# Now reform political funding If we have the will , here ' s how to make a lasting impact on black moneyThe two weeks old demonetisation tsunami is still reverberating through the nation ' s socioeconomic fabric . It will be months before its impact can be fully understood , but the economic and political landscape has already been rearranged . The two weeks old demonetisation tsunami is still reverberating through the nation ' s socioeconomic fabric . It will be months before its impact can be fully understood , but the economic and political landscape has already been rearranged . Political bickering over long bank and ATM queues dominated media reports for the first two weeks . Now there is increasing coverage on the expected benefits or lack thereof , depending on which side you are on as well as various short and long term effects on the economy . This column will focus on how to cleanse politics of illicit , taxevaded , ' black money '. Political bickering over long bank and ATM queues dominated media reports for the first two weeks . Now there is increasing coverage on the expected benefits or lack thereof , depending on which side you are on as well as various short and long term effects on the economy . This column will focus on how to cleanse politics of illicit , taxevaded , ' black money '. It is bizarre that some otherwise reasonable people have said demonetisation will not impact black money . Sure , the currency portion of illicit assets is relatively small , with much more held in gold , real estate etc . But being by far the most fungible , cash is the most crucial part of the black economy . And it is by no means insignificant , with an estimated Rs 3 lakh crore and perhaps more now expected to be extinguished . It is bizarre that some otherwise reasonable people have said demonetisation will not impact black money . Sure , the currency portion of illicit assets is relatively small , with much more held in gold , real estate etc . But being by far the most fungible , cash is the most crucial part of the black economy . And it is by no means insignificant , with an estimated Rs 3 lakh crore and perhaps more now expected to be extinguished . This onetime flushing of a chunk of black money is a significant blow to its users , but a lasting impact requires several other steps . It would be good for the government to tackle headon such whispered allegations that agents are arranging to rehabilitate some of this cash , supposedly through Jan Dhan accounts and suchlike . Quick disproval , or punitive action if true , would add to the credibility of demonetisation . This onetime flushing of a chunk of black money is a significant blow to its users , but a lasting impact requires several other steps . It would be good for the government to tackle headon such whispered allegations that agents are arranging to rehabilitate some of this cash , supposedly through Jan Dhan accounts and suchlike . Quick disproval , or punitive action if true , would add to the credibility of demonetisation . The good news is that unlike 1978 , when the last demonetisation saw black money get hit but come roaring back , the ground realities are very different now . Mandatory linkage to PAN and Aadhaar cards for most transactions will be one of the fundamental ways to check the regeneration of black money . But the single biggest step would be to start cleaning up political funding . The good news is that unlike 1978 , when the last demonetisation saw black money get hit but come roaring back , the ground realities are very different now . Mandatory linkage to PAN and Aadhaar cards for most transactions will be one of the fundamental ways to check the regeneration of black money . But the single biggest step would be to start cleaning up political funding . Some years ago the Law Commission of India had sought public suggestions on electoral reforms , whereupon i had given written recommendations to it and to the Election Commission . Though the Law Commission ' s subsequent 2015 report contained many laudable ideas for electoral transparency , its chapter on ' election finance reform ' stopped short of anything truly radical or transformative . Some years ago the Law Commission of India had sought public suggestions on electoral reforms , whereupon i had given written recommendations to it and to the Election Commission . Though the Law Commission ' s subsequent 2015 report contained many laudable ideas for electoral transparency , its chapter on ' election finance reform ' stopped short of anything truly radical or transformative . The most important aspect of election finance reform is to shift the focus from limiting campaign expenses to rigidly enforcing the legitimacy and traceability of the money trail . Our decades ' long , utopian thrust on capping campaign expenses has not worked , it has only pushed money under the carpet . This is the root cause , the motivation for black money , and for the mechanisms that generate it . The most important aspect of election finance reform is to shift the focus from limiting campaign expenses to rigidly enforcing the legitimacy and traceability of the money trail . Our decades ' long , utopian thrust on capping campaign expenses has not worked , it has only pushed money under the carpet . This is the root cause , the motivation for black money , and for the mechanisms that generate it . The fear that allowing higher campaign expenses would somehow undermine democracy is unfounded , and there are better ways of ensuring a level playing field than expense caps . In any event , for all practical purposes the caps are meaningless , and have only incentivised the use of unsavoury funds from dubious sources . The fear that allowing higher campaign expenses would somehow undermine democracy is unfounded , and there are better ways of ensuring a level playing field than expense caps . In any event , for all practical purposes the caps are meaningless , and have only incentivised the use of unsavoury funds from dubious sources . The reality is that money is a necessary but far from sufficient ingredient for electoral success . Ironically , even billionaire Donald Trump ' s successful campaign relied on a budget that was half of his opponent ' s ! The reality is that money is a necessary but far from sufficient ingredient for electoral success . Ironically , even billionaire Donald Trump ' s successful campaign relied on a budget that was half of his opponent ' s ! Rather than expense caps , it is far , far more important to ensure that campaign funds are from traceable , taxcompliant sources . Thus , the floor of Rs 20 , 000 , below which political contributions can be received anonymously , must be drastically lowered . This is the single greatest window of abuse , with huge sums of black money being transacted without any traceability . Rather than expense caps , it is far , far more important to ensure that campaign funds are from traceable , taxcompliant sources . Thus , the floor of Rs 20 , 000 , below which political contributions can be received anonymously , must be drastically lowered . This is the single greatest window of abuse , with huge sums of black money being transacted without any traceability . Though i had earlier favoured a floor of Rs 5 , 000 , i now believe it needs to be Rs 1 , 000 or even Rs 500 . That would allow genuine onthespot donations , say at political rallies , but make it far harder to channel large amounts of illicit funds via countless ' nameless donors '. Though i had earlier favoured a floor of Rs 5 , 000 , i now believe it needs to be Rs 1 , 000 or even Rs 500 . That would allow genuine onthespot donations , say at political rallies , but make it far harder to channel large amounts of illicit funds via countless ' nameless donors '. Next , there must be state funding to help level the playing field between the wealthy and the popular . Like elsewhere , our state funding should be given as matching funds to candidates and parties , equivalent to the amount of traceable , taxcompliant funds that they raise . Next , there must be state funding to help level the playing field between the wealthy and the popular . Like elsewhere , our state funding should be given as matching funds to candidates and parties , equivalent to the amount of traceable , taxcompliant funds that they raise . In fact , small donations must be further incentivised over big ones , say with fivetimes matching funds for every individual Rs 1 , 000 of taxcompliant funds raised . Together , all this will be a boon to nonwealthy but popular candidates and parties . In fact , small donations must be further incentivised over big ones , say with fivetimes matching funds for every individual Rs 1 , 000 of taxcompliant funds raised . Together , all this will be a boon to nonwealthy but popular candidates and parties . Finally , audits of candidates ' and parties ' accounts must be made mandatory , and the tax exemptions they now receive be limited to funds that are traceable and taxcompliant . Most importantly , the EC ' s powers must be enhanced to enforce such audits , along with punitive powers ranging from mild penalties all the way to disqualifications . It is amazing that the EC , arguably India ' s most credible institution , does not have these powers . Version 0 . 5 b Function I post the article ' s text as a comment if the website is adblocker unfriendly . I accept commands ! Rendered by PROMETHEUS