Political Funding Reforms in Budget 2017 Will Likely Lead to Greater Opacity

Proposed amendments to RBI Act, IT Act and RP Act would leave the RBI and IT department with no means to probe funding of political parties.

Proposed amendments to RBI Act, IT Act and RP Act would leave the RBI and IT department with no means to probe funding of political parties. 


Political parties will be under no obligation to disclose any donation or contribution, unless it is made electronically or through cheques. Credit: Reuters/Mukesh Gupta

Contrary to the perception that the curbs on political funding proposed by the finance minister Arun Jaitley in the Union Budget would improve transparency, RTI activist Venkatesh Nayak has stated that “if the amendments are approved by parliament, political party funding is likely to become largely opaque in the future.”

In his Budget speech on February 1, Jaitley had announced lowering the limit of donations to political parties from a single source to Rs 2,000 and added that parties would be entitled to receive donations by cheque or digital mode from their donors.

He said that “even 70 years after independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections.”

The finance minister had pointed that “an attempt was made in the past by amending the provisions of the Representation of the People Act, the Companies Act and the Income Tax Act to incentivise donations by individuals, partnership firms, HUFs and companies to political parties.”

“Both the donor and the donee were granted exemption from payment of tax if the accounts were transparently maintained and returns were filed with the competent authorities. Additionally, a list of donors who contributed more than Rs 20,000 to any party in cash or cheque is required to be maintained. The situation has only marginally improved since these provisions were brought into force. Political parties continue to receive most of their funds through anonymous donations which are shown in cash.”

Jaitley had stated that, “an effort, therefore, requires to be made to cleanse the system of political funding in India. Donors have also expressed reluctance in donating by cheque or other transparent methods as it would disclose their identity and entail adverse consequences.”

Thereafter, he had proposed a four-point plan of action to “cleanse the system of funding of political parties” and elaborated that “in accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2000 from one person.”

Moreover, the Jaitley spelt out that “as an additional step, an amendment is being proposed 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.”

“Under this scheme, a donor could purchase bonds from authorised banks against cheque and digital payments only. They shall be redeemable only in the designated account of a registered political party. These bonds will be redeemable within the prescribed time limit from issuance of bond.”

Finally, he said, “every political party would have to file its return within the time prescribed in accordance with the provision of the Income Tax Act.”

In his speech, Jaitley had also stated “the existing exemption to the political parties from payment of income tax would be available only subject to the fulfilment of these conditions. This reform will bring about greater transparency and accountability in political funding while preventing future generation of black money.”

Now to the matter of the electoral bonds, Nayak said that in order to achieve these objectives, the Finance Bill has proposed amendments to the Reserve Bank of India Act, 1934 to allow for the issuance of electoral bonds that individuals and companies can buy through commercial banks and to the Income Tax Act, 1961 to exclude donations received by these political parties through electoral bonds.”

The aim of the amendment is to exempt the parties from each year reporting to the IT department in order to continue to avail income tax exemptions.

Nayak said that the move also requires amendments to the Representation of the People (RP) Act,1951.

Section 29C of the Act, for which the NDA government takes credit, introduced during the Vajpayee-era requires all recognised national and state level political parties to make annual declarations of contributions received from individuals and companies in excess of Rs 20,000. However, a detailed analysis of the contribution reports of recognised national political parties and recognised state political parties by the Association for Democratic Reforms has shown just how ineffective the exercise has been in ensuring transparency.

The association recently disseminated a detailed analysis of the donor reports submitted by political parties for the financial year 2015-16 and the findings were widely reported by the media.

The new amendments to the RP Act, he said, would only ensure that the political parties will not be required to disclose the identity of individuals and companies who make donations through electoral bonds bought from the commercial banks.

Nayak said the justification for these amendments in the Income Tax Act as provided in the Finance Bill, 2017, is that they would ensure that no donation exceeding Rs 2,000 is received other than by an account payee cheque drawn on a bank or an account payee bank draft or using electronic clearing system through a bank account or through electoral bond. Also, it sought to exclude reporting of contributions received by way of electoral bonds.

The activist said that the justification for amendment to the RP Act provides that “every political party shall furnish a report to the Election Commission with regard to the details of contributions received by it in excess of twenty thousand rupees from any person in order to avail the income tax relief as per the provisions of Income Tax Act, 1961.” Causes 135 and 136 of the Bill that seek to amend section 29C of the RP Act would get the parties exemption from this process by “excluding electoral bond” from the purview of reporting.

Therefore, Nayak charged, “electoral bonds have the potential to make political party funding largely opaque.”

He cautioned that if these proposals were approved by the parliament, the combined effect of the amendment to the RBI Act, the IT Act and the RP Act would be that “many political parties are likely to strive to receive cash donations below Rs 2,000 only.

Owing to section 29C of the RP Act which applies to donations of Rs 20,000 or above only, these will not be required to be reported to the IT department or to the Election Commission of India.

Likewise, he said, as donations received through electoral bonds would be exempted from being included in the annual reports of political parties to the IT department or the Election Commission of India, these amounts will also not be reported. “Only contributions over Rs 20,000 received through cheques or digital mode of payment will be required to be reported to the IT department and the Election Commission of India,” he said.

“So the combined effect of the amendments is that political parties will be under no obligation to disclose any donation or contribution that they receive at all, unless it is made electronically or through cheques,” the RTI activist pointed out.

Nayak also questioned the logic behind bringing these proposals in a money bill and thus keeping the Rajya Sabha out of the decision making process. “So once again the government is trying to bulldoze amendments to other laws through legislation labelled ‘money bill’ to prevent any actionable dissent in the Rajya Sabha.”

Nayak believes the Centre has made inclusion of such proposals in money bills a convenient tool. “The political parties resolved to a similar action in 2016 when the Foreign Contribution Regulation Act was amended to permit political parties to receive donations from Indian subsidiaries of MNCs. That proposal was also pushed through a Finance Bill. This is grave constitutional impropriety to say the very least and seems to be becoming a habit,” he said.

Wondering if India was being pushed backward into an era of secrecy ordained by law, Nayak said it should be remembered that the political parties have also refused to come under the ambit of The Right to Information Act despite a June 2013 order of the Central Information Commission.

He said opaqueness in political funding being brought about through the new amendments was a serious challenge for not only would it deprive the regulating agencies like the IT department and the Election Commission of their power to make political funding transparent, it would also leave citizens with no means of finding out which party has collected how much money and from whom.