 6 and supra note 40.

2.27.6. Therefore, there is clearly under reporting of election expenditure and opacity of political contribution. Part of the explanation lies in the lacunae in the law, and part in black money and poor enforcement. To this, we now turn.

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