A neglected proviso and a tweaked sub-section, buried deep in a money bill passed in Parliament’s recently ended Budget Session, has fundamentally adjusted India’s democracy by letting corporations anonymously donate endless amounts of cash to the political party of their choice. The 2017 Finance Bill mentioned token resistance from opposition parties when it was transferred late last month, but has attracted relatively little analysis, attention, and activists say for something so transformational. The Lok Sabha had earlier passed the four GST bills after Arun Jaitley allayed fears of a price spike in the new indirect tax regime.
“This is tremendous,” said Milan Vaishnav, a senior colleague at the Carnegie Endowment for International Peace, who has written comprehensively on political funding in India. “Till recently, we could look at molecular try to join the dots of corporate funding of political parties. With the new rules, we won’t yet have any dots to join.”
“So far away, a company could provide up to 7.5% of a three-year average of its net profits, and had to reveal the name of the recipient party. It has put a cap on endowments by each company and made it harder to finance parties using shell companies substances that exist only as a postal address.”
The Finance Bill 2017, passed this session, eliminates the contribution cap, and the corporate disclosure requirements, and enables the creation of a new financial instrument called an “electoral bond,” issued by the Reserve Bank of India, which can be anonymously bought and deposited in the account of the beneficiary political party
The government claims these differences will make political funding more transparent a claim echoed by India’s corporate honchos, who insist anonymity is essential to guard against India’s “vindictive” political culture in which parties could penalize donors for funding rival political forces.
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“While the ultimate objective is to bring about transparency in political donations, it is only reasonable when our political system demonstrates maturity like cultivated countries,” said Sunil Alagh, former managing director and CEO of Britannia Industries. “This may take some time, and currently, therefore, the conveyor bonds are a step in that direction and should be welcomed.”
But critics say withdrawing funding caps and disclosure norms will buy corporations both Indian and foreign disproportionate influence over regulatory policy and offer a lucrative tax-free conduit to launder money through India’s 2,041 registered parties most of whom have never contested an election and exist only in name.
“Donations to political gatherings are tax-free,” said Shahid Khan, former Member of the Central Board of Verbatim Taxes. “Now a company can donate any amount to a party, claim a tax rebate, and the party can show ‘cash expenses’ in its income tax return to cycle the money back to the company and credit a pass-through commission.”
“Every political party is opposite transparency,” said Jagdeep Chokkar, founder of the Association for Democratic Reform. The recent such reform, Chokkar said, was in 2013, when the United Progressive Alliance regime passed a law allowing for Electoral Trust Companies: secretive entities that collect donations on the support of India’s biggest corporates and disburse the money as per the whims of their trustees.
Electoral trusts have since emerged as a primary source of funding for political parties. Between April 1, 2013, and March 31, 2016, donations from seven discretionary trusts amounted to more than Rs 428 crore about a third of all the funding disclosed by political parties in that time according to parties’ contribution reports.
Satya Electoral Trust, the highest of the seven, distributed about Rs 256 crore more than all the other electoral trusts combined to national and state parties alike. Satya’s money, in turn, came from companies representing a broad swath of corporate India advanced in highly regulated sectors where seemingly minor differences in policy can have a disproportionate impact on balance sheets. The trust’s subscribers include Indiabulls Housing Finance, DLF, Hero Motocorp, and Torrent – a Gujarat-based organization with separate businesses in thermal power and pharmaceuticals.
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While trusts must disclose their offerings to the Election Commission of India, trustees are loath to discuss the rationale behind their donations. “We are a separate company, we don’t have to answer such questions,” said Mukul Goyal, Satya’s director, who announced that Satya was set up in 2013 by Bharti Enterprises, but has functioned independently with its board since 2014. Mr. Goyal declined to name the committee members.
HT transferred out to numerous of India’s biggest political donors to understand the justification behind their funding decisions. None responded save for Tata Sons Ltd, whose Progressive Electoral believe disburses money on a predetermined formula In national elections, parties must hold at least 3% of Lok Sabha’s seats to qualify for funding, while state parties must keep at least 10% of the total seats in their respective Vidhan Sabhas. Positions disburse fifty percent of the funds held elections previously, and another 50% on the basis seats won in the election.
For corporations, discretionary trusts give an impression of an arms-length transaction, creating a buffer that allows companies to give money to parties without appearing to favor one over the other. But believe have their downside, too. In 2013, Chokkar zeroed in on the Public and Political Consciousness Trust in which it turned out to be a discretionary trust associated with the Vedanta Group, a global mining conglomerate registered in London.
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“Vedanta is a foreign source of funding because it is recorded in the UK,” said Chokkar, noting that the trust structure allowed money from an external source to pass under the radar. At the time, political individuals could not accept foreign funding under the Foreign Contribution Regulation Act of 1976 (FCRA). But when ADR raised the concern, the government used the 2016 Finance Bill to amend the FCRA to allow parties to accept foreign contributions as long as they are routed through an Indian subsidiary.