Political Economy

Why Jaitley's Defence of Electoral Bonds Doesn't Hold Water

While the BJP received Rs 437.04 crore in donations in FY 2017-18 from known sources, its income from hidden sources was Rs 553.38 crore.

In a recent series of tweets, Arun Jaitley defended his government’s system of electoral funding. The finance minister was responding to flak over the lack of transparency in the donations accepted by the BJP for this year’s Lok Sabha elections.

He was critical of the editorial lines taken nationally on his party becoming the most cash rich party by far among its peers: “‘One says the BJP declares much larger income, it should be assumed that it gets more donation than other parties. The second says the BJP gets the lion’s share of the electoral bonds.”

Though the latter is a statement of fact, the far more important question, as the Supreme Court gears up to deliver its judgement, is whether the ‘electoral bonds’ introduced last year are a more transparent means of funding than ‘electoral trusts’ introduced by the UPA government. 

Electoral trusts are tax-free arrangements whereby money from large companies is corporated to be passed on. Trusts must submit annual audit reports with the names of all contributors to the revenue and Election Commission offices.

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

After deposits are made to the trusts, account payee cheques are disbursed by the trusts’ directors to political beneficiaries. So even though the donor and the trustees know the ins and outs of the money, it remains unclear to voters and the election watchdog for which party and how much money each donor parted with – providing for a thin layer of anonymity.

In comparison, Jaitley-designed electoral bonds – not to be confused with central bank-issued low risk securities – are like mobile phone recharge coupons, bought by a donor (a person or company), who then passes the e-codemarked document to a political party which must claim it using a designated bank account within 15 days, though encashment can be instant. The paper does not carry the name of the buyer or payee.

Neither the parties, nor State Bank of India (SBI) – their designated seller – need to reveal the donors’ identities.

Over the last three years, Bharatiya Janata Party (BJP) has benefited the most from this flawed system of ‘transparency: While the party received Rs 437.04 crore in donations in FY 2017-18 from known sources, its income from hidden sources was Rs 553.38 crore, more than half (53%) of its country-wide collections, said Association for Democratic Reform (ADR), a New Delhi-based think tank.

‘Hidden’ sources are those which remain unnamed from voters, financial regulators and the election watchdog.

BJP’s share was 80% of the total income from unknown sources of the six biggest national parties (Rs 689.44 crore) not counting CPM. This also included the income share from electoral bonds, or Rs 215 crore for all national parties where BJP received Rs 210 crore, and INC, the remainder.

BJP was a recipient of four times more money from concealed donors than the aggregate incomes of the five other parties in the one-year period, said ADR.

Also read: Finance Ministry ‘Misled’ Parliament About Electoral Bonds

Jaitley pejoratively referred to news organisations critical of his less than crystal clear means of collections as ‘NGOs’ which according to him, “have a tendency to either exaggerate or misrepresent” adding that BJP’s balance sheet was outsized because it had not accepted cash and recorded details of all handouts.

But even by the latest tally, a large number of BJP’s so called ‘known’ donors’ details are incomplete and untraceable. It reported accepting Rs 4.01 crore without PAN details, and another Rs 57 lakh with incomplete details of donors. It even said it accepted Rs 42.30 lakh ‘in kind’ through six donations for FY- 2017-18, the only party to do so.

In another analysis of its income and expenditure statement for FY 2017-18, the ruling party’s total income from all unknown donations, contributions from known donors, and other sources such as bank interest, fee subscriptions, etc., totaled Rs 1,027 crore.

In the previous tally, FY 2016-17, BJP’s reported income was Rs 1,034 crore of which Rs 464.84 crore was from unnamed sources, while in FY 2015-16 from its income of Rs 570 crore, Rs 460.78 crore was, again, from unrevealed sources.

Cash in, cash out

Electoral bonds are suspicious for many reasons and no information of their purchasers is made public. Several Right to Information requests to rectify this have been rejected.

The Reserve Bank-approved paper has not proved unpopular – given how the global Indian rich are at great pains to hide their illicit wealth with the ongoing crackdown on tax havens and last year’s denotification spell by the party.

SBI says electoral bonds have only been purchased in their top denominations of Rs 10 lakh and Rs 1 crore.

US-based Carnegie scholar and microeconomist Milan Vaishnav said in an email interview, “Politicians desire funds during election season because they can be directly routed into campaign expenditures, without keeping them on their books – a ‘cash in, cash out’ system.”

Also read: Supreme Court Refuses to Grant Interim Stay on Electoral Bonds Scheme

For this, too, the promissory notes are perfectly designed with their 15-day shelf life and ideal for businesses which wish to cover election expenses rather than pay towards year-long propaganda efforts.

This may be the reason behind continuing electoral bond sales through the polls, which is questionable say some critics, but legal.

Many forensic auditors globally grapple with money laundering via electoral funding, and economists puzzle over conundrums of regulation.

“The most profound challenge is that what may appear to be the result of frauds may actually be produced by the kinds of strategic behaviour that is the stuff of politics. So frauds may not have occurred, or frauds may hide behind what appears to be normal,” says Walter Mebane, professor at the departments of Political Science and Statistics at the University of Michigan in a faculty Q&A on his university website.

Credit: Reuters

Rich party, poor party

Jaitley accused news organisations of “a lack of understanding of how parties function. All parties need, on a pro-rata basis, the same amount of money depending on the number of seats they are contesting.”

But there is no ‘pro-rata’ amount per candidate or constituency, says Rakesh Reddy Dubbudu, founder of fact-checking website, Factly:

“The official expenditure limit per candidate in most states is Rs 70 lakh. It is one matter of how much money may be needed and quite another of how much money a candidate or a party can spend. There is no doubt that the BJP has, as per official figures, more money to spend compared to other parties. After all, there are candidates from all parties standing for election whose declared assets are less than Rs 5,000. You don’t need a minimum amount of money to become a member of the special club of party candidates competing for votes.”

Clamouring for credibility

Not counting the BJP, parties seemed more in league with each other: In FY 2017-18, INC’s income was Rs 199 crore; CPM earned Rs 104.8 crore and spent Rs 83.482 crore (80%); Bahujan Samaj Party (BSP) reported earning Rs 51.6 crore; but National Congress Party slipped in the red as its expenditure exceeded its income of Rs 8.15 crore, with an overspend of Rs 69 lakh.

Jaitley’s implication is that we must not believe the balance sheets of BSP and SP, the TDP and others.

“They obviously don’t disclose the income that they get because most of these donations are in cash,” he says.

This may be true, but Vaishnav countered the ex-treasurer’s claims in an email interview: “Why should we believe the BJP does not collect off-balance sheet resources just like all other parties? Let’s not forget it was late BJP MP Gopinath Munde who admitted that he had spent Rs 8 crore on his re-election.”

The thesis that money laundered and used for the good of the country is better than hoarded in tax havens, is a dubious one, too, as this only creates another new means of tax avoidance, or worse, laundering of earnings from illegal activities.

In reality, Jaitley’s measures to increase transparency in electoral funding have only worked towards replacing cash with cash instruments (the electoral ‘bonds’) and more new electoral trusts, a system that is far from foolproof.

Indeed, BSP which reported an income of Rs 51.6 crore last year said it got no donation exceeding Rs 20,000.

Moreover, even supposedly ‘known’ contributions remain ill-defined as ‘miscellaneous income’, ‘voluntary contributions’, or ‘contributions from meetings and morchas’ in ECI filings.

In the light of fact gathered from official numbers and research, Jaitley’s statement, “‘NGOs’ always claim to be well meaning. They have a tendency to either exaggerate or misrepresent” is just another example of spin from the Modi fake news factory. And the fact remains electoral bonds are the most suspicious new means of money laundering.

Divya Guha is an independent Kolkata-based journalist.