Finance bill makes funding for political parties more opaque than ever
One of the most intriguing elements of this year’s Budget presentation was the pitch for political finance reform. On the heels of demonetisation, analysts cheered the news as exactly the sort of follow-on measure needed if the reality of anti-corruption policy was to catch up with the government’s lofty rhetoric. After all, here was a government using its might to tackle an issue that few administrations want to acknowledge, much less legislate on. Two months later, the government’s big political funding reform push has ended not with a bang, but a whimper. Ironically, this is because the government has succeeded, rather than failed, to enact its proposals.
Today, India’s political finance regime is plagued by three major infirmities. First, there is a steady torrent of undocumented cash that lubricates the activities of both parties and candidates. Second, there is virtually no transparency regarding political contributions. In the majority of instances, we are ignorant about the identities of both the giver and the receiver. Third, political parties are not subject to any form of independent audit, which renders their stated accounts both fictional and farcical.
Against this backdrop, what has the government chosen to do? For starters, it has lowered the limit for cash donations to political parties from Rs. 20,000 to Rs. 2,000. It has insisted that corporations too refrain from cash giving, requiring them to donate via cheque or digital payment. The Finance Bill also introduced the concept of an “electoral bond,” by which corporations can purchase time-limited bearer bonds from scheduled banks and transfer those bonds to registered bank accounts of political parties. While these funds will flow through the banking system (rather than under the table), corporations are neither obliged to disclose their purchases nor are parties required to report their deposits. At the 11th hour, the government belatedly attached two amendments to the Finance Bill. The first eliminates the cap on corporate giving (which previously stood at 7.5% of a corporation’s average net profits over the previous three years) while the second abolishes the provision that firms must declare their political contributions on their profit and loss statements.
It should be clear by now that there is a dramatic mismatch between what ails political finance in India and the government’s “reform” measures. On the plus side, the Modi administration—true to its post-demonetisation ethos—has taken steps to clamp down on cash in politics. While its efforts are noteworthy, they would merit greater acclaim if the government had scrapped cash donations altogether, insisting that political parties embrace the new “Digital India.” Furthermore, while the government has lowered the cash limit to Rs. 2,000, it has not touched the disclosure threshold, which remains at Rs. 20,000. Politicians are already privately joking that the new cash cap will easily be gamed; the only difference is that their chartered accounts will demand a raise.
The big loser here is the public. With the stated intention of improving “transparency in electoral funding,” the government has accomplished precisely the opposite objective. Consider the fact that corporations can now legally give unlimited sums to political parties who, in turn, can accept unlimited sums of money—all without having to disclose a single rupee. This money will now be subject to a digital paper trail, but this is explicitly meant to be off-limits to the media, civil society, and the general public.
The danger in what has transpired is that the government can claim victory; it can tell those who have not read the fine print that it has struck a bold assault on a major weakness of Indian democracy. Yet, after the bill’s passage, public disclosure remains a distant dream. There is complete silence on the Central Information Commission’s ruling that parties are subject to the Right to Information (RTI) Act and, in the meantime, the government has opened up the floodgates to special interests. And it has done so under the cloak of the Finance Bill, thereby completely sidestepping the need for Rajya Sabha approval, and with last-minute amendments that were airdropped.
Sadly, we have seen this movie before: last year the government, with the connivance of the Congress Party, used the Finance Bill to retroactively amend the Foreign Contributions Regulations Act (FCRA) to evade a Delhi High Court judgment which found the Congress and the ruling Bharatiya Janata Party guilty of accepting foreign contributions. While the Modi government has been shy to comment on last year’s brazen manoeuver, it has embraced this year’s changes by intimating that the alterations merely nudge India toward the political funding system that prevails in democracies like the United States. As if the latter’s record on this score is something that should be celebrated, rather than condemned.
Milan Vaishnav is a senior fellow at the Carnegie Endowment for International Peace and author of the new book, When Crime Pays: Money and Muscle in Indian Politics (HarperCollins India, 2017).