Party donations have surged behind veil of anonymity

Last month, the Supreme Court of India struck a strong blow against the unholy nexus between business and politics in the country by ruling a key campaign financing tool unconstitutional.

The decision concerned what are known as electoral bonds, an instrument created under a 2017 law that the government of Prime Minister Narendra Modi pushed through Parliament as a "money bill," which meant the legislation did not require the approval of the upper house where his Bharatiya Janata Party and its allies lacked a majority.

Previously, Indian political parties would avoid scrutiny of most donations they received by claiming that each involved less than 20,000 rupees ($241) in cash.

With the bonds, upfront cash instead has gone to the State Bank of India. The bonds it issued in exchange to donors could then be given anonymously to any political party. Parties would then deposit the bonds back at the bank to collect the money for themselves.

The notion was that this structure would curb the role of black money in politics while assuring donors of anonymity to protect them from possible retaliation in case their favored party lost. It sounded good on paper.

The problem was that the party in power could easily find out donors' identities through appointees at the state-owned bank. Perhaps as a consequence, the BJP has accounted for roughly three-fifths of all donations made via electoral bonds.

The Supreme Court ruled that the anonymity feature of the bonds infringed on voters' right to information, which the justices said is vital to enable informed decisions.

It ordered the State Bank to halt sales and submit details of bonds sold since April 2019 to the Election Commission of India by March 6. The commission was directed to then release the information on its website within a week.

The court ruling voided amendments that had been made to the 2013 Companies Act which eliminated a previous requirement that companies making political contributions disclose how much had been given to each party while capping total contributions as a percentage of net profits.

One can only speculate about what the data to be unveiled by the Election Commission may imply about possible quid pro quos between donors and politicians, but it is safe to say that the Modi government has been really good to large corporations.

The government has made deep cuts to corporate income tax rates, forgoing 1.45 trillion rupees a year in revenue. Import barriers have been steadily raised to help local manufacturers at the cost of Indian consumers. Under the production-linked incentive program, 2 trillion rupees has been budgeted for distribution without public transparency about how recipients are selected.

In the wake of such moves, corporate profits have surged. Since 2019, the combined profits of companies in the Nifty 50 stock index have grown at an annual rate of 15%, more than triple the previous pace. Meanwhile, private capital investment, which the government measures were supposed to encourage, has remained subdued.

With anonymity gone, companies will go back to cash donations but at least there will be a level playing field between the ruling party and the opposition.

Still, transparency may translate into a big drop in campaign contributions. According to calculations based on data from India's Association of Democratic Reforms, political parties took in 27.53 billion rupees a year through electoral bonds while the previous annual contribution level was only about 2.4 billion rupees.

As the details of past contributions become public and new ones are subject to disclosure, companies may face uncomfortable questions about their political affiliations and preferences. This may lead to public backlash against companies seen as too supportive of a particular party or ideology.

To address the problem of keeping track of cash donations, the government could make it mandatory for individuals and companies to donate through online and digital channels, an idea the BJP rejected in pushing through electoral bonds in 2017.

In any case, the Supreme Court's decision will foster better trust in political institutions and potentially reduce corruption. It may be too late to have a significant impact on parliamentary elections which are to be held by May, but the ruling is still better late than never.

One should not overlook the kind of deterrent effect the ruling will have on corporate donors who relied on anonymity for questionable motives. By lifting the veil of anonymity, the Supreme Court's decision has the potential to deliver a resounding blow to crony capitalism and foster a more accountable and open political landscape.