On December 16, 2016, the revenue secretary Hasmukh Adhia said that the political parties are free to deposit old Rs 500 and Rs 1,000 notes in their bank accounts. Adhia also said that deposits in the accounts of political parties are not to be taxed. “If it is a deposit in the account of a political party, they are exempt. But if it is deposited in individual’s account then that information will come into our radar,” he said. This basically meant that deposits made by political parties would not be up for scrutiny.
This statement created a lot of controversy. The finance minister and master spinner Arun Jaitley then took pains to explain that the political parties were not being given any favourable treatment. As he said: “Under Section 13A of IT Act 1961, Political parties have to submit audited accounts, income and expenditure details and balance sheets. Post demonetisation, no political party can accept donations in 500 and 1,000 rupee notes since they were rendered illegal tenders. Any party doing so would be in violation of law.”
“Just like anyone else, political parties can also deposit their cash held in the old currency in banks till the 30th of December provided they can satisfactorily explain the source of income and their books of accounts reflect the entries prior to 8 November,” he added.
While it may sound different, both Adhia and Jaitley were essentially saying the same thing. This is how things prevail as of now. Political parties are currently not required to publicly disclose contributions of up to Rs 20,000.
As Sandip Sukhtankar and Milan Vaishnav write in a research paper titled Corruption in India: Bridging Research Evidence and Policy Options: “This rule allows contributors to package unlimited political contributions just below this threshold value completely free of disclosure.”
This basically means that any political party having received individual donations of up to Rs 20,000 in cash can deposit it in bank accounts. This money will not be investigated simply because these donations need not be publicly disclosed. That is the law of the land. And that is precisely what Adhia said: “If it is a deposit in the account of a political party, they are exempt. But if it is deposited in individual’s account then that information will come into our radar.”
Further, the political parties can go through the audits that Jaitley talks about but they still won’t have to publicly declare the names of the individuals and institutions, who have donated amounts below Rs 20,000.
In fact, let’s look at some data from 2014-2015, put together by the Association for Democratic Reforms. As the report titled Analysis of Income & Expenditure of National Political Parties for FY- 2014-2015 and dated June 3, 2016, points out: “Only 49% of the total donations of the parties came from voluntary contributions above Rs 20,000.” This means that 51 per cent or more than half of the total donations of National Political Parties came from donors whose details are not available in the public domain. The BJP, Congress, BSP, NCP, CPI and CPM, form the six national level political parties.
As the report points out: “A total of Rs 648.66 crores (51% of total donations) of the total donations to National Parties was collected during FY 2014-15 from donors whose details are not available in the public domain.”
The report makes several other interesting points:
a) BJP… collected Rs 434.67 crores (50% of total donations) from donors whose details are unavailable.
b) BSP claims not having received any donation above Rs 20,000, hence no donations details of the party are in public domain. The BSP has been declaring this for 10 years now.
c) NCP is only party which has not received donation below Rs 20,000 during FY 2014-15. Thus all voluntary contributions are available in the public domain.
d) As far as the Congress is concerned, 32 per cent of the donations of the party came from unknown sources.
e) The unknown sources of income are essentially raised through ‘sale of coupons’, ‘relief fund’, ‘miscellaneous income’, ‘voluntary contributions’, ‘contribution from meetings/ morchas’ etc.
So as far as dealing in cash is concerned, it continues to be the order of the day for political parties. It is worth mentioning here that we are talking about only six national level political parties here.
The number of political parties operating in India is significantly more. A PTI report dated August 2015 points out: “According to the [Election] Commission, as on July 24, there are 1866 political parties which are registered with it.”
Most of these parties do not fight elections. Then why are they set up in the first place? As former Chief Election Commissioner TS Krishna Murthy recently told The Indian Express: “Many political parties are set up with the sole intention of laundering black money.”
In fact, it is safe to speculate that many of these political parties would have been laundering money in the aftermath of demonetisation as well. The law of the land does not stop them from doing that. All they need to claim while depositing demonetised Rs 500 and Rs 1,000 notes into a bank is that it was donated on or before November 8, 2016.
Having said that, it would be make tremendous sense for the government to release data on the total amount of demonetised Rs 500 and Rs 1,000 notes deposited by the political parties in banks since November 8, 2016. Is the Modi government up for that?
Also, it is extremely unfair that the citizens need to show an identity proof while depositing their old Rs 500 and Rs 1,000 notes into a bank account, whereas political parties can continue to receive donations of up to Rs 20,000 in cash and need not declare who gave those donations. This includes the leading political party of the country which in 2014-2015 got half of its donations from unknown sources.
In fact, as I have been saying repeatedly, the issue of black money cannot be tackled seriously, without making political funding transparent. This needs simple majority in the Parliament. The BJP has a majority in the Lok Sabha and can take the first step towards this. It is likely to be supported by some parties in the Rajya Sabha as well. Even without a majority, the party did manage to get the Goods and Services Tax passed through the Rajya Sabha. So, what is holding it back on this front?
In fact, the Election Commission has suggested that“anonymous contributions above or equal to the amount of Rs two thousand should be prohibited.” But why even allow a window of Rs 2,000? Political parties should move towards a totally cashless way of taking donations.
To conclude what are Jaitley, Narendra Modi and the BJP, doing about taking care of this anomaly? An anomaly which as of now clearly allows political parties to launder black money. Will something be done on this front or are only the citizens of this country accepted to show all the honesty?
Postscript: This is my last piece for the year. Here is wishing the readers a Merry Christmas and a Happy New Year. See you in January 2017.
Vivek has worked in senior positions with the Daily News and Analysis (DNA) and The Economic Times. He recently finished writing a bestselling trilogy on the history of money titled, Easy Money. He has taught in several universities on the topic of Economics. He currently contributes to many of the top financial publications in India on top of writing his own publications, Vivek Kaul's Diary and The Vivek Kaul Letter.
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