The Choice of Political Funding – Cheque, Electoral Bonds or Blackmoney from Contractors and middlemen

Posted in:
07 Apr, 2019
Posted in:
07 Apr, 2019

Arun Jaitley

The past few days have witnessed several cases where the Election Commission and the revenue authorities, both separately and acting jointly, trying to curb the use of blackmoney in elections.  These actions have been particularly significant in States like Karnataka, Tamil Nadu, Andhra Pradesh, North-East and Madhya Pradesh.  The Election Commission and the Income-tax authorities work in close tandem during elections.  In many cases, monies have been coming from Government contractors and beneficiaries.  In one State, contractors passed on monies to engineers who were to distribute it to the candidates.  In another State, which only four months ago elected a new Government, fifty thousand Government transfers became a revenue generating exercise.  Reports have also indicated that an amount of about Rs.1500 crore has already been seized.

The disinformation of the NGOs

NGOs always claim to be well meaning.  They have a tendency to either exaggerate or misrepresent.  Those dealing with elections and electoral reforms have come out with two categories of reports.  The first one says that since in its balance sheet the BJP declares much larger income, it should be assumed that it gets more donations than other parties.  The second report says that BJP gets the lion’s share of the electoral bonds.

Both display a lack of understanding of how parties function.  All parties need, on a pro-rata basis, the same amount of money depending on the number of seats they are contesting.  The only question is ‘What is their fund collection culture?’  Do they still prefer the old obsolete style of only blackmoney being collected or do they prefer to collect it by legitimate methods like crowd sourcing, cheque and electoral bonds?  Obviously, the BJP prefers the latter.  It declares larger income and gullible friends in the NGOs believe that they get more.  Do they honestly believe the balance sheets of the BSP and the SP, the TDP or several other parties?  They obviously don’t disclose the income that they get because most of these donations are in cash.  This has significantly reduced the credibility of the reports of these NGOs.

The journey of funding reforms

I have been associated with the entire journey of political funding reforms.  As Law Minister in the Vajpayee Government, I had moved a Bill legitimising donation of cheque provided the same are declared to income-tax and the Election Commission.  To incentivise these donations we provided that the amount donated to political parties would be deductible expenditure.

Shri Pranab Mukherjee, as a Finance Minister during the UPA-II, brought out a second reform in the year 2010.  Blessed with great wisdom and depth, he realised that merely providing for cheque donations won’t bring a change.  Donors fear the consequences of their revealed identities being linked to a political party to whom they donated.  He very wisely masked the identity by creating a pass-through electoral trust in 2010.  A donor could donate to a registered electoral trust which in turn would donate to a political party.  The disclosure will only be of the name of the electoral trust and the link between the identity of a donor and the party would be snapped.  This practice legislated by UPA-II, is still in progress and utilized by some.

In 2017, based on the principle of masking the identity link between the party and the donor, the NDA created the instrument of electoral bonds.  This instrument provides for a complete white money donation.  The bond as a banking instrument of State Bank of India, a Party had to deposit it in a single declared account by the political party.  Both at the hands of the receiver and the donor, it is white money through a declared channel.  As far as the transparency is concerned, as against the original system of cash which was non-transparent throughout, there is an improved transparency in the electoral bonds.  The donor declares in his balance sheet the quantum of bonds that he has bought.  The State Bank of India has a record of the donors.  The recipient party declares the amount of bonds it has received.

The link between the donor and the identity of the party is masked in the same way as is done in the case of electoral trust.  Thus, both the electoral trust of 2010 and the electoral bonds of 2017 assured a total white money and improved transparency but masking the identity of the link between the donor and the party.  This obviously has been done to encourage donors to donate white money without fear of consequences.  Surprisingly the attack is against the bonds and not the electoral trusts because the earlier was brought by the NDA and the latter was by UPA.  The underlying principle of both is the same.  If the bonds don’t exist, the consequence will be that donors will have no option but to donate only by cash after siphoning monies from their businesses.  The recent Election Commission and IT raids have shown that it is taxpayers/ Government’s money, which, through PWD and other Departments of the Government, is being siphoned out and round-tripping into politics.  Is that a better option or the reformed system of all white money and improved, if not a perfect transparency?  NGOs and commentators must look beyond their nose.