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Party System Fragmentation, Intra-party Democracy, and Opaque Political Finance

E. Sridharan
April 5, 2009

Prior to 1989, India’s party system produced single-party majority governments based on only a plurality of the vote. Since then, over the course of the past six elections, it has produced hung parliaments and multi-party minority and/or coalition governments. This fragmentation of the Indian party has been widely noted.

Since 1996, India has seen among the world’s largest multi-party coalition governments of seven to twelve parties in government, not counting pre-electoral and post-electoral allies who opt to provide only external support. The number of national parties (with a significant presence in four or more states) actually declined from eight to six between 1989-2004, while the number of state parties leapt from twenty to thirty-six and the number of registered parties doubled from eighty-five to 173 over the same period. The number of parties represented in the Lower House of parliament has steadily increased from twenty-three in 1989 to thirty-eight in 2004, of which the major increase has been in the number of state parties from eight to twenty-four. While the Left Front has been stagnant at 8-10 percent, the non-Bharatiya Janata Party (BJP), non-Congress, non-Left space – dominated by mostly single-state regional parties – grew from 34 percent vote share in 1991 to 43 percent in 2004.

What has emerged is a party system characterized by a high degree of fragmentation and vigorous competition between parties, as also indicated by a high rate of turnover in office at both parliamentary and state levels. The multiplicity of parties means that a broader range of regional and social group interests find representation and a share of power. This raises the question as to whether such large multi-party coalitions are functional from the point of view of political stability, governance, and economic growth, particularly in a time of economic downturn in which the need for hard decisions might be unpopular in the short-term. Political stability should not be reduced to duration; governments can last by crisis management, but this might be at the cost of governance and effective policy-making. If such governments are only sub-optimally functional, then why couldn’t reforms be made to encourage mergers of small parties into larger, unified parties? An even better idea would be to introduce incentives for state parties to voluntarily merge to form national parties spanning several states instead of multi-party coalitions, while preserving representation of the diversity of interests. However, to understand why this is not happening and why fragmentation has happened, one needs to relate this phenomenon to intra-party democracy and to party finance.

Despite vigorous inter-party competition, intra-party democracy and hence, competition for party leadership has not been manifest. Indeed, party leaderships across the spectrum are self-perpetuating oligarchies, which in many cases are also family dynasties. The key decisions of party strategy and election nominations tend to be excessively centralized. Internal elections are essentially a stage-managed affair across the spectrum. Why has this happened? In addition to the “natural” tendency towards many parties in a highly heterogeneous federal polity, the lack of intra-party democracy is surely one of the key drivers of fragmentation, as evidenced by the plethora of Congress and Janata Dal offshoots. While weak party organizations are a proximate reason for the difficulty of conducting intra-party elections, the underlying cause is that party leaderships have no interest in constraining themselves. The absence of intra-party democracy has meant that there is no transparent mechanism for new entrants to politics or for newly-mobilized social groups to make their way up the existing party hierarchies against entrenched interests. Hence, such entrants and groups, and dissenting factions, have strong incentives to form their own parties – if they are territorially concentrated enough – or defect to other parties.

These problems are compounded by an opaque party and election finance system which reinforces the tendency toward top-down control of parties, and hence, indirectly to the party system’s fragmentation. There is no system of public subsidy, unlike in most developed or developing democracies. Public subsidy in India is limited to free campaign time on state-owned television and radio in larger measures over the past four elections. Parties fund themselves by private, under-the-table donations despite amendments to the election and tax laws in 2003 that allow donations to parties to be tax-deductible. For business groups, the risk of transparency of political donations far outweighs any tax benefits, given the rent extractive capacity of governments, and especially since turnover is so high. And if large, unaccounted funds are to be managed by party leaderships, they would tend to place a premium on unhindered top-down control and on absolute loyalty down the line, and hence, incidentally, on dynastic succession where feasible and desired. The consequences of the mutually reinforcing lack of intra-party democracy and opaque and corrupt political finance on the incentives of rising political entrepreneurs and newly-mobilized groups to work within existing parties – as is the case in the United States – are extremely negative.

India needs to work out some sort of partial state subsidy for parties for election and inter-election purposes. This can be conditioned on intra-party democracy, transparency and accountability for which a law on parties – now non-existent – would need to be enacted, as in many countries. Political parties – while tax-exempt – have had to file annual income tax returns, though these are widely thought to be partial and doctored, and not open to public scrutiny; the only action possible being through the politically-controlled Income Tax Department. This status quo remains unquestioned because of the tacit agreement in its favor across parties. Parties also have to file accounts with the Election Commission for the limited campaign period in each election. The Election Commission cannot ask for more than this since it does not have the power to enforce internal democracy. Hence, what is needed is a comprehensive internal democracy-enforcing law on parties in return for partial state subsidies. This will require collective action among party leadership so that in return for the financial floor provided by partial state subsidy, they agree to constrain themselves by becoming more transparent and democratic.

One possible option is to provide state funding on a basic slab-plus-vote share-plus-matching grant basis; analogous to the provision of free media time on state-owned electronic media. This is also on a basic time slab plus time allocation on a vote share basis. The matching grant component, to elaborate, should be provided only to match small donations by identified donors/party members, and not corporate donors, to incentivize parties to broad base fund-raising and hence, grassroots participation and internal democracy. Weightage could be given to broad basing across states to incentivize mergers for national party formation. Additionally, companies which are significant government contractors at any level should be barred from donating to parties. This would create incentives for donors to contribute legally and for parties to accept donations against receipts. The matching grant component of state funding – for small donations only – would thus complement the 2003 introduction of tax deductions for donors. Both donors and parties would be induced to come above the table and in the process, create a legal and transparent system for adequate flows of party funds. This would help break the corrupt nexus with big donors for a quid pro quo. Financing the state funding of elections/parties could possibly come from abolishing the Members of Parliament Local Area Development Scheme (MPLADS) scheme, in which each MP in each House of Parliament gets a Local Area Development budget of twenty million rupees a year. This scheme can also be separately questioned on the grounds that it skews the democratic playing field in favor of incumbents.

Such partial state subsidy tied to the introduction of legal regulation of internal democracy in parties can have a mutually reinforcing effect. In several rounds of play, this can encourage political entrepreneurs, factions, and interests to work within existing internally-democratized, and hence, more accommodative parties and/or merge small parties into larger ones across state boundaries. This can result in smaller coalitions in terms of number of parties, but more encompassing in terms of interests, conducing to consensus-building and hence, better governance and policy-making.

E. Sridharan is the Academic Director of the University of Pennsylvania Institute for the Advanced Study of India (UPIASI) in New Delhi, India.He can be reached at esridharan@yahoo.co.in


India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.

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