India is agog with the sound of state funding of political parties. As Indians struggle with corruption in their daily lives, and read about glitterati-neta corruption in the newspapers, the panacea call (especially from the politicians) is: let there be state funding of elections, and voila, there will only be minimal corruption. Respected politicians, including the normally sensible Jairam Ramesh (“A Level Paying Field”, India Today, April 9), have latched onto an idea whose time they say has come. Recourse is made to “public good” arguments to buttress the demand for politicians to get even richer at the public expense. Little thought is given to the obvious conflict of interest here – state funding will only support established parties and dilute competition.

The argument for state funding of political parties is flawed on several counts, and confuses causes of corruption, with genuine financing needs of parties. And if state funding is allowed, it is likely that the only achievement of this policy will be extra incomes for the politicians. Is this what you want?

How is the politician inspired nirvana system supposed to work? The idea is that each political party gets state money (your taxes) based on how many seats or votes they have obtained in the last election. Let us consider just the Lok Sabha polls - at 1 crore per MP, the subsidy is approximately Rs. 500 crores per election. If second place candidates also get a subsidy (we believe in competition, don't we?) the total subsidy is Rs. 1000 crore. How small is this amount - very trivial. The annual subsidy going to highly inefficient (and corrupt?) fertilizer manufacturers is approximately Rs. 12000 crores per year. The Rs. 1000 crore subsidy can be further reduced to only Rs. 200 crore per year by following the German model of requiring that a vote of no-confidence can only be passed if an alternative government is formed. So Rs. 1000 crores is needed only once every five years, or Rs. 200 crores annually.

It is clear that the economy can easily afford state funding of democracy, at least at its highest level. It is another matter, and another calculation, about state funding of state elections, municipal elections, panchayat elections etc. Since all netas are cogs in the wheel of democracy, partiality to the senior-most is not warranted. But that is another story. Let us pursue the idea of just funding the elite MPs.

Will such easy money reduce the incidence of black money for politicians, and reduce undue influence of industrialists, the twin goals behind the demand for state funding? Corruption, and black money, is created by discretion. Even when laws are in place, enforcement laxity is the result of neta-sponsored discretion. Take the example of high rates of income taxation - side deals ensure huge gains to the taxpayer and the assessor. Or in the name of equity, and the poor, the high rates of taxation on capital gains in housing. It is impossible to buy a house with white money. This is because taxation depends on valuation of house for sale, and valuation is discretionary. Or take the high rates of taxation, 35 percent, on short-term capital gains in the stock market (Not that there are any this year!). Again, black money is generated, and money routed out and brought back in from Mauritius which has a no-taxation treaty with India. Now who is arguing that state funding of elections will reduce such discretion on the part of government, and such generation of black money?

Clearly, the present system is rotten - actually worse - and needs to be replaced. State funding is one idea. Another is to go back to where we started - i.e. voluntary, transparent, tax-exempt contributions to political parties. This system was junked, not surprisingly, by the original destroyer of good Indian institutions, Mrs. Indira Gandhi. First the privy purses, then the system by which Congress itself had been financed for generations. Why did the Taliban Mrs. Gandhi do it? Because she felt that the voluntary contributions would go to her competitors. So why not ban voluntary contributions, and do it in the name of garibi hatao, and get the glitterati-left support in the bargain? Why not, she said, and brought us the present very, very corrupt system.

Neither state funding, nor voluntary contributions, can eliminate the influence of "major industrialists". As discussed above, the purchase of favours arises because of the presence of discretion - whether in providing valuations, or licenses, or counter guarantees, or favorable taxation on inputs and outputs. But voluntary payments have the advantage of being public, and coming out of transparent, white money.

Voluntary contributions also lead to progressive taxation, something the moralists and the glitterati left demand passionately. Most of the voluntary contributions will be by the very rich. Thus, the rich in aggregate, will end up paying a higher fraction of taxes in the voluntary system than in the alternative state funding method. And since contributions will be voluntary, and in the public domain, any attempts at buying influence will also be public - surely a better outcome than that provided by state funding and non-public contributions.

The merits of both alternatives - state funding and voluntary contributions - need to be debated. The time has come for government to consider a "new" and transparent approach to policy formulation. The idea is simple, and borrowed from the US. For every policy change, a Joint Parliamentary Committee (JPC) is set up. This committee has a mandate to come up with a bill for consideration within six months. During these six months, the JPC holds public hearings where experts are invited to testify. The public hearings are covered by the press, and they will not need spy cameras to dissect, and expose, the nuances of each position. After a genuine democratic debate the JPC recommends policy changes.

It could well be that such a procedure results in state funding becoming law. Or the resurrection of voluntary funding. Or both. Whatever the outcome, surely India will be considerably better off than if the same policy were to come about via secret meetings among netas, by netas, and most explicitly, for netas.