One of the most intriguing elements of this year’s budget presentation was Union finance minister Arun Jaitley’s pitch for political funding reform. On the heels of demonetisation, analysts cheered the news as exactly the sort of follow-on measure needed if the reality of anti-corruption policy was to catch up with the government’s lofty rhetoric. After all, here was a government using its bully pulpit to tackle an issue that few administrations want to acknowledge, much less legislate on.
Two months later, the Modi government’s big political funding reform push has ended not with a bang, but a whimper. Ironically, this is because the government has succeeded, rather than failed, in enacting its proposals.
Today, India’s political finance regime is plagued by four major infirmities. First, there is a steady torrent of undocumented cash that lubricates the activities of both parties and candidates. Second, there is virtually no transparency regarding political contributions. In the vast majority of instances, we are ignorant about the identities of both the giver and the receiver. Third, political parties are not subject to any form of independent audit, which renders their stated accounts both fictional and farcical. Fourth, despite the fact that the Election Commission of India is one of the world’s most powerful election bodies, its powers as outlined in the Representation of the People Act are outdated. Today, the agency struggles to take action on even the most egregious campaign spending violations.
Against this backdrop, what has the government chosen to do? For starters, it has lowered the limit for cash donations to political parties from Rs20,000 to Rs2,000. It has insisted that corporations too refrain from cash giving, requiring them to donate via cheque or digital payment. The Finance Bill also introduced the concept of an “electoral bond" by which corporations can purchase time-limited bearer bonds from scheduled banks and transfer those bonds to the registered bank accounts of political parties. While these funds will flow through the banking system (rather than under the table), corporations are neither obliged to disclose their purchases nor are parties required to report their deposits. At the eleventh hour, the government belatedly attached two amendments to the Finance Bill. The first eliminates the cap on corporate giving (which previously stood at 7.5% of a corporation’s average net profits over the previous three years), while the second abolishes the provision that firms must declare their political contributions on their profit and loss statements.
It should be clear by now that there is a dramatic mismatch between what ails political finance in India and the government’s “reform" measures. On the plus side, the Modi administration—true to its post-demonetisation ethos—has taken steps to clamp down on cash in politics. While its efforts are noteworthy, they would merit greater acclaim if the government had scrapped cash donations altogether, insisting that political parties embrace the new “Digital India".
Furthermore, while the government has lowered the cash limit to Rs2,000, it has not touched the disclosure threshold, which remains at Rs20,000. Politicians are already privately joking that the new cash cap will easily be gamed; the only difference is that their chartered accountants will demand a raise.
The big loser here is the public. With the stated intention of improving “transparency in electoral funding", the government has accomplished precisely the opposite objective. Consider the fact that corporations can now legally give unlimited sums to political parties which, in turn, can accept unlimited sums of money—all without having to disclose a single rupee. This money will now be subject to a digital paper trail, but this is explicitly meant to be off-limits to the media, civil society and the general public.
The danger in what has transpired is that the government can claim victory; it can tell those who have not read the fine print that it has struck a bold assault on a major weakness of Indian democracy. Yet, after the Bill’s passage, public disclosure remains a distant dream. Party accounts will reach new heights of opacity. There is complete silence on the Central Information Commission’s ruling that parties are subject to the Right to Information (RTI) Act and, in the meantime, the government has opened the floodgates to special interests. And it has done so under the cloak of the Finance Bill, thereby completely sidestepping the need for Rajya Sabha approval, and with last-minute amendments that were air-dropped under the cover of darkness with zero discussion.
Sadly, we have seen this movie before: Last year the government, with the connivance of the Congress Party, used the Finance Bill to retroactively amend the Foreign Contributions Regulations Act (FCRA) to evade a Delhi high court judgement which found the Congress and the ruling Bharatiya Janata Party guilty of accepting foreign contributions. The two national parties did not like how the court ruled, so they simply changed the law to sidestep justice. While the Modi government has been shy of commenting on last year’s brazen manoeuvre, it has embraced this year’s changes by intimating that the alterations merely nudge India towards the political funding system that prevails in democracies like the US. As if the latter’s record on this score is something that should be celebrated, rather than condemned.
Milan Vaishnav is a senior fellow at the Carnegie Endowment for International Peace and author of When Crime Pays: Money And Muscle In Indian Politics.