Not an open book

One of the key criticisms levelled against the Modi government in its ongoing war on black money was that it had done very little to tackle the prodigious use of unaccounted money in elections. Under extant laws, political parties were free to accept cash without limit as donations, subject to all contributions in excess of ₹20,000 being disclosed to the Election Commission (EC) by way of a report. But the finance minister has proposed changes in the 2017 budget to “cleanse the system of political funding”. A cap of ₹2,000 has been imposed on cash donations. For donors who seek anonymity, the idea of electoral bearer bonds has been mooted, which can be purchased from authorised banks in non-cash mode and gifted to political parties. Filing of income tax returns has been made mandatory for political parties to claim tax exemption. Amendments have been proposed to the Representation of People Act to exempt political parties from disclosing the names of donors of electoral bonds, even if the donation exceeds ₹20,000.

The intent is clearly to curb the laundering of unaccounted money through the political route. Forcing contributors to use cheques, digital payments or electoral bonds for all sizeable donations will make it necessary for them to reveal their identity to the bank. Tax authorities can then mine this information to flag donations that are disproportionate to income. Parties filing tax returns can act as a check on this. But while these moves may aid transparency in political funding from the taxman’s standpoint, they hardly do so for the voter. With electoral bonds opening up a new window for large donors to anonymously bankroll them, parties may now declare an even larger chunk of their income as originating from “unknown sources”. A recent study by the Association of Democratic Reforms revealed that the large national and regional parties had declared over two-thirds of income to be from “unknown sources” between FY05 and FY15. Some regional parties such as the AIADMK, Biju Janata Dal and Jharkhand Mukti Morcha even claimed that they had received no donations above ₹20,000 in FY16. Such claims defeat the very purpose of the EC disclosures, which are meant to inform the voting public about the income sources of parties. Given such creativity, there’s also the risk that parties will claim multiple cash donations of less than ₹2,000 to avoid a banking trail.

To truly clean up political funding in India, the EC needs to be empowered to take stringent action — such as de-recognition — against defaulting parties and candidates. At present, candidates are required to report not just their income, but also their assets and poll expenses to the EC, before and after elections. But these rules are observed more in the breach, with many filing half-baked or delayed reports, and some even skipping the statement altogether. Clearly, focusing on money-laundering alone will not make political funding an open book; there’s a lot more to be done.

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