Business Standard

Political funding’s troubling sinkhole


In 1798, Lord Cornwallis was appointed Lord Lieutenant of Ireland. Cornwallis had displayed great financial acumen during his earlier tenure as Governor-general of India when he conceptual­ised the Permanent Settlement Act. That helped the East India Company and its successor, the British Crown, collect agricultur­al taxes via the zamindars for over 150 years.

Cornwallis displayed financial creativity again in finding a novel way to mitigate Irish separatism. Ireland, which was majority Catholic, was a reluctant colony of neighbouri­ng Britain (majority Protestant). There were periodic violent rebellions.

Ireland had its own Parliament, which kept passing inconvenie­nt laws, and often raised the standard of revolt. Cornwallis found an epically simple way to deal with fractious Irish MPS. He bribed them. He offered money to Irish MPS to vote for the permanent dissolutio­n of the Irish Parliament and to take up seats in the House of Commons instead.

Many Irish MPS took the cash. The holdouts were blackmaile­d. Those MPS who refused to vote for dissolutio­n were charged with criminal cases, and intimidate­d by threats of violence. As a result, Irish politician­s became a small minority (multiple small minorities actually) in the House of Commons.

This is among the best historical examples of the wholesale use of money to purchase a democratic institutio­n. It’s worthy of note that it was money from overseas — from Britain across the Irish Channel — that persuaded Ireland’s MPS to sell their country.

Right now, Americans are wondering if a presidenti­al candidate could be open to offers of overseas cash for favours. Former President and Republican presidenti­al nominee for 2024, Donald Trump, needs to pay $455 million to the State of New York by next week. He doesn’t have the money; nobody in the US will give him the money.

Will he seek to raise funds abroad? If he does, and goes onto win the 2024 Elections, how likely is it that his lender (or lenders) won’t call in favours the next time there’s a geo-political situation involving the US?

Using money to buy political influence is among the oldest games in the book. It’s likely every government at some stage has been offered cash by some entity to rewrite the rulebook. What is egregious about the electoral bonds scheme is that these instrument­s legitimise­d the worst possible ways in which political bribery can be carried out.

Most democratic nations have checks and balances about political funding. In a good democratic system, there is transparen­cy about who is giving the money to whom, and there are rules prohibitin­g political donations from overseas, from criminals, or entities facing criminal charges, and from shell companies. There are also limits on how political funds may be spent. Mr Trump cannot dip into the coffers of The Republican Party to pay his fines, or legal fees.

Prior to the creation of election bonds, India had a few checks and balances, though it was hardly a perfect system. Only a profitable business could make political donations and it could donate only up to 7.5 per cent of the average profit after taxes of the last three years. This meant corporate political donors had to be solvent entities with track records. A company couldn’t be set up purely for the sake of making political donations. Moreover, there was a ban on accepting cash from overseas.

The Finance Bill of 20172018 (electoral bonds were introduced in April 2017) retrospect­ively legalised foreign donations to political parties made any time after 1976. It also removed the clauses about profitabil­ity. A company can now make any quantum of donations, regardless of revenues, or balance sheet, or ongoing criminal investigat­ions. This makes it easy to set up a shell to donate, and obscures the origin of money. The electoral bond data shows companies with negligible business donated 100 times of their revenues.

These grey areas remain. Does the “ease of giving donations” translate into “ease of doing business”? If the donations are “encouraged” via blackmail and intimidati­on, does that translate into higher sums? Could foreign funding lead to 21st century colonialis­m?

The data suggest “yes” as the answer to all those questions. While the electoral bonds have gone, until those gaps are addressed by new legislatio­n, the process of political funding will remain a noisome sinkhole.

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