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Excerpts of National Commission For Review of Constitution (NCRC)

4.30.4 The law should make it compulsory for the parties to maintain accounts of the receipt of funds and expenditure in a systematic and regular way. The form of accounts of receipt and expenditure and declaration about the sources of funds may be prescribed by an independent body of Accounts & Audit experts, created under the proposed Act. The accounts should also be compulsorily audited by the same independent body, created under the legislation which should also prepare a report on the financial status of the political party which along with the audited accounts should be open and available to public for study and inspection.

Funding Political Parties

4.35.1 The problem of political funding is a complex one and there are no panaceas. Political parties need hefty contributions from companies and from other less desirable sources. The greater the contribution, the greater the risk of dependence, corruption and lack of probity in public life. The demand for transparency must be conceived as a democratic value in itself, a tool designed to avoid any wrongful influences of money in politics. If laws are intended to be effective with regard to transparency, they should be general in nature and enforced with respect to everyone, and not just political parties or candidates, but also to the donors as well. Otherwise, alternate or indirect ways to evade control will be devised. In fact, while it is essential to strengthen regulation and the mechanisms and capabilities of supervision and controlling entities, all this only addresses part of the problem. Quite often, funding and commitments do not reach the parties, but rather go directly to the candidate and his/her inner circle of supporters. This is truer today in the context of the image and credibility crisis that party organisations have been undergoing, and the emergence of regional leaders due to the regionalisation process. This usually tends to make transactions between donors and beneficiaries become even more secretive. Hence, the senior leaders or party members may often not be aware of private contributions (many of them dubious in origin and in quite large sums). Consequently, any proposals for reforms concerning political funding should revolve, among other things, around the following four main objectives:

  1. reducing the influence of money by diminishing its impact (by shortening campaigns, establishing ceilings on expenditure and limiting individual contributions);
  2. improving the use of money by investing it on more productive activities for the sake of democracy, and not just squandering it on propaganda and negative campaigns;
  3. stopping, or at least curtailing, as much as possible, current levels of influence peddling and political corruption; and
  4. strengthening public disclosure and transparency mechanisms with respect to both the origin and the use of funds.

4.35.2 At present, different Acts regulate the flow of funds to political parties both from internal as well as external sources. The Commission recommends that a comprehensive legislation providing for regulation of contributions to the political parties and towards election expenses should be enacted by consolidating such laws. The new law should aim at bringing transparency into political funding. It should permit corporate donations within higher prescribed limits and keep them transparent. It should make all legal and transparent donations upto a specified limit tax exempt and treat this tax loss to the state as its contribution to state funding of elections. For example, tax exemptions could be limited to say Rs.25,000 for individuals and Rs.10,00,000 for companies provided that the contributions are made to party funds and not to individuals. In the case of corporate contributions, the Board of Directors may approve up to say Rs.10,00,000 and anything over this amount may be approved by the shareholders. Political funding should be a separate head in the accounts and annual reports of the company. This will ensure transparency. This will be in addition to the existing conditions laid down in the Companies Act, 1956 for making donations to political parties.

4.35.3 The law should contain provisions for making both donors and donees of political funds accountable. The Government should encourage the corporate bodies and agencies to establish an electoral trust which should be able to finance political parties on an equitable basis at the time of elections.

4.35.4 Audited political party accounts like the accounts of a public limited company should be published yearly with full disclosures under predetermined account heads.

Election Returns

4.36 The proposed law should provide for immediate de-recognition of the party and enforcement of penalties for filing false or incorrect election returns.

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