Some days ago, I read a front-page news item in which Mr. Arun Jaitley was praising the proposed new system to cleanse electoral funding. I would have glanced at it cursorily if I had not found another item just next to it stating that Mr. Rahul Gandhi also thought it was a good idea! Now that is "news." Since leaders of the two largest parties in parliament are backing the same system which allows them to collect money, I thought it may be a good idea to look at it carefully.
Cash in politics is, of course, not a new problem. Referring to the filing of expenses by candidates after an election, Pandit Nehru apocryphally said, "We enter parliament with a lie on our lips."
There are two essential proposals by the government to cleanse the political funding system:
1. As suggested by the Election Commission, the limit for cash donations to be reduced from Rs 20,000 to Rs 2,000.
2. The introduction of electoral bonds. These bonds will be issued by notified banks. Any person or company can buy these "bearer" bonds by cheque or electronic payment i.e. "white" money. Within a specified period, these bonds have to be deposited by a political party into its designated account. The perceived benefit: the donation is anonymous, and the donor does not need to fear the consequences of the ruling party if he has given money to the opposition.
Let us examine both these propositions:
Cash donations (without source being known): The authorities are trying to deal with all the "dodgy" cash that political parties show in their accounts (and there is, of course, lots and lots more that is "off the books"). Here is a
report on India's political funding in cash: "An analysis of the income-tax returns data provided by the Association of Democratic Reforms (ADR) for the past 10 years shows that between 2005 and 2015, these two parties collected a total of Rs 5,450 crore from 'unknown sources'."
During this period, the Congress leads the list of six national parties with Rs 3,323 crore, or 83 per cent of its total income from these anonymous benefactors. For the BJP, the figure was lower, at Rs 2,125 crore or 65 per cent."
And it is not just the Congress and the BJP.
Behenji and the BSP have also drawn negative comments on this matter.
"Mayawati has rebutted this, claiming in one of her speeches that the notes ban hit while the BSP was in the midst of a collection drive, and that the Rs 100 crores was from millions of small donations from the party's supporters, some of them at the lower end of the economic ladder.
While all political parties in India show 60-70% of their funds as received from unaccounted sources, (that is, as donations below Rs 20,000, which are exempt from strict diligence), the BSP has always shown having received 100% of its funds from unaccounted sources.
The amount is not small - the party has shown as having received
funds of Rs 760 crores between 2004 and 2015,
of which not even a single rupee is by cheque (emphasis mine)."
Frankly, this reduction of cash donations without "identity" from Rs 20,000 to Rs 2,000 is just an elaborate farce. What is stopping a big political party from collecting a huge amount of money in cash? For instance, the
BJP has a membership of 11 crore and the
Congress of around 2 crore.
Now these parties could very well say that 50% of their members donated Rs 1,500 each in cash against bearer coupons (cost of printing: 5 paise each). That's a neat Rs 16,500 crore for the BJP and Rs 3,000 crore for the Congress. And that's every year. Enough to keep them warm on a cold winter's day! And, of course, we have an electorate of over 80 crore, so another slew of crores could come from those other voters who love them so much.
So let us get real. The parties have no intention of abandoning their ways. They seek to deceive us that they have suddenly become "good boys".
Let us look at the recent Punjab polls: "Total seizure of cash, drugs, liquor and other items during 2017 assembly polls was about
Rs 127 crore, an official spokesman of the State Election Commission said here."
That is just over Rs 1 crore per seat. And assuming that the EC caught 10% of the total, we have a sum of over Rs 1,200 crore for Punjab. And that is after we were told that demonetization had sucked all the black money out of the system!!
So, what do we do? Well, there are two options. The tough one and the not-so-tough one.
The tough option: all payments to come via cheque or digital methods and supported by Aadhaar numbers. We have over 100 crore persons registered under Aadhaar so that should not be a problem. AAP has already tried this out (without Aadhaar), and while it may have slipped up in some cases, it is a totally viable option. But you may ask: what about those (fictional?) small donors who want to give Rs 5 and Rs 10? Well, according to the
Prime Minister Dhan Jan Yojana website, as of March 15, 2017, there were 23.80 crore non-zero balance accounts, so where is the problem? If someone does not have a bank or Jan Dhan account and wants very desperately to contribute to a political party (is there some such person?), he can use one of those great mobile wallets like Paytm, MobiKwik, FreeCharge, M-Pesa, etc. If the government can tie PAN cards to Aadhaar, they could also tie these mobile wallets to Aadhaar.
Not accepting only "identified" money is just an excuse. The electors should demand accountability.
The not-so-tough option: a limit should be placed on the amount that a party can collect from "unidentified" sources. For instance, one could lay down a limit of 10%. So, if a party collects Rs 100 crore through "identified" sources, it can collect no more than Rs 10 crore through "unidentified" sources. Should it be lucky enough to collect Rs 25 crore from 'unidentified' sources, it should hand over the excess Rs 15 crore to the Consolidated Fund of India. Now that's a patriotic thing to do, isn't it?
Electoral BondsThere are several concerns about these bonds - there is no restriction on the amount that a company can give (vs. 7.5% of profits earlier); the government of the day can (unofficially - because it controls the banks) monitor the amount each party gets and who gives it, and the government can pressurize those who give money to opposition parties. These are political issues and let us leave them to parliament to debate and discuss the operational and bribery issues in this piece.
Currently, a few business houses give money to parties officially - either directly, or through electoral trusts that they have set up. But it is widely believed that a very large number of companies, large, medium and small, do donate to political parties - under pressure or as a matter of choice. And how are these "off the books" donations made? With Indian ingenuity, there must be many ways, and I am not smart enough to know most of them. But one rather well-known way is the "distributor" route. Let us assume company A manufactures product X and has 200 distributors/wholesalers and 1,000 semi-wholesalers across the country. Let us assume the turnover of company A is Rs 10,000 crore and it offers 22% commission to its distributors/wholesalers, part of which is passed on to semi-wholesalers and then to retailers. Now, perhaps 2% of that 22% is "funny money' meant for "dodgy" purposes, such as bribing the municipal corporator, contributing to expenses of feeding people at the wedding of the MLA's daughter and other such worthy causes. Giving cash to political parties is also one such very worthy cause!
The new scheme permits companies and individuals to donate anonymously by buying electoral bonds. This same 2% "dodgy" money which, of course, comes "officially" from the company can now be used for buying bonds and passing the benefit to the political party. Big distributors can, at times, represent several non-competing companies. Thus, it would be possible that the distributor would buy bonds and put them in the accounts of more than one political party! This, of course, could also be happening with the cash that is distributed by the wholesaler or semi-wholesaler.
Leaving that aside, look at states that have land banks and large mineral resources. And if a company is looking for land, can the political party ruling that state not ask for a quid pro quo? And anonymously too, so no one knows. If this is not a corrupt practice, what is it? And states and local authorities give out licences for various projects - and not all of them are open to tender. So here is another opportunity to extort a bit of money.
Then there is the question of transparency and shareholder democracy. So, the Board will decide in secret who the money should go to and how much. Hey, what about the rest of us shareholders? Let us look at the top 20 companies by market cap of the Bombay Stock Exchange (BSE) and the "promoter holding" in those companies. Out of the 20 companies, seven are government companies or foreign companies which, I assume, are not permitted to meddle in Indian politics. Of the 13 other companies, two are Tata companies that already donate through an electoral fund. That leaves 11 companies. In these 11 companies, the average promoter holding is 26% (and in four it is zero, as shown in table below). So this 26% will decide, without checking with you or me, the small shareholder, the party to which they will give this bounty - and that too anonymously. I would have thought that in a case like this, SEBI would insist on a majority of non-promoter shareholders approving such expenditure and openly - and here we are totally in the dark! There are enough businessmen who will give electoral bonds to political parties and demand an x% kick back in "black" for giving them "white" funds! So we encourage legal dishonesty.
Also, it is somewhat unusual that we should permit the Board of a Company even where the promoter holding is zero or very small to take decisions on behalf of all shareholders. Essentially, the views that will prevail will be those of the Chairman/MD/CEO, with virtually no personal stake - and that will override (and anonymously too!) the views of shareholders. If he wants to so desperately contribute money to a party, why can he not buy election bonds from his own resources and gift them to the party of his choice?
Also, there is some merit in the principle that even in companies where the promoters have a reasonable large equity holding, they alone should not decide on the political party to back, anonymously and disregarding the views of other shareholders.
In most large companies, it is the financial institutions that have large stakes. The Life Insurance Corporation (LIC) is the largest single shareholder in the country with equity holdings of probably Rs. 8-10 lakh crore. They could pressure the company to give an "anonymous" donation. Even if voting is allowed in an "open" political donation system, should they be allowed to vote - as they will probably act as the hand maiden of the government in power?
And what about mutual funds? Should the paid fund manager decide the party to which the money goes - rather than the millions of unit holders? And that too anonymously. Should they be barred from voting? So there are lots of complications for this system of donations.
On another point: you donate anonymously and you get a 100% write off. But you openly donate to the Cancer Patients Aid Association, you get a 50% write off. I assume donation to a political party is a more worthy cause that an association that seeks to help cancer patients. Is there
no justice in this world?
And will it stay anonymous? Just last week, Mr. Jaitley was reported as having said in relation to leaks about Aadhaar: "Data leaks can occur anywhere." If you don't believe him, just ask Donald Trump!!
Mr. Jaitley has made a well-intentioned attempt to resolve this issue but, in the corrupt society in which we live, it is likely to create more problems than it solves.
Frankly, there is no reason for business houses to donate to political parties. Companies should spend money on the furtherance of their business objectives. It is a stretch to say that contributing to a political party is part of "furtherance of their business objectives", unless someone is looking for an undue favour. All methods of donations made by corporates to political parties are inherently bad ideas. An "election fund" set up by a company, with funds being allocated to various parties on some specified parameters, is probably among the better of all the truly awful funding ideas.
I think that state funding of political parties is a terrible idea but in comparison with the proposed system of electoral bonds, which will encourage non-transparency and dishonesty, I am happy to live with state funding. The budget can set aside a certain amount of money and it can be allocated it to various political parties on some pre-determined principles.
We can keep trying to resolve this issue of electoral funding, but so long as anything up to one-third of India's economy is black, we are unlikely to succeed. A large proportion of the black money goes to feed political parties and is generated from the misuse of discretion by bureaucrats and politicians. Until one can curb that - and that is likely to be a very, very, long-term project - what the government can do is to make it simpler for individuals to donate in white money through electronic means, and for corporates through trusts. Or, state funding as the last resort.
A near-full white economy is a long way away but in the meantime, in the words of John Lennon (somewhat bowdlerized), can we dream of:
"Imagine no black money
I wonder if you can
No need for greed or hunger
A brotherhood of man..."
(Dorab R. Sopariwala is Editorial Adviser at NDTV and writes on political and economic issues.)Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.