Context:

1. Announcement on electoral reforms in the Budget speech.

2. While some considered it as a historic act of cleansing our polity, others saw it as a significant though inadequate step forward in the right direction.

The scheme of things:

1. First, he claimed to follow the Election Commission in proposing a ceiling of ₹2,000 on the amount of cash donation that a political party can receive from one person in a year.

2. Second, he announced that political parties would be “entitled to receive” donations by cheque or digital mode from their donors.

3. Third, he proposed a new scheme of Electoral Bonds.

4. Fourth, he said that every political party would have to file its Income Tax return within the prescribed time limit in order to enjoy exemption from payment of income tax.

5. He insisted that this scheme will bring about “greater transparency and accountability in political funding, while preventing future generation of black money”.

Analysis:

1. The second and the fourth components of this scheme are redundant, as these are no different from what the existing law provides for.

2. It does not require a new law to say that political parties are “entitled” to receive donations by cheque or digitally.

3. They were always entitled to this and were already doing so.

4. What the system needed, was a new law to mandate that the parties would be “required” to receive donations by cheque or digitally.

5. The existing law requires political parties to file their income tax returns to enjoy tax exemption.

6. The Finance Bill now proposes a new proviso in Section 13A clause (d) of the Income Tax Act 1961 that explicitly says that the return should be filed within the stipulated time limit.

7. So far, all major parties have routinely flouted this requirement and no one gets penalised for this non-compliance.

Limiting cash donations:

1. The proposal about limiting cash donations to ₹2,000 has been widely misunderstood and therefore welcomed as a first step in the right direction.

2. Everyone was foxed into believing that the limit for anonymous donations, contributions that are exempt from reporting, has been reduced from the existing ₹20,000 to ₹2,000.

3. This is what the Election Commission (EC) had asked for in its revised compendium of Proposed Electoral Reforms in December 2016.

Anonymous donations:

1. The existing limit of ₹20,000 on anonymous donation as per Section 23 of the Representation of the People Act (RPA) has been left untouched.

2. The Minister has merely proposed a new, additional, clause that limits cash donation from one source to ₹2,000 in one year.

3. Notice that there was and is no requirement to disclose a contribution by cheque or digital transfer up to ₹20,000.

4. There was and is no limit to how much a party can receive from anonymous donations.

5. More importantly, there was and is no limit to how much overall a party can receive in cash from all sources put together.

6. Following the Law Commission’s recommendations, the EC had proposed that no party should be allowed to receive more than ₹20 crore or 20% of its overall donations from anonymous sources. The Minister did not pay heed to this.

What difference will it make?

1. The proposal is unlikely to make any difference to the business as usual for political parties

2. The fact is that most political funds remain in the pockets of party leaders. A small amount enters the coffers of the party and becomes party funds

3. A tiny fraction of party funds is placed in the bank accounts of the party to meet some expenses that cannot remain invisible

4. Much of what political parties show as donations is black money generated by party leaders which is turned into white money by way of book entries as donations to the party

5. So far, the accountant who had to covert, say, ₹100 crore had to make sure than the entire amount was broken down into entries of ₹20,000 or below.

6. Now they will absorb the same amount by breaking it down into entries of ₹2,000 or below

7. All that the proposed law would ensure is more book entries and perhaps a higher fee for the accountant

Trouble with electoral bonds:

1. Anyone who wants to donate to a political party would be able to purchase bonds from authorised banks

2. This purchase will have to be in ‘white money’ against cheque and digital payments only

3. Once purchased, these bonds will be like bearer bonds and will not contain the name of the eventual beneficiary

4. These bonds shall be redeemable only in the designated account of a registered political party within a prescribed period

5. So, the donor’s bank would know about who bought how much of Electoral Bonds, but not the name of the party which received it

6. The party’s bank would know the amount deposited through Bonds, but not the identity of the donor

7. The Income Tax authorities and the EC would not know anything: reporting of donor, beneficiary, or even the amount of contribution has been exempted by amending the Income Tax Act Section 13A (b) and the RPA, Section 29C

8. The net effect, and indeed the purpose, of the Bonds will be that no one except the fund giver and the fund receiver would know about this exchange done in white money with full tax exemption

9. Once introduced, these bonds will mask whatever little transparency exists in the current system

10. Indeed, the black money in politics might go down, as the white money has been provided a perfect cover of secrecy