The Election Commission failed to check invisible money in polls, says Arun Jaitley

Union Minister for Finance, Defence and Corporate Affairs Arun Jaitley on Saturday blamed the Election Commission for failing to check the use of ‘invisible money’ in elections. He also took on political parties for preferring the status quo instead of suggesting improvements to the electoral bonds scheme proposed in the Budget.

Speaking at the Delhi Economics Conclave, Mr. Jaitley said the government was already seeing the first signs of improvement in direct and indirect tax compliance due to reforms such as demonetisation and the Goods and Services Tax, both of which will make it difficult to generate cash in the future.

The Minister also hit out at Indian businesses for functioning under the belief that banks don’t have to be repaid, revealing that one firm had even claimed in court that the right to not repay banks is part of the Right to Equality.

“For 70 years, India’s democracy has completely been funded by invisible money — elected representatives, governments, political parties, Parliaments. And I must say that the Election Commission completely failed in checking it,” Mr. Jaitley said, before hinting that the EC and political parties have a problem with the government’s proposal of funding through electoral bonds.

The government, he said, had been consciously striving to fix what he called the “Indian normal” of having high tax evasion and a huge number of transactions undertaken outside the system. “There was almost helplessness in trying to deal with this situation,” Mr Jaitley said, adding that successive Budgets only made marginal changes with no lasting impact.

“Therefore, steps had to be taken to make a significant impact. If we look at the totality of the various steps we have taken rather than look at them in an isolated manner, each one of them are decisions which will not only have a great long term impact but also has a substantial ethical rationale behind it,” the Finance Minister asserted.

Money laundering

While the first major step by the NDA government to shake up the system was the black money law that laid down severe penalties for stashing money abroad, the decision to crack down on money laundering through shell companies under the 1988 Benami property law has sent shivers down the spine of many businesses, bureaucrats as well as politicians, Mr. Jaitley said.

The revenue department had already started acting on cases after the Centre’s decision to invoke the Benami property law and this would be a big deterrent, Mr Jaitley said. “The sooner this business of routing this money through the shell companies collapses, the better it will be for the formal economy in this country,” he pointed out and questioned the inaction on implementing a law passed in 1988.

“…It’s a typical illustration of inaction… the law ministry opined sometime a decade and a half ago that the law was unimplementable… We left it at that, didn’t frame rules and didn’t invoke the law. Finally the 1988 law was invoked after amendments in 2016 and it’s sending a shiver in the spines of those who conventionally used this methodology of round tripping of tax avoided money or corruption money back into the system,” he said.

Insolvency Code

Arguing that the Insolvency and Bankruptcy Code would ‘radically alter the manner in which businesses are done’, Mr Jaitley said, “You can’t have structured businesses operating on the premise that bank-funded money is never to be paid back. We had a sufficient belief in this argument which had gone to an illogical extent and created the problem that banks face today.”

“More as a lawyer, which was my earlier profession, rather than as a minister, I was quite surprised by an argument being entertained in court recently that there is a right of equality in the matter of not paying the banks back. So the system really needed to be shaken,” he said.