The first part of this two-part series looks at the danger that the funding by anonymous companies in the form of electoral bonds poses to our democracy.

On March 12, the Supreme Court was indignant that the Central government had not set up a permanent mechanism to keep a tab on the disproportionate income of politicians, for which it had issued an order last year. In February 2018, the court was shocked to learn that the assets of some legislators, their kin and associates had gone up by more than 500% between two elections — and it wanted serious action.

What, however, goes unaddressed as yet is equally reprehensible — political funding has been made more opaque and unaccountable in recent years, paving the way for easy money (read: unaccounted money) to come in and influence policies and regulations. Multiple petitions challenging legislative changes made to facilitate such funding are pending before the Supreme Court and Delhi High Court.

Two key areas of concern are the electoral bearer bonds which apparently facilitate ‘anonymous’ corporate donations for political parties and the changes in the Foreign Contribution (Regulation) Act (FCRA), legalising funding by foreign sources.

Electoral bonds are opaque, hide funding source

To justify the introduction of electoral bonds, Finance Minister Arun Jaitley had written in January 2018 that “...a scheme of electoral bonds was announced to enable ‘clean money’ and substantial ‘transparency’ being brought into the system of political funding”.

What has actually been done is exactly the opposite.

The electoral bond was brought in through the Finance Act of 2017, which introduced multiple amendments in the Representation of the People Act (RP Act) of 1951 and Companies Act of 2013, jeopardising transparency in political funding. The Election Commission of India (ECI) strongly objected to these changes and wrote to the Law Ministry, seeking reversal of the amendments.

Key amendments — and the ECI’s objection to each — are the following.

One, section 29C of the RP Act was amended, taking the donations received through electoral bonds out of the ECI’s scrutiny. This was done by inserting a new proviso: “Provided that nothing contained in this sub-section shall apply to the contributions received by way of an electoral bond”.

The ECI described this as (a) “a retrograde step as far as transparency of donations is concerned and this proviso needs to be withdrawn” and (b) commented that now “it cannot be ascertained whether the political party has taken any donation in violation of provisions under section 29B of the Representation of the People Act, 1951, which prohibits the political parties from taking donations from Government Companies and Foreign sources”.

Two, the amendment in section 13A of the Income Tax Act disallowed cash/anonymous donation exceeding Rs 2,000 to a political party — but the cash limit under section 29C of the RP Act governing elections continues to remain Rs 20,000, thus making no material difference to accountability and transparency of political funding.

Three, the Companies Act of 2013 has been amended: (a) to omit first proviso of section 182(1), which reads “...the aggregate of the amount which may be so contributed by the company in any financial year shall not exceed seven and a half per cent of its average net profits during the three immediately preceding financial years”; thus removing the limitation of 7.5% and the section now reads “any amount” can be contributed (b) to replace “any amount or amounts” in section 182(3) with “total amount”, to remove “and the name of the party to which such amount has been contributed” in the profit and loss statements.

The ECI objected to these as well — saying that such amendments (i) “opens the possibility of shell companies being set up for the sole purpose of making donations to political parties, with no other business of consequence having disbursable profits” and (ii) “would compromise transparency”.

Though the ECI’s concerns are shared by the Law Ministry and Finance Ministry, the Central government has sought to brazen it out, telling the Rajya Sabha that no such concerns have been expressed by the ECI.

A few years ago, the ECI would have called repeated press conferences, written multiple letters to the GOI and put its objections in the public domain but things have changed. Its objections to the Law Ministry had to be accessed through the RTI applications.

True, the Central government also inserted section 182(3A) in the Companies Act of 2013 (through the Finance Act of 2017) to say that contributions by way of electoral bonds be made by “account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account”.

It also clarified while issuing notification for electoral bonds in January 2018 that (i) the purchaser must fulfil the extant KYC norms and make payment from a bank account (ii) a random serial number invisible to the naked eye is given to such bonds and (iii) the bond issuing bank (SBI) will not share the serial number of bonds with anybody, including the government and users.

Can any political party actually show us the money? (Photo: India Today)

But none of these actually addresses the concerns of anonymity of the donor, transparency in political funding or brings it under the ECI’s scrutiny.

The KYC norm will actually let the bank (SBI) know the donor and by extension, the government controlling it, but not the ECI or citizens. To say that the SBI will not share the information with the government is a vacuous argument. It is thus an advantage to the ruling dispensation all the way.

In fact, when the electoral bond was introduced, the Association for Democratic Reforms (ADR), which works for electoral reforms and has filed a petition challenging it in the apex court, had warned that this move would benefit the ruling party at the cost of the opposition. Its words have proved prophetic.

The ADR found (from the audited accounts of the parties) that of Rs 222 crore donated through the electoral bonds in 2017-18, the ruling party, the BJP, received Rs 210 crore (94.5%), the Congress Rs 5 crore and the rest Rs 7 crore.

Unknown source of income remains very high

The electoral bonds have only up added to the income of political parties from ‘unknown sources’ — which has remained very high all the past decade and a half. The ADR’s analysis (from the declarations in the audited reports of the national political parties) shows that during 2004-5 to 2017-18, income from unknown sources of the ‘national political parties’ account for 66% of the total, as shown in the table:

The Supreme Court’s next hearing on a bunch of petitions challenging these amendments in various statutes for issuing electoral bonds has been fixed for March 26. Hopefully, the court would show indignation at the Centre for going ahead with such amendments through the Money Bill route (by way of Finance Bills) to bypass the Rajya Sabha, to the detriment of transparency and accountability in political funding.

Also read: Why electoral bonds won't clean up political funding