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Tuesday, September 28, 2021

Where’s the money coming from?

Exploring the role of the black economy in political finance and how it subverts democracy.

Written by Arun Kumar |
Updated: September 29, 2018 1:21:20 am
Costs of Democracy book review, Costs of Democracy: Political Finance in India, Indian politics, book on politics, BJP, Indian express book review Bikers at the venue of a Yuva Hunkar Rally in Haryana in February this year. (Express photo by Jasbir Malhi)

Book: Costs of Democracy: Political Finance in India

Editors: Devesh Kapur & Milan Vaishnav 

Publisher: Oxford University Press

Page: 311  

Price: Rs 750

Money in politics is an issue of great concern for the Indian polity. Most believe it undermines democracy in India so that what formally looks like a great democracy turns out to be just a shell of a democracy. In Hind Swaraj, Gandhi critiqued British parliamentary democracy on political grounds but big money in elections subverts it further. The bulk of the finance used by political parties, not only for their election campaigns but for their day-to-day operations, are from illicit sources and, hence, black. The book under review addresses this issue.

The book consists of several articles based on field surveys and detailed interviews. However, such surveys cannot give an idea of total expenditures on an election — the fallacy of composition. On the basis of a survey of 14 members of Parliament (1998 elections), this author found no correlation between the declared expenditures and the actual expenditures, obtained from the candidates and their election agents. This was presented in the book, Black Economy in India in 1999. The survey revealed that the black economy plays a critical role in Indian political finance. Each of the articles in the volume also refer to the role of the black economy in election finance.

The black economy implies illegality in legal sectors of the economy. It has been argued by this author that black economy, to survive, has to subvert democracy to control power. The book under review consists of seven well-researched chapters written by nine authors. It presents the current reality that much money is needed to fight elections and that a lot of it is black, but misses part of the causal chain — the growth of the black economy requires a weakening of democracy.

Where’s the money coming from?

For instance, on page two, it is stated that there is an “inability of representative governments to regulate the flood of money in politics”. But is it not wilful design rather than “inability” on the part of those who generate black incomes? The leadership selects candidates who would be beholden to them and do their bidding. The leaders of parties and the government deliberately want a weak democracy to control politics, in order to push their agenda. Recently, an honest prime minister ruled over a massively corrupt regime.

Chapter One focuses on the state’s major role in the economy and poor enforcement of laws. But as this author has been pointing out, a law is a law in letter and spirit and if the latter is weak, any law can be subverted, as is evident in India (and much of the world). In Chapter Two, Neelanjan Sircar analyses data for elections held between 2004 and 2014 to show that “a candidate’s liquid wealth … has a strong positive impact on … electoral fortunes.” This relationship would have turned out to be even stronger on the consideration that many candidates are proxies for holders of black wealth.

Chapter Three by Devesh Kapur and Milan Vaishnav explores the financing of politics in India by builders. They note a dip in cement consumption before elections and argue that it is due to withdrawal of cash to finance elections. But how does cash get replenished immediately after the elections for construction activity to resume? Further, black incomes are generated by under and over-invoicing and that rises to finance elections, so that the consumption appears to dip. Further, it is argued elsewhere that public works programmes increase before elections. Then, cement consumption should increase.

Next, Michael A Collins points to the survival strategy of small parties via links with larger parties, by studying the Viduthalai Chiruthaigal Katchi party in Tamil Nadu and its links with much bigger Dravidian parties. The next chapter by Lisa Björkman and Jeffrey Witsoe and the one after that by Simon Chauchard are also based on rich material on how elections are organised. The first argues that money plays a role in gift-giving but is unable to buy votes. So, cash distribution represents the broader network of candidates. Chauchard argues that elections have become expensive not only due to gift-giving but a variety of other expenditures. But this well known argument trips when it is suggested that these are not necessarily due to “illegitimate or illegal tactics”. By definition, any expenditure over the expenditure limit is illegal.

Jennifer Bussel argues in the next chapter that black money plays an important role in financing elections but the source varies across different levels of elections. She finds that gift-giving is an important component of expenditure. In the concluding chapter, the authors talk about reform and enumerate the usual prescriptions regarding transparency, public financing and so on. But they want them to be in conjunction with “changes in the regulatory architecture governing the economy”. There have been dozens of committees that have investigated various aspects of the black economy and made thousands of suggestions, of which hundreds have been implemented. So, one needs to ask, why does the black economy continue to grow and impact our politics? The usual prescriptions would not do.

The volume illustrates many of the misconceptions about the black economy. For instance, it is argued that the black economy provides economic stimulus and generates employment. This completely misses the point that it leads to both lower investment rates due to flight of capital, etc, and inefficient use of capital (higher incremental capital output ratio), so that the economy operates below its potential because of the black economy.

The really interesting question is, if corruption has increased phenomenally, why are leaders and parties short of funds and need to go to the moneyed? The answer to this would bring out the reality. In spite of the shortcomings in the framework, the book is worth reading for anyone interested in Indian politics.

Arun Kumar is Malcolm Adiseshiah Chair Professor, Institute of Social Sciences, New Delhi

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