Why Modi Government's Political Funding Reforms May Just Be a Smokescreen

While the Budget's effort to include electoral funding issues is commendable, a closer look at the provisions tells a different story.

Representational image. Credit: Reuters

Representational image. Credit: Reuters

In a significant departure from past practice, the Budget announced by finance minister Arun Jaitley on February 1 had a separate section on ‘Transparency in Electoral Funding’. The ‘Key Features of Budget 2017-2018‘ put out by the government list the following six points:

  • Need to cleanse the system of political funding in India

  • Maximum amount of cash donation, a political party can receive, will be Rs 2000/- from one person.

  • Political parties will be entitled to receive donations by cheque or digital mode from their donors.

  • Amendment to the Reserve Bank of India Act to enable the issuance of electoral bonds in accordance with a scheme that the Government of India would frame in this regard.

  • Every political party would have to file its return within the time prescribed in accordance with the provision of the Income-tax Act

  • Existing exemption to the political parties from payment of income-tax would be available only subject to the fulfilment of these conditions.

While mentioning the issue of electoral funding in the Budget deserves appreciation, the specifics of what the Budget says conveys a different story. Let us look at each one of them.

The first is a statement of fact which has been highlighted by myriad agencies for over two decades now.

The second, reducing the cash donation limit to Rs 2000, has attracted a lot of attention since it has been said that the limit of cash donations has been “slashed” from Rs 20,000. This has its origins in Section 23-C of the Representation of the People Act, 1951, which reads as follows:

29C. Declaration of donation received by the political parties – (1) The treasurer of a political party or any other person authorised by the political party in this behalf shall, in each financial year, prepare a report in respect of the following, namely:

(a) the contribution in excess of twenty thousand rupees received by such political party from any person in that financial year;

(b) the contribution in excess of twenty thousand rupees received by such political party from companies other than Government companies in that financial year.

Subsection (3) of Section 29-C requires that the above statement be submitted to the Election Commission and Subsection (4) says that any party that does not submit this to the Election Commission will not be entitled to the 100% income tax granted under Section 13-A of the Income Tax Act.

It should be noted that the law required all donations above Rs 20,000 each to be declared if a person wanted to avail of the income tax exemption; it did not forbid the declaration of donations smaller than Rs 20,000.

In the past, political parties took refuge under this provision and declined to list the sources of up to 70% of their declared income, saying that the law does not require them to declare these and, therefore, they don’t need to. It seems logical that the same excuse will now be used by political parties to not declare so-called donations below Rs 2000. If earlier a political party issued ten receipts for Rs 19,999 each for a total donation of Rs 2 lakh received in cash, the same party will now issue 100 receipts for Rs 1,999 for the same donation of Rs 2 lakh made in cash. This is because past experience of over 20 years has demonstrated that political parties observe the letter of the law, not its spirit.

Additionally, the point, “Political parties will be entitled to receive donations by cheque or digital mode from their donors” raises two significant issues. The first is a question that might sound simplistic but is actually important. Does the finance minister’s words (“political parties will be entitled …”) imply that earlier they were NOT entitled?  Repeating an existing stipulation to say that it will happen now, may well be an attempt to create an impression that this is only being done now, whereas the reality is that everyone, including political parties, did not need anyone’s authorisation “to receive donations by cheque or digital mode from their donors.”

The other issue that comes to mind is that when the government, including the prime minister, has been asking all citizens – including small shopkeepers and even rickshaw-pullers – to switch to digital payments then why do political parties need this window of accepting Rs 2000 in cash? Shouldn’t political parties be setting an example for society by only accepting donations by digital means? And would it not have been far simpler for a government aspiring for a ‘digital India’ to require that all political parties accept all their donations by digital means?

The next point is the issuance of electoral bonds by the Reserve Bank of India (RBI). Since it is said that these will be in “accordance with a scheme that the Government of India would frame in this regard,” it is not possible to comment on it in any depth. The devil usually lies in the details and the specifics of the scheme would need to be known before it can be analysed.

The remaining two points – requiring political parties to file their income tax returns “within the time prescribed” and income tax exemptions on donations being “available only subject to the fulfilment of these conditions” – again only reiterate what already exists, and there is nothing new in that. These provisions have existed for some time now but have been repeatedly violated by major political parties. The table below shows the number of days by which the submission of the IT return to the Election Commission by the BJP and Congress were delayed:

2010-11 2011-12 2012-13 2013-14 2014-15
BJP 143 151 151 329 134
INC 143 134 145 253 155

What is lacking is the the entire political establishment’s unwillingness to be transparent about electoral funding. The political establishment seems to be in the clutches of big and unaccounted money. Ironically, the only way to escape this situation is to come clean. It is a hard decision but if the political establishment wishes to gain society’s ungrudging respect, it will have to become transparent.

The simplest way for the government to bring transparency to electoral and political funding is by revising its affidavit in the Supreme Court – which upholds the Central Information Commission’s full bench decision in 2013 to consider the six national political parties public authorities under the RTI Act.

Jagdeep S. Chhokar is a former Professor, Dean, and Director In-charge of IIM, Ahmedabad. Views are personal.