Time to Get Real About Foreign Money and Black Money in Politics

When a government which says it wants to remove black money tries to defend acceptance of foreign money by political parties and opposes transparency of political funding, doubts arise about its actual intentions.

Fie photo of Prime Minister Narendra Modi, Congress leader Sonia Gandhi and former PM Manmohan Singh. Credit: PTI

Fie photo of Prime Minister Narendra Modi, Congress leader Sonia Gandhi and former PM Manmohan Singh. Credit: PTI

In the middle of the prime minister’s ongoing campaign against black money, an appeal filed by the Bharatiya Janata Party and Congress before the Supreme Court against a Delhi high court judgment which had held the two parties guilty of violating the Foreign Contribution (Regulation) Act was suddenly withdrawn. The reason put out was that the two parties realised the appeal was unnecessary given that their “crime” had been excused with retrospective effect thanks to an amendment that the Modi government had quietly introduced earlier this year.

In fact, there is more to this case than meets the eye.

Consider the following “bare” facts:

  • March 28, 2014: The Delhi high court (a) holds two major political parties – the Bharatiya Janata Party and the Congress – guilty of violating the Foreign Contribution (Regulation) Act, 1976, and (b) for accepting donations from Vedanta, a company registered in the United Kingdom, and “directs” the Election Commission of India (ECI) and Union of India to “take action as contemplated by law… within a period of six months.”
  • No concrete action is taken except exchange of letters between the ECI and the Ministry of Home Affairs (MHA), and the MHA and the Ministry of Corporate Affairs (MCA).
  • Congress and BJP file special leave petitions (SLPs) against the Delhi high court order in the Supreme Court on June 26, 2014, and August 26, 2014.
  • The Foreign Contribution (Regulation) Act, 2010, is amended  in February 2016, surreptitiously according to some observers, by inserting a sentence in the Finance Bill, 2016 as part of the Budget in Parliament. The amendment legalises political donations by companies like Vedanta, and does so with retrospective effect from 2010.
  • November 29, 2016: BJP and Congress withdraw their SLPs from the Supreme Court.

Now we come to the “elaborated” fact.

  • The Foreign Contribution (Regulation) Act, popularly called FCRA, was first enacted in 1976, and came to be known as FCRA 1976.
  • It was replaced in 2010, by what was called the Foreign Contribution (Regulation) Act, 2010, popularly called FCRA 2010.

The Act amended in February 2016 through the Finance Bill 2016 was the FCRA 2010. The amendment read as follows:

“In the Foreign Contribution(Regulation) Act 2010, in section 2, in sub section (1), in clause (j), in sub-clause (vi), the following proviso shall be inserted with effect from 26 September, 2010, namely:–

‘Provided that where the nominal value of share capital is within the limits specified for foreign investments under the Foreign Exchange Management Act, 1999, or the rules and regulations made thereunder, then, notwithstanding the nominal value of the share capital of a company being more than one half of such value at the time of making the contribution, such company shall not be deemed a foreign source’.”

Now let us consider paragraph 2 of the Delhi High Court judgment which held the BJP and Congress guilty and whose consequences the 2016 amendment was meant to nullify:

“Since the writ petition drew attention to donations made to political parties for the period up to the year 2009, we record at the outset that our concern is not with the Foreign Contribution (Regulation) Act, 2010 which has come into force on September 26, 2010. Our discussion of the legal position would be with respect to the Foreign Contribution (Regulation) Act, 1976.”

An inclusive reading of the above would make it evident that the real reason for withdrawal of the SLPs was not that there is no reason to challenge the March 2014 decision of the Delhi High Court because it has been negated by the amendment done in February 2016. The real reason appears to be that the amendment which was done – arguably surreptitiously – does not really provide the protection it was expected to provide, particularly in view of paragraph 2 of the March 2014 judgment of the Delhi High Court.

What remains to be seen now is what the MHA does, particularly now that the March 2014 judgment has been re-affirmed with the withdrawal of the legal challenge mounted in the Supreme Court.

So much about foreign money in politics. Now to black money in politics.

Despite the loud proclamations of its intentions to remove black money from the economy and the society, the actions of the government of the day on the issue of transparency of political funding create some misgivings. The facts, in brief, are as follows.

  • A full bench of the Central Information Commission (CIC) declared on June 3, 2013, that six national political parties (the BJP, Congress, NCP, BSP, CPM, and CPI) are “public authorities” under the Right to Information Act (RTI), 2005.
  • All the six parties refused to implement the CIC decision.
  • When complaints of non-compliance were filed with the CIC, it sent several show-cause notices to the six parties.
  • All parties ignored the show-cause notices of the CIC and did not even bother to acknowledge their receipt.
  • Another full bench of the CIC stated on March 15, 2015, that the “commission is bereft of the tools to get its orders complied with.”
  • A public interest litigation (PIL) was filed in the Supreme Court in May 2015 with a request to get the CIC order of June 3, 2013, implemented.
  • Curiously, the very first response to the PIL was an affidavit filed by the Union of India, on August 21, 2015, which said that political parties should not be under the purview of the RTI Act.

When the government which says that it is firm on the removal of black money tries to defend acceptance of foreign money by political parties which is expressly forbidden by the FCRA, and opposes transparency of political funding, doubts do arise about the actual intentions.

At the same time there are proposals for state funding of elections. First of all, the expression “state” funding is a misnomer. The “state” does not own any money, it is the money that the citizens give as taxes which comes to be referred to as “state” money. So, what is being proposed is actually “public” funding of elections and not “state” funding.

Secondly, the most critical issue in this context is: How much money to budget for as “public” funding of elections? It is widely known that most candidates do not declare the correct figures in their election expenditure affidavits. This is what prompted BJP leader and former Prime Minister Atal Bihari Vajpayee to say that “Every legislator starts his career with the lie of the false election return he files.”

So, until political parties come clean on their financial affairs, it is not going to be possible to eradicate black money from the country.

We know what to do but will the government of the day have the courage to take on the entire political establishment including its own party?

Only time will tell.

Jagdeep S. Chhokar is former professor, dean, and director In-charge of the Indian Institute of Management, Ahmedabad. Views are personal.