New Delhi, February 2, 2017

ADR, the noted citizen watchdog, explains why the reform is much ado about nothing new

Election watchdog Association for Democratic Reforms (ADR) has said the measures announced in the Union Budget on political funding would be “inconsequential” in cleansing of hidden wealth.

In a detailed critique, ADR said the government showed “lack of political will” in proposing real reforms. It said the proposed measures lacked teeth and political funding would continue to remain “opaque”. It said the measures fell way short of Election Commission (EC) and Law Commission recommendations.

“The Budget fails to address the issue of transparency, disclosure and penalties of political parties” and how these measures would be implemented.

The Budget has proposed that the maximum in cash donation a political party may receive will be Rs 2,000. Existing law allows up to Rs 20,000. Such amounts from ‘unknown sources’ constitute 71 per cent of political donations. Donations above Rs 20,000 are the only ‘known sources’ of income. ‘Unknown sources’ are income declared in the income tax (I-T) returns by political parties without giving any source of income and is, therefore, believed to be unaccounted money.

ADR said the proposal to limit cash donations to Rs 2,000 was flawed on three counts. First, the Budget does not provide for scrutiny of income declared by parties from various sources. The Budget also doesn’t specify any penal provisions. ADR said the declared income of parties was unlikely to reflect their true income unless scrutiny of their accounts is taken up by an audit body approved by the Comptroller & Auditor General or the EC.

More important, the Budget does not make it mandatory for the parties to provide details of all donors who give above Rs 2,000 to the I-T department or any audit body. Even if donors make donations by cheque or electronic transfer, unless their complete information is available for audit scrutiny, the sources of donations below Rs 20,000 to political parties will continue to stay hidden.

On the proposal that political parties were “entitled to receive donations in cheque or digital mode”, ADR said this was a reiteration of existing rules. Parties already have the option of accepting donations in only such forms that can be traced to a donor.

On the proposal to introduce electoral bonds for political funding, ADR said it was waiting for the government to frame a scheme on this. According to the finance minister, donors would be allowed to buy these bonds and donate to any party or parties; these may be redeemed in the account of a registered party. These bonds will be available only on issuance of cheque or via digital payment. ADR demands that these contributions not be anonymous and details of such donors be compiled.

The final proposal was that only political parties which file their return of income within the prescribed time and which fulfil the specified conditions would enjoy 100 per cent tax exemption. ADR said section 13A of the I-T Act already provides that if the treasurer of a political party or any other person so authorised fails to send a report under sub-section (3) of Section 29C of the Representation of the People Act (RPA) for a financial year, no tax exemption shall be available for that party for that year.

Also, that the EC, as part of its transparency guidelines, has specified that parties are required to file their return of income. “The legal provisions were already in place. Reiterating an existing rule of law does not add anything new to the proposed electoral reform,” it said.

RPA says for a party to claim tax exemption, its treasurer has to send a donations report, declaring details of donors who contributed above Rs 20,000. However, there is no legal provision where political parties are barred from disclosing details of donors who donated below Rs 20,000. “This only shows a lack of political will,” ADR said.

According to an analysis by ADR, between 2010-11 and 2014-15, the Bharatiya Janata Party defaulted in the sending of its report to the EC by an average of 182 days and the Congress by 166 days on average. The Nationalist Congress Party defaulted for an average of 87 days and the Samajwadi Party by 42 days.

ADR said this was the first Budget to raise the issue of transparency in political funding, but it was “unfortunate to note” that complete transparency in the finances of political parties has still not been adopted and the proposed reforms are inconsequential, as political funding will continue to remain opaque.

The Budget proposes to encourage digital modes of payment but not to curtail other forms of anonymous donations, such as sale of coupons. ADR said political parties must provide all information on their finances under the Right to Information Act.

[The Business Standard]