How govt's bond proposals will make party funding less transparent

Instead of making funding more transparent, proposals will make it more opaque, feel experts

Finance Minister Arun Jaitley, in his 2017-18 Budget speech, had promised steps to bring greater transparency and probity in electoral funding, the cornerstone being a proposal for electoral bonds.

However, certain proposals in his Finance Bill raise concern among experts that these bonds could institutionalise greater opacity and less of openness in political finances. Of relevance are amendments proposed through the Bill to the Representation of the People Act (RPA) and the Income Tax Act. These would allow political parties to keep confidential any funding through electoral bonds or for individuals or corporates to hide such donations to parties through the same route. In essence, once the Finance Bill is passed, oversight and scrutiny of the Reserve Bank of India (RBI), the income tax (I-T) department and the Election Commission (EC) on political finances could be reduced substantially.

“There is nothing in the proposal around electoral bonds that speaks of transparency.  In fact, you will legitimise the opacity that is so rampant under the current system of electoral finances,” said Milan Vaishnav, senior fellow at the Carnegie Endowment for International Peace, Washington DC.

The Finance Bill seeks an amendment to Section 29C of the RPA. The section requires parties to prepare a report of all contributions over Rs 20,000 made by an individual or company in any financial year and present it to the EC for scrutiny. The proposed amendment seeks to exclude the operation of this provision to all donations made through electoral bonds. Section 13A of the I-T Act requires a party to maintain a record of the names and addresses of all donors contributing over Rs 20,000 in any financial year, to seek exemptions from total taxable income. Section 139 (4B) also requires the filing of a return of income if total contributions to a party exceeds the minimum taxable amount prior of the Section 13A allowances. The Finance Bill now proposes amendments exempting the amounts received through electoral bonds from the applicability of these sections. And, shields electoral bond donations from any specific I-T disclosures.

Questions also remain on the applicability of Section 182 of the Companies Act. This require a company to obtain resolutions of its board of directors for political contributions, all of which must be declared in their profit and loss accounts, with the amounts and names of parties the donations were made to. While the Finance Bill is silent on any amendment to this, senior government sources have told Business Standard that this section might be changed to make any detailed disclosure by companies unnecessary if they are donating through electoral bonds.In effect, these amendments cumulatively make the scrutiny of electoral bond donations beyond the reach of the I-T authorities or the EC, previously viewed at as an essential tenet of transparency in political funding.

“Details of the electoral bonds are still awaited. But, on the face of it, based on the amendments which have been proposed in the Bill, it will increase opacity and not transparency,” said Maj Gen (Retd) Anil Verma, who head the non-profit Association of Democratic Reforms.

In his Budget speech, under a section titled ‘transparency in political funding’, Jaitley spoke of enabling parties to receive funding through digital means, limiting cash donations to Rs 2,000 per person, and electoral bonds. The guidelines are expected in March but the premise so far is as such: A person or corporate buys these bonds, which are at face value from an authorised bank through cheque or accountable money. These bonds are then given by the person or entity to a political party within a specified period of time. The party can only redeem the face value of the bonds through a bank account declared with the EC.

Jaitley and senior finance ministry bureaucrats said repeatedly after the Budget that both the donor and the party which gets the funding will have complete anonymity. Experts say the aim of such instruments is to make political funding more accountable, in that only accounted wealth can be used to buy the bonds and declared bank accounts used to redeem these. However, they also say anonymity and transparency don’t go hand-in-hand.

“As far as transparency is concerned, the proposal of electoral bonds has no clear aim. What has happened is that power and backing of the state has been given to a sub-optimal system of political funding,” said Vaishnav.

“The main issue which we have always been appealing to the government is that the common man, the public, must know how political parties are getting their funds, from whom and in what amounts. With these amendments, I don’t think that will be achieved,” said Verma. “The minister has said we wish to protect the identity of donors. We don’t know who will donate, how much, how many times. How will it increase transparency if it wants to maintain anonymity?”

The process of floating these electoral bonds will require changes to the Reserve Bank of India Act, to enable the central bank to authorise the issuance of such bonds by scheduled banks. Further guidelines on the bonds are expected in March.