India Unveils Measure to Clean Up Political Funding

In India, where illicit cash is the lifeblood of political parties, the government has slashed the limit on cash donations in a bid to clean up political funding. But analysts say much more needs to be done to tackle a problem that they say lies at the heart of corruption that Prime Minister Narendra Modi has vowed to eliminate.

In the annual budget, Finance Minister Arun Jaitley announced that the cap on cash donations to political parties would be lowered from about $300 to $30.

He said that the reform “will bring about greater transparency and accountability in political funding, while preventing future generations of black money.”

He also announced a plan in which donors could buy “election bonds” from banks to give political parties, ostensibly making them easier to track.

The measures came as Prime Minister Modi faced public pressure to overhaul political financing following his drastic move last November of banning high denomination notes to flush out illicit cash.

Critics pointed out that “black money” or untaxed wealth cannot not be eliminated until political parties become transparent about where they collect millions of dollars in cash.

Announced days before five Indian states head to the polls, political analysts said the move is meant to reassure voters that Modi is serious about rooting out “black money”, a key pledge that helped catapult him to power in 2014 in a country fed up with corruption.

But merely lowering the limit on cash donations will make little impact in cleaning up political funding, according to Jagdish Chhokar, a founding member of the New-Delhi based watchdog, Association for Democratic Reforms (ADR). “I think this is more of a smokescreen.”

He points out that the government has launched a massive drive for ordinary people to adopt digital modes of payment as part of its high profile campaign to clean up the economy, “I just find this very, very surprising that a person who is selling groceries, the government expects that grocer to accept payment not by cash, but they leave a window of Rs. 2000 ($30) for political parties. It is completely beyond my comprehension,” says Chhokar.

Opaque political funding

The opaque funding of political parties has become a growing source of concern in the world’s largest democracy, where there is no federal election funding and where campaigns have become increasingly expensive. Massive rallies, candidates hopping across states in helicopters and wooing voters with gifts or cash hardly raise eyebrows.

For watchdogs like ADR the unanswered question is: where does the money come from? Does it come from the hoard of illegal cash in the hands of individuals and businesses that the government set out to target in its demonetization drive?

A recent report by ADR said that a whopping 70 percent of the $1.7 billion dollars collected by political parties between 2004 and 2015 came from unknown sources. The report said that the source of two thirds of the income of the ruling Bharatiya Janata Party was not disclosed, while that figure was as high as 83 percent for the opposition Congress Party.

N. Bhaskara Rao, chairman of the Center for Media Studies in New Delhi which tracks election funding, says lack of transparency in political funding is a big worry. “The very basics of democracy are being eaten into because of this lack of transparency, black money aspect. This is the mother of all corruption, election time corruption,” says Rao.

But he calls the latest move to cap cash donations at $30 the start of a process that will tackle a difficult problem. “It’s a good beginning. One may argue this is not enough, but then there is enough to have a beginning.”

Others also expressed optimism. Senior political commentator Pratap Bhanu Mehta said in the Indian Express newspaper that while it may be said that lowering the threshold of cash donations will only require more ingenuity on the part of accountants, “it signals that political financing will be a subject that parties will not find easy to evade.”