Western theorists, especially economists, argue that certain corrupt, rent-seeking activities can be labelled ‘productive activities’ and need not be condemned. Political parties have been the original source of corruption and responsible for the highest amount of corruption. In India, political parties account for a large share of hawala operations, mafia-related activities and real estate business.

Elections are the starting point of corruption in politics, sustained by underhand transfers to political parties in the pre-election phase. The Centre brought in the electoral reform through a surprise announcement in the Budget 2017-18. “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 2,000 from one person. Political parties will be entitled to receive donations by cheque or digital mode from their donors”, finance minister Arun Jaitley said in his Union Budget for 2017-18.

This was against the prevalent cap of Rs 20,000 from individuals and companies, including trusts with foreign donations.

But the sore point is that the intent for cleanup has not been evident in the enforcement? After incorporating the provision in the Finance Bill 2017, the Centre amended 13 A of the Income-Tax Act and related laws. But this was not reflected through a relevant amendment to the Representation of the People Act 1951, which governs political parties in the country.

Conceptually, donation through ‘electoral bonds’ has been a pathbreaker (Electoral Bond Scheme of 2018). The bonds are a wonderful idea, provided implemented in the right spirit. It eliminates black money, especially under-the-table cash transfers.

Electoral bonds are issued by the State Bank of India in the range of Rs 1,000 and Rs 1 crore for a certain number of days in a year at specified branches of SBI, valid for 15 days. As soon as the donor purchases the bond, the amount is transferred to the account of political parties. But neither the donor nor the political party is obligated to disclose the identity of the donor. The civil society had expected that the fine print of guidelines related to electoral bonds will clean up the mess in political funding, but the opposite holds true.

It raises questions on the democratic sanctity of election campaign. Transparency goes for a toss until society gets all details related to donations. This is against the fundamental constitutional principle, i.e. freedom of political information-Article 19(1) (A). It undermines the Foreign Contribution (Regulation) Act 2010 that seeks to regulate the flow of foreign contributions to India. Further, it helps to create an environment for lobbying. No doubt, transparency suffers.

According to Section 29 C of the Representation of the People Act 1951, political parties have to declare donations above `20,000 to ECI, but electoral bonds are kept outside the purview of this provision.

According to Section 13T of the Income-Tax Act, parties need to maintain and make public records of names and addresses of all donors who contribute more than `20,000, which is also exempted in the new law.

Why a great deal of secrecy and confidentiality in the case of political funding by way of electoral bonds? 75 per cent of donations to political parties come from unidentified sources, according to the Law Commission of India (255th report on electoral reforms).

Even when the name of the donor is not disclosed, the government will still have information about the donor and hence one political party is privy to the information, which is technically ‘asymmetric information’.

This helps the ruling party to misuse the information for its interest, particularly the information regarding names of donors to the Opposition parties.

Another interesting feature of the election funding reform is that when it comes to corporate donations, it was stated that 7.5 per cent of average profits for the last three years can be the maximum amount a corporate house can donate to a political party.

The new situation has eliminated this ceiling of 7.5 per cent and three years, which again questions about the Centre’s commitment to honesty and transparency. The ruling party becomes the beneficiary of these reforms as evident in the fact that the BJP bagged 95 per cent of the bonds worth `210 crore in the maiden tranche of the scheme in March 2018, which accounts for 20.4 per cent of the total funds raised by the party during that year.

The government has completed seven phases of the sale of electoral bonds, the last one in January 1-10, 2019. Other political parties, especially regional parties, also showed their craft in submitting accounts to ECI, all in cash donations and each pegged at `2,000.

The number of entries was so voluminous that the ECI or any competent agency would be hard put to count. Communist parties have been the exception, according to official sources.

The people had expected much more from the Centre by way of honest institutional measures since the ruling front benefited immensely from the anti-corruption movement led by Anna Hazare.

The government was slow-footed on the Lokpal till the Supreme Court intervened and the body was formed in mid-March.

On another front too, there was a setback. The basic logic and philosophy of demonetisation stood defeated when the government issued Rs 2,000 currency notes after withdrawing Rs 500 and Rs 1,000 notes. It’s unheard that a larger denomination of currency is issued to curb black money and corruption.

Has it been a case of one step forward, two steps backwards reform?

This article was published in Deccan Chronicle Kochi Edition on March 24, 2019

Dr. Martin Patrick
Dr. Martin Patrick
Dr Martin Patrick is Chief Economist at CPPR. He has a PhD in Applied Economics from the Cochin University of Science and Technology (CUSAT), Koch and had a post-doctoral training at Tilburg University, Netherlands. Presently, he is a Visiting Fellow at Indian Maritime Institute, Ernakulam and Xavier Institute of Management and Entrepreneurship, Ernakulam. He can be contacted by email at martin@cppr.in