Modi’s campaign against black money should extend to politics

With a slew of elections due from March 2017 onwards, it is not surprising that the drive against black money should translate into a concerted focus on the ways of the political class. A common refrain now is that the steps taken to bring individual black money hoarders to book, such as the Prime Minister’s Garib Kalyan Yojana and more recently, restricting one-time deposits of denotified currency to ₹5,000, should extend to political parties as well. The issue shot into prominence after Revenue Secretary Hasmukh Adhia recently said that political parties would, under Section 13A of the Income Tax Act, which exempts them from tax, not be subject to scrutiny after December 30. The flutter that ensued prompted Finance Minister Arun Jaitley to clarify that political parties are required under the law to maintain proper books in order to claim exemption. But the fact is that there are too many political parties that exist only in name (the Election Commission has “so far” deregistered 255 of these); laundered money is likely to have found its way into their bank accounts. Perhaps sensing that a perception of double standards could undermine popular support for the demonetisation exercise, the Prime Minister has rightly endorsed reforms proposed by the EC in the funding of political parties. These include making parties account for donations in excess of ₹2,000 — against the current limit of ₹20,000 — and holding simultaneous elections. However, it is worthwhile to consider an amendment to Section 13A as well to clean up the political system.

India's electoral finances are remarkably opaque compared to most developed and even several developing countries. A study by the Association of Democratic Reforms shows that over 75 per cent of the recorded funds received by national parties between 2004-05 and 2011-12 are from ‘unknown’ sources. There is no mention in these cases of the name of the donor, address, or PAN — such a violation in the case of an individual tax entity would invite tax scrutiny or worse. Introduction of the ₹2,000 limit may help address this malaise. The accounts of political parties should be subject to public scrutiny, as in the case of the US, Germany, Italy, France, Brazil, Bulgaria, and even Nepal and Bhutan. It remains to be seen whether the Budget session pursues a serious discussion on electoral reforms.

A rigorous, revenue-driven approach to accounting for election funds makes more sense than the current expenditure-led one. The existing limits of ₹28 lakh in the case of a candidate for an Assembly election and ₹70 lakh for a Lok Sabha candidate, are roundly violated by showing expenses under the party account rather than the individual. For instance, rallies by prominent leaders campaigning for a candidate are exempt from this ceiling. The relevant sections of the Representation of the Peoples Act should be reviewed. The ongoing drive against black money will be inconclusive if electoral reforms are not pursued to their logical end.

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