Minor legislative tweaks prompt big fears for democracy’s future

According to Finance Bill 2017, donors can deposit money in the account of a political party without disclosing their identity

An omitted proviso and a tweaked sub-section, buried deep in a money bill in Parliament’s recent Budget Session, have fundamentally altered India’s democracy by letting corporations anonymously donate unlimited cash to political parties of their choice.

The 2017 Finance Bill prompted token resistance from the opposition when it was ratified by Parliament, but as the implications sink in transparency activists are sounding the alarm.

“This is huge,” said Milan Vaishnav, a senior associate at the Carnegie Endowment for International Peace, who tracks political funding in India.

“Earlier, we could at least try to join the dots of corporate funding of political parties. With the new rules, we won’t have any dots to join,” Vaishnav said. So far, a company could contribute up to 7.5% of a three-year average of its net profits, and had to disclose the name of the recipient party.

This capped donations and discouraged the use of shell companies - entities that exist only as a postal address.

Finance Bill 2017 removed both requirements and created a new financial instrument called an “electoral bond”, issued by the Reserve Bank of India (RBI), which can be bought and deposited in the account of a political party without disclosing the donor’s identity.

The government and businesses say donor anonymity will make funding more transparent and shield donors from political retribution for funding rival parties.

“Whilst the ultimate objective is to bring about transparency in political donations, it is only possible when our political system demonstrates its maturity like developed countries. This might take some time and currently, therefore, the bearer bonds are a step in that direction and should be welcomed,” said Sunil Alagh, former Managing Director & CEO of Britannia India.

But critics say removing funding caps and disclosure norms will buy corporations — both Indian and foreign — disproportionate influence over regulatory policy, and offer a tax-free conduit to launder money through India’s 2,041 registered parties – most of which exist only in name. “Donations to political parties are tax-free,” said Shahid Khan, former Member of the Central Board of Direct Taxes.

“Now a company can donate any amount and claim a tax rebate, while the party can show ‘cash expenses’ in its tax filings to return the money to the company for a commission.”

Electoral bonds, said Jagdeep Chhokar of the Association for Democratic Reforms (ADR), will add more opacity to a system dominated by secretive entities called electoral trust companies that collect donations on behalf of India’s biggest corporations and disburse the money as per the whims of their trustees.

Electoral trusts were allowed in 2013. Trusts disclose their contributions to the Election Commission but are hard to monitor. In 2013, ADR found the BJP and Congress accepted money from the Public and Political Awareness Trust – an entity associated with Vedanta Resources, a London-registered mining conglomerate.

The trust structure, Chhokar said, had allowed money from a foreign source to pass under the radar – which was illegal under the Foreign Contribution Regulation Act of 1976 (FCRA).

When ADR flagged the contribution, the government used the 2016 Finance Bill to amend the FCRA to legalise foreign contributions routed through an Indian subsidiary.

Hindustan Times asked India’s biggest political donors the rationale behind their funding decisions.

None replied save for Tata Sons Ltd, whose Progressive Electoral Trust disburses money on a predetermined formula: Parties must hold at least 3% of Lok Sabha seats or 10% of state assemblies.

Half the funds are disbursed on the basis of seats held prior to elections and half on the basis seats won in the election.

Satya Electoral Trust, the largest trust with a kitty of Rs 256 crore, collects money from companies such as Bharti Enterprises, DLF, Hero Motocorp and Torrent, that operate in highly regulated sectors such as real estate, power and telecom where seemingly minor changes in policy can have a disproportionate impact on balance sheets.

Mukul Goyal, Satya’s director, refused to name the board members or explain how the trust decides on contributions. “We are a private company, we don’t have to answer such questions,” he said.