Context: Recently, the Election Commission of India (ECI) has constituted a committee to examine the issues concerning the expenditure limit for a candidate.

• The Law Ministry has increased the ceiling on poll expenditure for Assembly and Lok Sabha elections by 10%. 
• The EC had recommended a 10% increase in expenditure for all elections to be held during the COVID-19 pandemic, keeping in mind the problems that candidates may face while campaigning under the various COVID protocol laid down by the poll panel.
• No increase in 6 years: In the last 6 years the limit was not increased despite an increase in electorate from 834 million to 910 million in 2019 to 921 million now.  
• Further, the Cost Inflation Index during this period has increased from 220 to 280 in 2019 to 301 now. 

Current scenario

• The current expenditure limit for state and Parliament elections differs from state to state. 
• In case of Lok Sabha elections, a candidate can spend between Rs 50 lakh and Rs 70 lakh, depending on the state they are contesting from. 

For all states, except Arunachal Pradesh, Goa and Sikkim, a candidate can spend a maximum of Rs 70 lakh on canvassing. 

• Changes in poll expenditure limits during Covid-19
• The recent notification amended the Conduct of Elections Rules.

For all states, except Arunachal Pradesh, Goa and Sikkim 

• The Assembly election candidates are now allowed to spend up to Rs 30.8 lakhs as against Rs 28 lakhs earlier.

For Loksabha candidates: The revised ceiling on poll expenditure is now Rs 77 lakhs for canvassing instead of the earlier amount of Rs 70 lakhs.

For smaller states like Goa, Arunachal Pradesh, Sikkim and a few Union Territories: 

• The enhanced ceiling for a Lok Sabha candidate is now Rs 59.4 lakhs. 
• For an Assembly seat, candidates can spend up to Rs 22 lakhs.

Conduct of Elections Rules

• The Election Commission of India imposes limits on the expenditure incurred by a candidate, but not political parties, on their election campaign.
• Candidates have to keep a separate account and file the election expenses with the poll watchdog under the law. 
• An incorrect account or expenditure beyond the cap can lead to disqualification for up to three years under Section 10A of the Representation of the People Act, 1951.
• All registered political parties have to submit a statement of their election expenditure to the election commission within 90 days of the completion of the Lok Sabha elections. 
• And all candidates are required to submit their expenditure statement to the poll panel within 30 days of the completion of the elections.
• Legislations Governing Campaign Finance in India

Campaign finance in India and the funding of political parties is governed by the following laws:

• Representation of People Act, 1951
• Conduct ofElections Rules, 1961
• The Companies Act, 1956 (which will likely be replaced by the Companies Bill 2011)
• Foreign Contributions Regulation Act, 1976
• Income Tax Act, 1961
• Indian Penal Code, 1860.

Argument for a cap

• Limits on campaign expenditure are meant to provide a level-playing field for everyone contesting elections.
• The 255th Report of the Law Commission on electoral reforms argued that unregulated or under-regulated election financing could lead to “lobbying and capture, where a sort of quid pro quo transpires between big donors and political parties/candidates”.

Effectiveness of cap

• An analysis of expenses for the 2014 Lok Sabha elections by the nonprofit Association for Democratic Reforms (ADR) found that even though candidates complained that the EC’s limits were too low and unrealistic, as many as 176 MPs (33%) had declared election expenses that were less than 50% of the limit in their constituency. 
• It indicates that candidates may not be providing true accounts of their poll expenses to the EC.

Capping party spends

• The Law Commission was against identifying a ceiling for expenditure by parties. 
• The 255th Report on electoral reforms said it would be very difficult to fix an actual, viable limit of such a cap and then implement such a cap. 

EC view on party spends

• The EC has asked the government to amend the R P Act and Rule 90 of The Conduct of Elections Rules, 1961, to introduce a ceiling on campaign expenditure by political parties in the Lok Sabha and Assembly polls. 
• It should be either 50% of or not more than the expenditure ceiling limit provided for the candidate multiplied by the number of candidates of the party contesting the election.
• It will control the money power used by political parties and their allies.

Reaction of the parties

• Major political parties have argued that since all parties have to mandatorily file their income and expenditure accounts with the EC, there is no need for a ceiling on expenses during elections.