India’s political funding mess

On October 3, the Supreme Court issued a series of notices to the Union government and the Election Commission of India while hearing a public interest litigation (PIL) filed on behalf of two prominent democracy watchdogs; namely the Association of Democratic Reforms (ADR), and Common Cause. The PIL was filed to challenge five amendments made to the statutes in Finance Act 2016 and Finance Act 2017 allegedly opening the door for unrestricted corporate funding to politics and anonymous funding by Indian and foreign enterprises. This apart, the PIL had sought a ban on cash donations to political parties.

One may recall that for the first time the Union Budget for 2017-18 devoted an entire section on issues governing political funding. New proposals such as the reduction of cash donation to Rs 2,000 per person and the introduction of electoral bonds were the key highlights. Coming against the backdrop of the demonetisation drive, many thought the government of the day was serious in addressing black money challenges in political funding. 

The new proposals ignited a lot of curiosity and high hopes, but were full of loopholes and contradictions. First, while the amendment to drastically cut the cash donations to one-tenth was a welcome move, it still left enough room for political parties to misuse the amended provision, even at the cost of multiplying the number of fictitious donors. Second, while many hailed electoral bond as a revolutionary measure to “infuse democratic processes with white money” as it aimed at cheque and digital payments ensuring the identity of donors, its most glaring failure was anonymity. Though the scheme is still better since the identities of anonymous donors are maintained in the form of cheques and digital transactions, it hardly advances the cause of disclosure and transparency. 

The petitioners’ principal claim that amendments initiated via Finance Act 2017 would open floodgates for uncontrolled corporate funding is based on fairly robust evidence, even if much of it is anecdotal. For starter, among the known sources of donation to parties between 2012-16, corporate contribution formed a staggering 89 per cent of total contribution. It is widely known that private business and interested parties bill a large portion of donation to parties, and on occasions private business bankroll entire election campaigns in India (ie, the Reddy brothers in Karnataka). Given the fact that states in India retain huge control over the economy and regulatory policies, they cannot afford to displease the political masters. 

This phenomenon is not unique to India, even more advanced democracies like the United States and Japan routinely face this uncomfortable phenomenon. The key difference, however, is while in advanced democracies these donations by corporates are made legally and in a transparent mode, in India this happens in illicit or hawala routes. While corporate sector has made some visible progress towards transparency by floating electoral trusts, still most businesses prefer ‘safer’ illicit routes. Sample this: huge tax benefits under Section 80GGB of the Income Tax Act has not pushed many corporates to make clean donation.  

Therefore, the introduction of an electoral bond with its anonymity provision as rightly alleged by the petitioners will lead to unrestricted corporate donation for quid pro quo. With the government having allowed (again through Finance Bill 2016) political donation under the Foreign Contribution (Regulation) Act, 2010, raising the prospects of outside influence, electoral bond in its present form further accelerates the role of private money in democratic process.  

It is here that the Supreme Court has a rare opportunity to re-energise the electoral reforms that it had initiated in the earlier decade. It needs a mention that nearly all major electoral reforms have come through judicial activism.

Bold electoral reforms especially disclosure of criminal antecedents, submission of party accounts, disqualification of convicted MLAs/MPs, the introduction of NOTA (none of the above) among others came through judicial interventions. 

In all these years, political parties have put up strong resistance to electoral reforms, notwithstanding appointing committees and commissions from time to time. There is a long history of delay, subterfuge, dilution by successive governments at the Centre, and there is amazing unanimity among political parties — left, right and centre — to stall any possible progressive reforms to bring greater transparency and accountability in political donations and their expenditures. It is no surprise that it took more than a decade-long struggle by election watchdogs, activists, lawyers and public-spirited individuals to get ‘The Election and Other Related Bill’ (dealing with key issues of state funding of elections, tax rebate to political donors, etc) passed in 2003. Recently, showing a rare unity, political parties opposed the Central Information Commission’s directive to bring political parties including their donations under the ambit of the Right to Information Act. Even electoral trusts and their sources of contribution suffer from opacity, and no government of the day has shown the political will to end the anonymity. 

To cut long story short, political parties even the ruling Bharatiya Janata Party is likely to avoid the bold road to electoral reforms. The judiciary must seize the opportunity and set the ball rolling on unfinished electoral reforms. 

The author is Senior Fellow, Observer Research Foundation, New Delhi