Attempts to legalise corporate contributions have come a cropper, as companies fear vendetta or embarrassment.

Apart from upping the penalties for violation and the limit of contribution, the Companies Bill, 2011 (the Bill) toes the line of its predecessor, the Companies Act, 1956, almost word for word, when it comes to political contributions by a company.

A company other than a government company, that has been in existence for more than three years, is allowed to make political donations as such, or in the guise of advertisements in souvenirs or otherwise, not exceeding in aggregate 5 per cent of its average profits during the three immediately preceding financial years.

The Bill seeks to hike this limit to 7.5 per cent despite knowing that there have been but few takers all these years for the upfront political contribution regime. Indeed, the response of the corporate sector has continued to be lukewarm, even after the government added a sweetener in 2002 — political contributions would come out of the doghouse status for tax purposes, and become tax-deductible, so long as they were in accordance with, and within the limits prescribed by, the Companies Act, 1956.

It hasn't occurred to the government that corporates were holding themselves back, not for want of tax sweeteners, as for the possible embarrassment arising out of disclosure of details of such contributions in the profit and loss account.

RIGHT TO INFORMATION ACT

Transparency and disclosure are fine, indeed good virtues, but there is some information, the disclosure of which could prove to be counterproductive. The UPA government is quietly realising this now more than ever, what with the Right to Information Act coming home to roost with file notations and memoranda giving grist as much to the righteous as to the devious. Indeed, it is not only nuclear power that lends itself to abuse. Anything at all with noble intent at the beginning has the potential to degenerate. Having said that, one must hasten to add that there is no gainsaying the citizen-empowering potential of the law, despite its potential for cynical misuse.

Be that as it may, the issue is companies, more than anybody else, are loathe to wear their political affiliations on their sleeves, which is what disclosure in the profit and loss account, a public document in case of public companies, amounts to.

In this fluid, troubled political milieu, corporates are wary of making their political leanings clear, both for the fear of reprisal by political forces that were either not in their favoured list, or ranked pretty low in the pecking order, as well as for the fear of giving grist to the gossip mills.

While both accounting standards as well as the company law rightly require disclosure of related party transactions — that is, transactions of the company with suppliers and others, in which the directors and managerial personnel are interested directly or indirectly through shareholdings or otherwise that have the potential to compromise the company— insistence on a company giving complete details of the recipients of political donations hardly serves any purpose. Which is why corporates seek the comfort of donating from out of black money in their possession, with the political parties winking knowingly.

CORPORATE-POLITICAL NEXUS

Removing the inane disclosure requirement, perhaps, would spare everyone the blushes, while curbing the role of black money in bankrolling our elections, as corporates donate through regular means and account for them in their books. Having said that, one must, however, once again hasten to add, that the one who accepts largesse remains compromised.

Globally, heavy corporate donations have swung government decisions decisively in favour of donors. In India, there have even been reports of some of the more sagacious corporates trying to see wisdom in buttering both sides of the bread in the dawning realisation that keeping every political party that matters in good humour is buying insurance and peace.

Cash or cheque, disclosure or no disclosure, corporate donations are always fraught. Alas, state funding of elections seems acceptable, but cynics rightly dismiss the idea, on the ground that given the black money overhang and its potential to travel unobtrusively through subterranean channels, there is no wishing away its role in the hustings.

Elections provide an opportunity, a catharsis for democratising and rationalising the spread of the accumulated black money; and why begrudge it, they ask with resignation. They rightly aver that political parties would be accepting state funding with one hand and illicit money with the other.

Till a lasting solution is found to this vexed problem, let us at least give the through-the-books funding by corporates a try, without, however, embarrassing them and their beneficiaries. This may, perhaps, eliminate the role of black money in elections a wee bit. And that would be nothing to scoff at.

(The author is a New Delhi-based chartered accountant.)

(This article was published on January 6, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.