When Governments Resort To Crowdfunding, Transparency Must Be The Primary Mandate

When Governments Resort To Crowdfunding, Transparency Must Be The Primary Mandate

India never suspected that China would try to invade her, but it did. India was attacked on October 20, 1962 in what famously came to be known as Sino-India war of 1962. A curious sense of security surrounding relations with China did not let the Indian army and government prepare for the war effort. Woefully underfunded, Prime Minister Jawaharlal Nehru turned to his countrymen for support. He urged women to give away their jewellery.

The response that he got was overwhelming. People gave away their day’s salaries to the Defence of India fund. Women donated their gold jewelry to buy arms and ammunitions.

It is estimated that amount equivalent to 220 million US dollars was collected in cash for the Defence of India Fund.

Unfortunately, India lost the war. However, the support and solidarity that was displayed during the first ever war for the newly formed nation-state was impressive. It paved the way for what can be called crowdfunding, or more specifically, government crowdfunding.

Crowdfunding activity by governments is partially controversial. It is looked at with suspicion and treated as unnecessary emotional appeal in order to raise funds, for which governments are not accountable. Why the government, which collects money in form of taxes, needs to raise funds separately, is the question raised by many. However, it is important to know that governments resort to crowdfunding only to deal with ad hoc calamities, situations like war, other forms of external aggression like terrorism, or natural and anthropogenic disasters.

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These funds are target oriented i.e. are raised for specific purpose and are discontinued immediately after the cause ceases to exist.

Such funds were raised during Kargil war of 1999 as well. Recently, Prime Minister Narendra Modi made a fervent appeal to all the citizens to donate generously to the Prime Minister’s National Relief Fund. He made an appeal to all fellow countrymen to stand in solidarity with distressed flood-affected people in Jammu and Kashmir and be part of the national effort to support them in this hour of crisis.

The Indian government raises funds through two organisations called the Prime Minister National Defence Funds, to raise funds in support of armed forces during wars and external aggressions; and the Prime Minister National Relief Fund, to collect donations for rehabilitation of disaster victims. The fund consists entirely of public contributions and does not get any budgetary support. These funds are not constituted by the Parliament and are recognized as a ‘trusts’ under the Income Tax Act. The donations are entirely voluntary in nature and the funds are said to be audited timely.

This is in contrast with the US practice where the former presidents came together to raise funds for hurricane relief in their personal capacity and not in official capacity. This saves them from the attack that Indian government crowdfunding is prone to.

The issues with Indian government crowdfunding is that, it is carried out by Prime Minister and the executive members without any involvement of parliament. This leads to absolutely no parliamentary regulation and control on public money. The severity of this issue increases with the general notion that citizens are not supposed to question their governments in the critical times like war. It is also possible that this period of crowdfunding can collide with the national emergency generally declared in war times, making it even more difficult for representatives of people and citizens in general to question the disbursal of funds.

These Prime Ministerial funds being ‘trusts’ are exempt from scrutiny by the office of the Comptroller and the Auditor General of India too. The contribution, although voluntary, can be converted into an unfair test of patriotism and solidarity with the nation.

In spite of such arguments, government crowdfunding can be of immense value. As it can be utilised to fund national emergencies, taxes can be put out to more productive and welfare-related expenses like social security expenditures and asset generation. Being target oriented, citizens know for sure where their money was utilised.

One more sector where governments can crowdfund effectively is civic crowdfunding for asset generation. It seems a distant dream as of now, but municipal bonds to develop infrastructure are a type of investment crowdfunding per se.

If local governments resort to crowdfunding by asking for donations on small scales, and for particular projects, like renovation of public libraries or for cleanliness drives, people will surely contribute. To make this more transparent, government can involve crowdfunding platforms in the venture. The first and foremost step towards this, is to understand thoroughly, how crowdfunding works, both on the part of the public and community organizations.

If governments make their crowdfunding efforts more transparent, there is no reason why government crowdfunding can’t be successful in India.