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In the hallowed portals of the world’s largest democracy, there is an unseen, all pervasive ghost, that has most political parties in a vice-like grip: unaccounted money. In fact, it is accepted as normal that although parties will always aver to the contrary, most of them run in collusion with the black economy, a fact endorsed by global monitoring agencies, including the Global Integrity Report.

Earlier, the principal – but not only – means by which parties collected vast amounts of unaccounted money was the misuse of Section 29-C of the Representation of People’s Act (RPA). This provision allowed parties not to declare the name of donors who contribute less than Rs 20,000. As a result – according to the Association of Democratic Reforms – as high as 85% of donors to Congress and BJP, the two largest political parties, were faceless people who had contributed up to Rs 19,999!

The Election Commission (EC) has made countless proposals for electoral reform, to which no government has responded adequately. One such proposal was to reduce the financial ceiling of faceless donations from Rs 20,000 to Rs 2,000. Now, through an amendment of the Income Tax (IT) Act, the ceiling has been lowered to Rs 2,000. But the efficacy of this ‘reform’ is questionable, because parties can get away by simply saying that their unaccounted money is the result of multiple donations of less than Rs 2,000 instead of a larger sum.

Illustration: Uday Deb

Moreover, two new developments are a cause of great concern. In the 2017 Budget, the government announced a new scheme of electoral bonds. Under this, bonds for contributions to political parties can be issued by the State Bank of India, and can be bought by any donor with a KYC compliant account. Donors can donate their bonds to any party of their choice, which can deposit it in their designated account. Donations will be tax deductible, and the benefitting political party will get a tax exemption for the amount received.

But the key element in this scheme is that electoral bonds will not bear the name of the donor, nor can the beneficiary party be revealed. In other words, the whole process will be anonymous. Moreover, the value of donations can be unlimited. Prior to 2017, Section 182 of the Companies Act, 2013, stipulated that a company can donate only up to 7.5% of its average profit of the last three years, and must disclose this amount and the beneficiary political party.

Now, through the electoral bonds, there is no limit to the amount companies can donate, and the requirement for such firms to have existed for the last three years on a profit-making basis has also been deleted. The implication is that even loss-making companies or shell companies can be used to purchase electoral bonds. Essentially, then, corporate entities – and individuals – can now funnel unlimited amounts to a political party through electoral bonds, anonymously.

Moreover, under Section 13A of the IT Act, companies contributing through electoral bonds will not even be required to keep records of such donations, and if no records are mandatorily maintainable, no questions can presumably be asked by IT authorities. Even more, the RPA Act has been amended to exempt parties to inform EC of any amount received above Rs 2,000, if made through electoral bonds. The result is complete financial opacity: EC cannot name the donors, and the IT department, even if questioned under the RTI Act, can claim confidentiality granted to assessees.

A second development came ‘hidden’ in the amendments to the Finance Bill of 2018, which was passed without discussion due to the din in Lok Sabha. This relates to the Foreign Contribution Regulation Act, 2010, which has been amended to exempt from scrutiny foreign funds received by political parties with retrospective effect from 1976. What was the reason for this controversial amendment?

The Delhi high court had in 2014 indicted both Congress and BJP for receiving foreign funds from the firm Vedanta and its subsidiaries, in violation of the existing FCRA Act, and the RPA Act that specifically prohibits parties from accepting contributions from a foreign source. The court asked the government and EC to act against the two political parties.

In response, the government has amended the FCRA Act itself, and exempted from scrutiny all foreign funding to parties retrospectively from 1976! Furthermore, the amended Companies Act now allows any foreign company registered in India to make contributions through bonds to political parties, overruling legitimate doubts about who or where its real owners are, or what its source of funding is.

Was our EC consulted on such sweeping changes? Major democracies have increasingly tightened disclosure rules. In the US, there is a requirement to provide the name, occupation, employers and addresses of all individuals who contribute more than $200 to political entities. In the UK, any contribution above £7,500 must reveal the name of the donor. By contrast, in India, the world’s largest democracy, electoral ‘reform’ has legitimised financial opacity. The invisible ghost of unaccounted money looms even larger, and could have major repercussions as we move to the general elections in 2019.