Opinion | Electoral bonds perpetuate culture of dirty money entering politics

Since everybody knows about the huge amounts of illicit money that go into elections, it also illustrates the Election Commission’s uphill struggle to stem this tide. The EC’s hands are tied because the campaign finance overhaul that has happened through amendments to the law over the past few years is a joke. Electoral bonds, for example, have not only added to the opacity of sources of funds, they have made it easier for foreign entities to fund and influence Indian elections and for  shell companies to be set up for the purpose of funding political parties.

It is easy to blame the current government for this inept treatment of campaign finance reforms, but protesting voices from the opposition have been equally rare. Indeed, it has been left to civil society and organisations such as the Association for Democratic Reforms to challenge the recent amendments.

Read also: FCRA & electoral bonds issue: Supreme Court upholds fair play principles once again

While dirty money and politics have been intertwined since the birth of democracy, current trends make stemming the flow of dirty money into politics all the more important. Devesh Kapur and Milan Vaishnav in their book, Costs of Democracy: Political Finance in India, point to three important trends. One, political parties are increasingly dependent on external sources of finance. Two, growing wealth and income inequality is drawing attention to the imbalances in concentration of power. Three, political polarisation is increasing in many democracies. Moreover, anonymous sources of money may well be slush funds, an implicit bargain for future favours from the government.

These factors mean that money will have a disproportionate say in the selection of candidates, impact on public policy and so on. It is therefore imperative to know the source of the money received by political parties.

Currently, much of it is a black box. Data collated by the Association for Democratic Reforms shows that in fiscal 2017-18, 53 percent of income for national political parties [except the Communist Party of India (Marxist)] was from unknown sources. It is part of a continuing trend; in the years since financial year 2004-05, national parties  collected Rs 8721.14 crore from unknown sources, more than half of their total income. Naturally, they have an incentive not to disturb this arrangement.

Electoral bonds are the rogue elephant in the room

The recent attempts at reforms are akin to putting lipstick on a pig. It has the fundamental flaw of conflating cash with black money, as Vaishnav has pointed out on several occasions, including here.

First, the government imposed an arbitrary ceiling of Rs 2000 donation in cash (compared to Rs 20,000 earlier). That is a missed opportunity to eliminate cash donation in totality and prevent political parties in being conduits for money laundering.

Second, the biggest reform being touted is the introduction of electoral bonds. Instead of increasing transparency, it only adds to the opacity. Under the scheme, political parties will not know the identity of the donor, only the bank where the donor buys the bond will know her identity. This move is to ostensibly allow people, especially corporate entities, to donate without fear of harassment. But surely everyone can survive without necessarily contributing to political parties anonymously.

The move has perverse effects. Now, even government companies and foreign firms which are not allowed to donate to political parties can do so through these bonds and the EC would be none the wiser. The commission said as much in a letter to the law ministry.

Third, the government has done away with the 7.5 percent-of-net-profits ceiling on corporate donations. Firms need not also declare donations in their income statements.

Fourth, most egregiously, the government amended the Foreign Contribution Regulation Act, retrospectively from 1976, to allow subsidiaries of foreign companies to donate to political parties. This will lead to “unchecked foreign funding of political parties in India” and  “Indian policies being influenced by foreign companies,” the Election Commission has said in an affidavit to the Supreme Court.

For politicians, Swachh Bharat should begin at home

In sum, the attempted reforms have been a farce. The ideal way forward would be to stop cash donations entirely, make all donations transparent, and allow independent scrutiny of political parties’ books of accounts.

It is all very well for political leaders to talk about the fight on black money and corruption but reforms should begin at home. Who will bell the cat? Perhaps, the apex court will show the way when it hears the challenges to the purported reforms on 2 April.