Truth about political funding

Without transparency, there can be no reform

Ever since Prime Minister Narendra Modi announced demonetisation in order to curb the use of black money, a recurring theme in public discourse has been the use of such unaccounted wealth in financing political parties. Over the years, there have been several attempts in the form of Supreme Court and high court rulings and amendments to the Representation of the People’s Act, 1951, to address the situation, but evidence suggests that such efforts have largely failed to resolve the issue. In fact, the unhealthy use of black money and the lack of transparency in the functioning of political parties continue unabated. In his address to the nation in December-end last year, Mr Modi had urged political parties to give up their “holier than thou” approach and come clean on their own funding, much in line with the exacting standards of probity demanded of a common citizen in the wake of demonetisation. This had raised a lot of expectations from the central government in terms of follow-up action that would not only plug the loopholes that allow black money in party finances but also bring about all-round transparency in electoral funding. However, the amendments introduced in the Finance Bill, 2017, which received Parliamentary approval last week, leave a lot to be desired. 

The new rules have scrapped a ceiling that earlier restricted companies from donating more than 7. 5 percent of their average net profit in the three immediate preceding fiscal years to a political party. The amendments have also cancelled an existing rule that requires companies to disclose, in the profit and loss account, the name of the political party to which the funding is made. This means a company can now contribute any amount it wants to a political party without disclosing the name of the party to shareholders. This defeats the very purpose of bringing in more transparency in political funding. Moreover, the Bill reduces the limit for accepting unaudited cash donations from Rs 20,000 to Rs 2,000. But apart from necessitating more forged receipts, this intervention achieves nothing. The flow of black money, therefore, can carry on unrestricted, albeit in tranches of less than Rs 2,000. The other change is to allow corporations to purchase “electoral bonds” from scheduled banks and transfer them to registered bank accounts of political parties. Presumably, the idea behind this move is to allow “clean money” to fund political parties. To the extent that formally accounted wealth will fund parties, this is a welcome move. However, what makes it meaningless is neither the companies nor the political parties are required to declare the transaction. Worse, many political opponents have shared their apprehensions about the government of the day having the capacity to know who is funding their opponents and leaning on such donors to do otherwise.

To be sure, the heart of the matter is transparency. The reason why a reduction in the cash limit will not stop the use of black money is the exemption enjoyed by such donations from auditing. If auditing is allowed, political parties will have to explain, just like a common citizen has to, the source of their funding. The truth is political parties, across the board, have been unwilling to come under any real scrutiny. That is why they continue to refuse coming under the Right to Information Act, notwithstanding earlier rulings by the Central Information Commission requiring them to do so.