Electoral Funding Amendments

  • The Supreme Court asked the Centre and the Election Commission to respond to a petition challenging the various amendments made through Finance Act 2017 and Finance Act 2016 in various statutes, saying these changes have opened the floodgates for unlimited corporate and foreign donations to political parties.
  • A petition was filed by the Association for Democratic Reforms and Common Cause seeking to strike down the amendments made to the Companies Act, the Income Tax Act, the Representation of the People Act, the Reserve Bank of India Act and the Foreign Contribution Regulation Act.
Petition contention:
  • The amendments, introduced as money Bills, legitimise electoral corruption, while ensuring complete non-transparency in political funding.
  • The amendments in question have opened the floodgates to unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy.
  • The said amendments have removed the caps on campaign donations by companies and have legalised anonymous donations.
  • The Finance Act of 2017 has introduced the use of electoral bonds, which is exempt from disclosure under the Representation of the People Act, 1951, opening doors to unchecked, unknown funding to political parties.
  • The Finance Act, 2016 has also amended the Foreign Contribution Regulation Act (FCRA), 2010, to allow foreign companies with subsidiaries in India to fund political parties in India, effectively, exposing the Indian politics and democracy to international lobbyists who may want to further their agenda.
What are the regressive developments in this regard?
  1. Lifting of the maximum limit of 7.5% on the proportion of the profits a company can donate to a political party, thus opening up the possibility of shell companies being set up specifically to fund parties;
  2. Amendment of the Foreign Contribution (Regulation) Act (FCRA) opening the floodgates of foreign funding to political parties, especially those which have a foreign support base; and
  3. The refusal of political parties to come under the RTI Act in order to conceal their sources of funding.
What is the impact of these developments?
  • These three things will end up strengthening the business-politics nexus. It goes against the position taken by various electoral reform committees that the existing pattern of political funding encourages lobbying and capture of the government by big donors.
  • Moreover, these bonds are likely to reverse the small steps towards transparency of political finance that came as a result of RTI-driven public disclosure of income tax returns of political parties arguing that these disclosures were a matter of public interest and should be available to citizens.
  • Furthermore, all registered parties were required to disclose to the EC the identity of individuals and private entities donating more than Rs. 20,000 every year.
  • Proposed amendments to the Income Tax Act and the Reserve Bank of India (RBI) Act will exempt parties from keeping records of donations made through bonds.
  • However, the decision to reduce cash contributions from Rs. 20,000 to Rs. 2,000 is a step in the right direction. But it could prompt parties to take smaller cash donations, and therefore not declare their source.
  • This would not decrease the drift towards non-transparent funding reported by the Association for Democratic Reforms which found that nearly 70% of party funding over an 11-year period came from unknown sources; nearly Rs. 7,900 crore donations came from unknown sources in 2015-2016.
  • Electoral bonds will not change this. In fact, political parties don’t need to reveal the donor’s name for a contributions above Rs. 20,000 provided these are in the form of electoral bonds.

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