National political parties collected more than Rs 1,130 crore in donations in 2014-2015. The government levied no tax on this money and its source remains unknown (read: undisclosed). This sum also accounted for 60% of the total earnings of the big six – the Congress, BJP, NCP, BSP, CPI and CPI(M) – at the end of an election year.
Needless to say, these “unknown sources” are the top sources of income for most political parties. In 2014-2015, the BJP earned nearly 90% of its funds, Rs 872.02 crore from “voluntary contributions”. The Congress collected nearly 55% of its funds, Rs 323.15 crore, by “issuing coupons” or through “sale of publications”.
Five of these national political parties are currently crusading against the BJP government’s demonetisation policy. But talk about transparency in political funding and their solidarity is bound to touch a chord. (Hint: The angry one.)
On 29 November, the BJP and the Congress, in a seemingly coordinated move, withdrew their appeals from the Supreme Court against a High Court verdict that held them guilty of violating the law on foreign funding.
The petition was filed by the Association for Democratic Reforms and Dr EAS Sarma, former secretary to the Government of India. It sought action against the BJP and the Congress for accepting political donations from an electoral trust comprising of subsidiaries owned by a foreign company.
What are Electoral Trusts?
Electoral trusts were pioneered by the Tata Group after a 1995 Supreme Court ruling on a petition filed by NGO Common Cause made funding of political parties a matter of public record. The electoral trust became an independent entity, through which the Tata Group would channel money into political parties who would not name the original donor in their balance-sheets.
Over the next ten years, several leading corporates set up electoral trusts.
Congress’ Move to Shield Political Donations
In July 2009, when Pranab Mukherjee presented the Budget for a newly-elected UPA-2. Slipped in innocuously was a proposal to make donations to electoral trusts tax-exempt.
In 2013, it was formally notified by the Central Board of Direct Taxes (CBDT). As per the notification, to get tax benefits, electoral trusts needed to distribute 95% of total funds collected during a fiscal year to registered political parties within the year itself. At the time, Corporate Affairs Minister Sachin Pilot had called it “a step in the right direction” towards making political funding more transparent.
Interestingly, while the tax exemption to electoral trusts was enshrined in law, the disclosure norms were not. As a result, not disclosing the original source of funding invites no penalty.
BJP’s Turn to Return the Favour
But the absence of a penalty on disclosing the original source of funding didn't last long. On 29 March 2014, when the Delhi High Court in a landmark verdict found the Congress and the BJP guilty of violating the Foreign Contribution (Regulation) Act by accepting donations from an electoral group comprising of subsidiaries owned by UK-based Vedanta Group.
According to ADR, Sterlite Industries and Sesa Goa, two companies registered in India, but whose controlling shareholder was Vedanta, donated Rs 8.79 crore to Congress between 2004 ad 2012. Sesa Goa donated Rs 1.42 crore to the BJP during the same period.
The Delhi High Court asked the Home Ministry and the Election Commission to “relook and reappraise the receipts of the political parties and identify foreign contributions received by foreign sources" and take action “within six months”.
Even with an appeal pending in the Supreme Court, the Modi government moved to let the BJP and the Congress off the hook by amending the FCRA, 2010, with retrospective effect.
Under the amended law, as long the foreign company was owned by an Indian and if the donation was within the limit prescribed by the government for that sector, the company will be treated as “Indian” and not foreign.
No Escaping the Law
Unfortunately for the two parties, the donations received by the two parties pre-dates the FCRA, 2010, and were made between 2004 to 2009.
Subsequently, the two parties withdrew their appeals against the High Court verdict from the Supreme Court.
In a way, the High Court verdict has been reaffirmed. I believe the Home Ministry has to do something now. Both parties have an opportunity to go back to the High Court now, but there is nothing in the current legislation that can protect them.Professor Jagdeep Chhokar, Association for Democratic Reforms
How Political Funding Works in India
As per Section 29C of the Representation of the People Act, 1951, political parties can accept donations up to Rs 20,000 anonymously. And there exists no cap on cash donations. For amounts over Rs 20,000 the political party has to record the donor’s name, address, PAN card, mode of payment and date of donation to avoid paying tax.
As per a June 3 analysis report by the Association of Democratic Reforms, 51% of the funds collected by national parties during 2014-2015 comprised of smaller donations of up to Rs 20,000.
How it REALLY Works in India
But a major chunk of the money comes in from “unknown sources”. These donations are declared in the I-T return, but without giving the source of income. Such “unknown sources” include ‘sale of coupons’, ‘relief fund’, ‘miscellaneous income’, ‘voluntary contributions’, ‘contribution from meetings/morchas’ etc.
The details of such voluntary contributions are not available in the public domain.
Cleaning out the Closet
At a weekly meeting with BJP parliamentarians, Prime Minister Modi asked all BJP MPs to submit their bank statements to Amit Shah. That the BJP President would sit in judgement of his own lawmakers speaks volumes about why an effort like demonetisation to attack black money is pointless unless political funding is made transparent and audited by an independent agency.
Right to Information? LOL
Efforts to bring political parties under the ambit of the Right to Information Act have been on since 2010. Instead of responding to a CIC order declaring INC, BJP, CPI(M), CPI, NCP and BSP as public authorities within the ambit of the RTI, successive governments have withstood public opinion against transparency in political funding. If the UPA tried to amend the RTI act to exclude political parties from its purview, the NDA told the Supreme Court that bringing political parties under the transparency law will “impact internal working and political functioning”.