Political Economy

India's Shadow Lobbies: How Business Captured the Government

Corporate donations are in effect indistinguishable from bribes – security plans for future projects.

Bangalore: It has come to light that according to its profit and loss statement for the quarter ended March 2019, Tata Consultancy Services donated Rs 220 crore to an unnamed beneficiary.

This makes the infotech consultant the single largest political donor.

TCS has outdone Prudent Electoral Trust, which supplied a total of Rs 164.30 crore to political parties in FY 2017-18 – Rs 154.30 crore to BJP, and Rs 10 crore to the Congress.

The Election Commission (EC) makes it mandatory for companies to publish details of donations more than Rs 20,000 to political parties, whether made individually or through registered trusts. The watchdog updates accounts of such contributions annually.

Also read: It Is Not a Voter’s Concern Where Political Parties’ Money Comes From, AG Tells SC

Truthful and transparent submissions by companies and political parties is one of the most important checks on harmful collusive behaviour by corporates and political parties.

So what are these crores for; which businesses give away cash, and what do they get in return?

Builder-politician nexus

Director and senior fellow, South Asia Program, Carnegie Endowment for International Peace, Milan Vaishnav, teamed up with colleague Devesh Kapur to edit the book Costs of Democracy (2018) where they co-authored a chapter on builders and politicians

“The construction sector requires access to adequate land, which is intensely politically and bureaucratically regulated. As a result, politicians wield an enormous amount of discretion over business activity in sectors where land is the primary input,” Vaishnav told this writer in an interview.

Searching for an electoral cycle consistent with this alleged quid pro quo, they found a fall in sector productivity of cement – indispensable for construction – just before major elections, in jurisdictions as varied as the Philippines, Spain, 1900s’ America and, India, which offered the best study.

Closer to elections, he said ‘builders’ are “compelled to finance politicians’ campaign costs”, resulting in them buying less cement.

A majority of BJP’s donors, apart from religious and communal groups, are ‘builders’, or sectors where government regulation is fierce, such as the financial services, telecommunications, etc.

“Companies have an incentive to pay for elections, and politicians can exchange policy and regulatory discretion for this financing,” said Vaishnav. “Although this imposes a short-term cost on builders, it brings long-term benefits in terms of future goodwill.”

As treasurer, Arun Jaitley was fiscally meaner to small businesses than larger ones (top dollar donors) whom he rewarded with deep tax cuts in 2016-17.

Also read: In Supreme Court, EC Criticises Modi Govt’s Electoral Bonds and Foreign Funding Tweaks

Since land is controlled by the state government, it is there where such cosy set-ups thrive. A Mumbai-based ex-banker, who did not wish to be named, but is aware of such scenarios in his professional life, said, “Large amounts of money are indeed given in exchange for policy favours but these bribes go to the state governments (MLAs).”

Business lobbying ties can also ward off competitors, without firms even trying: “Such links send a strong signal: enter at your own risk,” said Vaishnav, describing the uncompetitive atmosphere they create.

Politicians often invest their personal wealth in these sectors too, with family members and associates as proxies. So parties become receptacles for untaxed wealth and dirty cash.

They make for perfect bedfellows – “one, a source of unaccounted cash, and the other a conduit for expending the cash,” say the authors, quoting Saritha Rai in the Indian Express.

Murky dividends

Corporate donations are in effect indistinguishable from bribes – security plans for future projects. The murky dividends may already be paying off as deals are signed ahead of elections.

Donors’ stocks get ‘buy’ signals on future gains by market analysts; and they enter the special league of politically-connected firms, offsetting any short term liquidity crunch experienced by them.

Indiabulls Housing Finance Ltd, with business tycoon Laxmi Narayan Mittal in its board of directors, put Rs 40 crore in the campaign war chest in 2014-15 through Satya Electoral Trust, a precursor of Prudent Electoral Fund.

Indiabulls was recently in the news for getting a preliminary approval for an insurance license to play the multi billion-worth Indian insurance market. The non-banking finance company is now eyeing a merger with Lakshmi Vilas Bank, which is riddled with a large and hopelessly unredeemed housing debt portfolio like many public sector lenders. Concurrently, Indiabulls has launched a private equity (PE) fund to snap up bargains in the Indian housing market through bad bank debt portfolios. The Wire reported such a trend among PE funds.

Another major donor, DLF Ltd shelled out Rs 45 crore in 2014-15 to the Satya Electoral Trust. It then gave Rs 52 crore in 2015-16 and another Rs 52 crore in 2017-18. The BJP received a further Rs 1 crore individually from the builder in 2016-17, according to an ECI list of donors.

DLF recently formed a joint venture with US-based property investment firm Hines for building a commercial real estate project in Gurgaon, a pet of the Modi government. It will come up on 11.76 acres of land near the business district, CyberCity in Gurgaon, Haryana.

Telecoms operator Bharti Airtel and Bharti Infratel pitched Rs 22 crore in 2016-17 and Rs 23 crore in 2017-18. It was this April given a 10-year licence to sell inflight and maritime broadband, after it lost mobile phone market share to competitor Reliance Jio.

The Aditya Birla Group chipped in to three national parties from the AB General Electoral Trust, giving Rs 12.50 crore to BJP in 2017-18. The group’s flagship firm, the miner Grasim Industries is in a Rs 5,872 crore dividend distribution tax dispute with the revenue office but was awarded an interim stay on payment this March, and ensured status quo.

Gujarat-based sister firms Torrent Pharma and Torrent Power fronted Rs 30 crores in 2017-18 and Rs 31 crore in 2016-17 to Prudent Electoral Trust for the BJP. They had forked out Rs 6 crore to the party in 2014-15.

Torrent Pharma recently bought 28,000 sq yards of land for Rs 350 crore in Hebatpur, Ahmedabad at Rs 1.2 lakh per sq yard. It also won a license for distributing electricity to Dholera Special Investment Region (DSIR), a greenfield industrial city, 100 km from Ahmedabad last August.

Also read: Electoral Funding: Centre yet to Act on Concerns Expressed by EC Two Years Ago

Haldia Energy, bought from government-held utilities firm CESC by the RP Sanjiv Goenka Group, dished out Rs 6 crore, and through a subsidiary, Crescent Power, a sum of Rs 3.5 crore (to Prudent) in 2016-17.

But most controversially perhaps, an entity called Bhadram Janhit Shalika with links to the disgraced miner Vedanta Ltd gave the BJP Rs 38 crore in electoral funding, as per the ECI myneta website, through its wholly-owned Sterlite Industries’ former employees tax-free welfare trust, a company based in India.

But separately the ECI said parties accepted no donations from Janhit Electoral Trust, run by Tuticorn-based Sterlite Copper, after fatal clashes last May when 13 protesters were shot dead by police. This incident is not mentioned in the Vedanta annual reports for international investors on its website.

The last outpost against shady election money in India may well be the markets regulator, Securities and Exchange Board of India (SEBI), which has said businesses must report political contributions in their annual audits, or face fines and jail sentences.

Also read: Jaitley’s Electoral Bonds Are Proof That Political Parties Are Sovereign in India and Not the People

The ex-banker quoted above has a cynical view. “Electoral funding is a lot like betting on a horse. A lot of money will go to the expected winner, the favourite, but some will bet on the second best horse, too. Just to cover all bases, you know, in case the other party comes to power, or because they were once old friends. Just like in betting, the odds are better, too. You may invest less but you come back with a lot. This one, though, looks a lot like a one-horse race, given the numbers.”

Is Indian business becoming rigged against smaller market entrants?

The business community becoming the most substantial political donors was a trend that gained momentum in the 1967 elections when funds started being directed to parties other than Congress. So far, Congress had received the largest sums.

“Lobbying happens in India already and has been going on for some time. But it is not a recognised field as such and is not subject to any strict regulation,” said Vaishnav.

He is in favour of “bringing it out of the shadows rather than pretending it does not exist”.

“Once that is done, regulation would be called for. In my view, one can only hope to contain and make more transparent – not eliminate – the business of lobbying,” he said.

Divya Guha is an independent Kolkata-based journalist.