The Murky Art of Political Funding

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Politicians need funds to run and win elections - and they don't want you to know where they come from.

On March 22, India’s Lower House of Parliament passed a bill that tightens tax scrutiny on citizens while loosening it for political parties. Indian citizens will now need an Aadhar card to file their tax returns and the tax-man has full discretionary powers to execute tax raids at will. However, the limits to donations that can be made to political parties has been removed while ensuring the anonymity of donors.

It’s a major shift in the power structure between people and political parties. For the citizens, the shadow of the taxman is never far, and a raid no longer needs a reason. For the political parties, however, millions of dollars can pour in from foreign sources without any transparency about who is funding them.

In total, the Finance Bill, dubiously classified as a money bill, includes 40 amendments to existing laws. As a money bill, it cannot be defeated in the Upper House of Parliament. Its passing demonstrated the extent to which politics thrives on the loopholes in the system.

Shredding the paper trail 

In March 2014, the Delhi High Court found both the Indian National Congress (INC) and the Bharatiya Janata Party (BJP) guilty of accepting foreign funds in contravention of the Foreign Contribution Regulation Act (FCRA). According to the Public Interest Legislation (PIL) filed by the Association for Democratic Reform (ADR), Vedanta, a UK-based mining company, made donations to the tune of five crore rupees to both parties.

Its owner, Anil Agarwal, is Indian and holds more than 50 percent of Vedanta’s shares. This is an important point. Because, from November 2016, the government had up to six months to take action against the concerned parties on cognizance of the High Court order. But the Finance Bill passed the previous year in March 2016, changed the terms by which the FCRA defines a foreign company. The old rules barred foreign companies from making contributions to political parties, NGOs or journalists (among others).

Under the new amendments, if more than 50 percent of a company’s shares are held by an Indian entity, it won’t be considered foreign any longer under the FCRA. These limits vary based on the permitted Foreign Direct Investment in that sector (which can go up to 100 percent in cases). And the amendment is considered to be active retrospectively from September 2010.

In doing so, the BJP gave itself and the Congress a useful gift. And while the move makes it easier for multinational companies to make their mandated ‘Corporate Social Responsibility’ donations – the floodgates are open to more companies like Vedanta (heavily involved in mining operations in India’s resource-rich tribal belt) to fund political parties.

What does political funding do? 

According to Election Commission (EC) guidelines, Indian political parties can only spend up to Rs. 70 lakh per candidate in each constituency. In the 2014 General Elections, the BJP spent Rs. 714.28 crore ($115 million) on paper (ie, according to the EC). It was Rs.200 crore ($31 million) more than what its direct competitor – the INC – had spent.

But this is expenditure on paper. In India, and across the world, it’s difficult to calculate exactly how much political parties spend on their elections. What if we look at the money that went into them?

According to a report made in the Hindustan Times (based on EC and ADR data), both the BJP and the Congress saw huge donations come in from ‘electoral trusts’ – organisations granted tax exemption on the compiled donations they made to political parties. Major corporations pour their money into these trusts, who then pass it on to the concerned political party. While it’s not uncommon for corporations to donate to major political parties, the data from 2013-2016 shows that the BJP received more than three times the amount that the Congress did through a single trust – the Satya Electoral Trust. Major funders within the trust included Bharti Airtel Ltd., DLF Ltd., Indiabulls Housing, JSW Steel Ltd. and Hero Motocorp. This is not restricted to BJP and the INC alone. Almost every major political party (both national and regional) received funding from big corporations through trusts.

This trust funding accounted for up to a third of disclosed political party revenues. But this is the only available data under existing rules. Thanks to the new rules, this data will not be available for the next elections. Trusts are likely to be replaced by election bonds, where corporate donors can buy ‘bonds’ from the bank and donate anonymously with neither the public nor the party aware of their identity.

So, what does this money buy you if you’re a corporation? As P. Sainath points out, a healthy number in the government’s “Revenue Foregone” statement in its annual budget tells the tale. (Note: In March 2016, the government announced that this would since be known as Revenue Impact of Tax Incentives). Based on three years of revenue foregone statements, Indian Express calculated that the government wrote off 17.15 lakh crore rupees ($266 billion) worth of taxes as part of various ‘incentives’. These can be in two forms – on their direct taxes (affecting them directly) or on indirect taxes (which affects the consumer as well).

What does the voter get?

In 2014, Mukulika Banerjee completed “Why India Votes“, an anthropological study of what makes Indian voters set out in record numbers to the polling station. One of the many interesting observations was that all political parties distribute liquor the night before elections – an illegal act according to the EC (not even shops are allowed to sell liquor in the 48 hours before an election). Ten million litres of alcohol was distributed in the 2014 elections alone. Almost every major political party in India has resorted to such illegal and nefarious activities to win elections.

Winning voters costs money – from distributing alcohol, cash and drugs to setting up billboards and marketing campaigns. In earlier decades, political parties rode to power using populist schemes such as the promise of cheap rice or free electricity. Today, they offer 4G smartphones and television sets. Though these can be post-election promises as well, the expenditure incurred by political parties has gone up sharply: from 269 crore rupees in 2004 to 1308 crore in 2014.

It is a well-known fact the existing model of political funding in India has serious loopholes. The nexus between political parties and major corporations is well known. This Finance bill has done little to affect this relationship. But what little knowledge there was seems to have frightened the lawmakers. In passing such a clear smokescreen over their funding, India’s political parties have thrown the drapes over who they go to bed with. Even if we wanted to peek under the covers, there’s no longer a way to do so. We can only look for the ones who will benefit – and wonder how they got as far as they did.


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