The Modi government can’t blame an old law to continue protecting dubious political funding.

A 24 January report from Association of Democratic Reforms (ADR), which collates data on funding of political parties, showed that various political parties received Rs 7,833 crore of funding from unknown sources between 2004-05 and 2014-15, which constitutes 69 percent of their total income during the period. The unknown sources are income declared in the IT returns but without giving source of income for donations below Rs. 20,000. In other words, this is the chunk of money that has come from dubious sources and, thus, could very well be a form of black money.

Let’s understand the problem in detail. The current norms offer a big loophole for political parties to escape the scrutiny as the Rs 20,000 and below donations do not require showing of any source. Hence it is easy for any political party to make thousands of receipts for big donations (including from corporations to return them favors) with no questions asked. Without closing this loophole, it is extremely difficult to bring in transparency in political funding. Typically, political parties do not even keep receipts for donations. The Narendra Modi-government has so far not acted on this problem, even when it stipulates that every single transaction done by the common man should be made traceable, taxed and scrutinized.

This is an even bigger irony since the Modi-government has waged a big war on black money like no government has done in the past. It pulled out 86 percent of the currency from the system in one go on 8 November, 2016 stating that the move intends to kill black money, fake currency and corruption in the system. Three weeks later, the government launched a massive ‘cashless economy’ drive saying that it wants to end cash transactions and make everything digitally traceable so that black money hoarders won’t have any room to transact in unaccounted cash.

To compel people to move in this direction, an expert panel has now even recommended taxing all cash transactions above Rs 50,000. The demonetisation move inflicted considerable pain on the common man, hurt the economy in the form of slowdown in business activities and major job losses in the informal sector. In an economy, that operates 70-90 percent in cash, demonetisation came as a major jolt. But the government continued to enjoy the support of masses owing to a sense that finally there was some action taken against the rich and the powerful. But, unless it acts to clean up political funding, no amount of work in its fight against black money will be seen as a convincing act.

The excuses this government has put forward so far to let the dubious political funding continue do not stand. Late last year, a comment from revenue secretary Hasmukh Adhia: “If it is a deposit in the account of political parties, they are exempt. But if it is deposited in any individual account, in anyone’s account, that information will definitely come on our radar," stirred up a hornet’s nest. It meant that political parties continued to have immunity on black money but it was okay to harass the common man in the name of black money, even those with legitimate earnings.

More importantly, this comment came when the demonetisation drive was still half-way. The government immediately went on a damage control mode, saying political parties too will be scrutinized. “Just like anyone else, political parties can also deposit their cash held in the old currency in banks till 30 December, provided they can satisfactorily explain the source of income and their books of accounts reflect the entries prior to 8 November," Finance Minister, Arun Jaitley said.

The finance minister also said the income and donations of political parties "fall in the purview of Section 13A of the Income Tax Act of 1961" and that "there is no change in its provisions". But, as this writer pointed out in an earlier column, the question is given that the Modi government has waged an all-out attack on black money, shouldn’t it have plugged the loophole on political funding? The reluctance of political parties to collectively act on this issue of can be traced to the fact that all drink from the same well. The Modi government managed to amend the income tax law for individuals, why couldn’t it expand the purview of the law for political parties? When it pushes the common man to switch to non-cash payment channels, why can’t it ask the political parties too to take all donations only through non-cash modes. The government owes an answer to this question.

ADR numbers

According to the ADR report, which has studied the funding of six national parties (INC, BJP, BSP, NCP, CPI and CPM) and 51 regional parties, the income of national parties from unknown sources increased by 313 percent, from Rs 274.13 crore during fiscal year 2004-05 to Rs 1130.92 crore during fiscal year 2014-15, while the income of regional parties from unknown sources increased by 652 percent from Rs 37.393 crore during fiscal year 2004-05 to Rs 281.01 crore during fiscal year 2014-15.

“Among all the National and Regional parties considered, BSP is the only party to consistently declare receiving NIL donations above Rs 20,000 between FY 2004-05 and 2014-15 thus 100 percent of the party’s donations came from unknown sources. The total income of the party increased by 2057 percent from Rs 5.19 crore during FY 2004-05 to Rs 111.96 crore during FY 2014-15,” the report said.

Globally, many countries have improved transparency in their political funding by bringing this information under the ambit of Right to Information (RTI). “Some countries where this is done include Bhutan, Nepal, Germany, France, Italy, Brazil, Bulgaria, the US and Japan. In none of these countries is it possible for almost 75 per cent of the source of funds to be unknown, but at present it is so in India.”

The Modi government can’t blame an old law to continue protecting dubious political funding. Unless this issue is addressed, questions will be raised on the seriousness of its anti-black money drive. In this context, the ADR report should be an eye-opener to the government.