Party economics — in black and white

Discourse on black money should include ways to bring more transparency to finances of political parties

Neeti Biyani | July 28, 2014


More transparency on party finances needed.
More transparency on party finances needed.

One of prime minister Narendra Modi’s first decisions, to set up a special investigating team (SIT) to probe the matter of black money stashed abroad, reopens some of the biggest questions for the Indian economy – and politics. It has also brought public attention back on the discourse on corruption and black money. But, in a particularly hard time for the economy, it is perhaps only natural that public perception regarding the capacity of the polity to address the issue is not very positive.

The white paper on black money, brought out by the finance ministry in May 2012, defines black money as “assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any time during their possession.” Though there is no uniform definition of black money or shadow economy in economic theory, there is a consensus that it refers to any income on which taxes have not been paid. According to an estimate made by Dev Kar for Global Financial Integrity in 2008, the size of India’s underground economy amounted to about $640 billion, which is about half of India’s GDP of $1.28 trillion.

Scholars and experts hold that tackling the problem of black money becomes difficult because the political will to deal with it is missing. In that case, we need to ask how transparent the political parties – the primary link between people and the state – are in their own finances.
With regard to the finances of the political parties, three definitive sets of their documents are statutorily available in the public domain for scrutiny. They include income-tax returns the parties file with the I-T department; the annual donation report that the parties submit to the Election Commission of India (ECI), listing out all the donations above Rs 20,000; and a statement of election expenditure incurred by parties during elections to assemblies or parliament.

However, though these documents are available in the public domain, there is no way in which one can verify the accuracy of the finances and the sources of the same. This is due to many factors. Firstly, the parties are required to submit the details of donors who have contributed above Rs 20,000. The donation reports therefore do not mention any contribution below Rs 20,000, as the parties are not statutorily bound to reveal the details of such donations. An Association for Democratic Reforms (ADR) analysis of the donation reports for 2012-13 found that the details (either name or address, or both) of 698 donors, who had contributed a total of Rs 11.13 crore to the BJP and CPM, were not declared in them.

Secondly, the absence of date stamps on the donations report of political parties also makes it difficult to cross-verify the funds collected during an election period, as declared by political parties in their election expenditure statement, with their donations report.

Thirdly, India does not have any law governing the election expenditure limit for political parties, while individual candidates are expected to abide by an expenditure limit. An ADR analysis of the Lok Sabha 2009 election expenditure statements found gross discrepancies between the lump-sum amounts declared by parties and by their MPs. While 81 Congress MPs in their individual expenditure statements said they had received no lump-sum amount from their party, the party’s expenditure statement said that a total of Rs 8.09 crore was provided to them. Similarly, BJP stated in its expenditure statement that it did not provide any of its MPs a lump-sum amount of money, but 27 of its MPs claimed they had received a total of Rs 2.75 crores from the party.

Furthermore, there is no law which necessitates donations to the parties only through formal bank transfers using cheque, demand draft, real time gross settlement (RTGS), etc. While analysing the donations details above Rs 20,000 it is observed that there are huge donations made in cash. It obviously follows that tracking these cash donations becomes difficult. The national parties in their latest donation reports submitted, for 2012-13, state that they received a total of Rs 2.07 crore in cash. Similarly, their election expenditure statements submitted to the ECI for the Lok Sabha elections of 2009 reveal that out of a total amount of Rs 537.44 crores collected by them, a staggering Rs 392.07 crore (72.95%) was donated in cash during the election period of only 80 days. Thus during this period, the Congress received Rs. 247.34 crore in cash out of its total election fund of Rs 327.14 crore, while the BJP received Rs 102.76 crore in cash out of its total election fund of Rs 163.03 crore.

Given these facts, there is no way people can thoroughly scrutinise finances of the political parties. In its judgment of June 3, 2013, the central information commission (CIC) declared the six national political parties as ‘public authorities’ under the Right to Information (RTI) Act. These parties should provide complete details of all their donors in their donations reports, leaving no details undisclosed. They should also abide by the format for I-T returns as issued by the Institute of Chartered Accountants of India (ICAI), and reveal their election funds and disbursement in a comprehensive manner. Failure on their part to do so should warrant strict penal consequences, and their income should not be tax-exempted in such cases.

Furthermore, for the sole purpose of strengthening the Indian democracy, the parties should not only ensure financial transparency in their functioning but also make their financial information available in the public domain under the RTI Act. As for poll expenses, countries like New Zealand and Canada have put in place effective laws to limit the expenditure made by political parties on elections. The absence of such a law in our country drove the supreme court to sum up its position thus in the landmark judgment of Common Cause vs. Union
of India in 1996:
“The political parties in their quest for power spend more than one thousand crore of rupees on the general election (parliament alone), yet nobody accounts for the bulk of money so spent and there is no accountability anywhere. In a democracy where the rule of law prevails this type of naked display of black money, by violating the mandatory provisions of law, cannot be permitted.”

In a public interest litigation (PIL) submitted to the Delhi high court on May 28, 2014, ADR has contended that there should be a limit on election expenditure by political parties, and that parties should submit an account of their election expenses spanning the entire calendar year before polling, because they do start campaigning at least a year before elections.

It is only by undertaking fundamental and comprehensive electoral reforms that the publicly perceived illegality in the financial functioning of political parties will fade. Being the primary link between the state and its citizens, political parties must be accountable to the people they serve. If the presently absent public faith needs to be reinstated in political parties, this is a good starting point.

(The story appeared in the August 1-15, 2014 issue of the magazine)

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