Why transparency isn’t enough to fix crisis of party funding in India

The Supreme Court has directed SBI to disclose the Electoral Bond numbers, crucial to matching donations to the political party that received them, giving the bank time till Monday to file a response.

With the release of electoral bonds data, the Supreme Court’s task may be concluded (for now), but the journalists’ job has just begun. The Supreme Court has directed SBI to disclose the Electoral Bond numbers, crucial to matching donations to the political party that received them, giving the bank time till Monday to file a response. At the moment, the data does not provide a clear link between the donors and the donee parties. Even if we can connect all the donations to the corresponding parties, it is likely to produce an incomplete picture of Indian parties’ sources of income. This is because parties do not disclose the amount (let alone the identity of donors) of a large portion of their total income, of which, electoral bonds are likely to be a relatively small part. The end of electoral bonds, therefore, should not be seen as the solution to the crisis of party financing in India. Doing so would be like missing the forest for the trees.

Instead, the story of electoral bonds should be the excuse to look into questions about the present and future of the relationship between money, business, and arguably, the most important institution of Indian democracy – political parties. Three issues merit attention.

The first problem is the financial arms race caused by the eyewatering-ly expensive elections in India. You may not know anything else about Indian politics, but you are likely to notice the obnoxiously large sums parties spend on elections. It should not be surprising, then, that from the day the party comes into power at the centre or any state, it needs to start raising money for subsequent elections.

In India, there is no limit on how much a party can spend on its propaganda as long as it does not spend that money on the campaigning of any specific candidate. An immediate response may be to introduce a national/ state expenditure limit on parties. We can go further by restricting (or even banning) highly expensive campaign methods. Such regulation should be accompanied by an independent audit of political party accounts. Whatever the specific form of regulation, the bottom line should be to address the demandside issue of expensive elections, even if it comes at the cost of reducing the temperature of the much-romanticised Indian electoral campaigns.

Curbing expenditure may go a long way, but it is no magic bullet. The second underlying problem in India is the unfair and targeted extortion of businesses. The fundamental motivation behind the schemes of Electoral Bonds and Electoral Trusts (recognised by the UPA government in 2013) was to enable large businesses to make anonymous donations to parties. In 2012, M V Rajeev Gowda and E Sridharan conducted confidential interviews with various CEOs. These revealed that the government’s discretionary powers often become “pressure points for extorting payments from businesses”. Often, it takes the form of withholding discretionary permits or using police or investigating agencies. It is not surprising, then, that the immediate response of many after the release of electoral bonds data was to match the dates of bonds purchased with the dates of the ED raids on those donors. Businesses that feel vulnerable to such discretionary “extortion” perceive confidentiality as the most important safeguard against reprisals from political parties, even if such secrecy comes at the cost of giving up tax exemptions. The solution to the pathology of secret corporate donations, then, is unlikely to emerge from a political funding framework. It may require broader reforms that undo the abuse of discretion against businesses — a remnant of the license-permit raj.

The third problem is the prevalence of “cash” donations. While electoral bonds made it legal to make opaque donations, they did not introduce opacity to the Indian party funding regime. In India, cash may still be the best disclosure-proof technology. Even if we design a regulatory framework that institutes complete transparency, donation limits, and expenditure limits, enforcing those rules requires money to be traceable. The prevalence of cash undermines the ability to trace the flow of money. Whatever formal rules we may frame, a cash-based system makes it easier to subvert formal regulation. Since we are still far from adequate formalisation of the Indian economy, even a progressive regulatory framework, if it does not address the predominance of cash, is likely to yield unsatisfactory results.

While the Supreme Court rightly recognised the value of transparency, the legal disclosure requirement does not, by itself, translate into actual transparency. In any case, transparency only reveals the pathologies of the relationship between money and politics; it does not resolve the deeper causes. The financial arms race between parties, the prevalence of cash in the Indian economy and the heightened anxieties of government retribution among large businesses are the underlying causes of the pathologies of party funding in India. Political finance is, almost always, rooted in the deeper forces of the political economy. If so, the party funding framework cannot be fixed in a vacuum. It is time to enlarge the conversation from partyfunding laws to these larger themes if we want to achieve a fair and workable relationship between money, business and politics.