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2019 Elections: From Where Do Political Parties Get Their Campaign Donation?

Product Manager with 6+ years of experience in building consumer facing technology products.
Nov 13, 2018 10:40 AM 6 min read

Another news week just passed us by, and brings us closer to election season, starting with Chattisgarh, Madhya Pradesh, and Rajasthan not too far ahead, and then the 2019 Lok Sabha elections. Political parties across the spectrum are organizing themselves for what is certain to be a tough and divisive fight. Which brings us to today’s topic - where do political parties get the money to campaign?


It is useful to ask some basic questions to put the issue in perspective - Who can donate to political parties? How are these donations made? Do citizens have a right to know how much political parties make and from whom? Do political parties need to declare how they spend this money? Is there a limit on how much each party can spend during elections?

2019 Elections: Where Do Political Parties Get The Donation To Campaign?


Who Can Donate to Political Parties?


Anybody from an individual to a corporate can donate to political parties. In addition, there are freebies given by the state in the form of airtime on state channels, and free printouts of electoral rolls.


How Can These Donations Be Made?


There are primarily two modes - cash and non-cash. The disadvantage of cash is that it is hard to trace (we will get to that part in a bit). Budget 2018 added a new mode of non-cash transfer called electoral bonds - which essentially means you can go to a few selected banks, deposit money, buy a bond and then put it in the account of the political party of your choice. More details in the sections below.


How Do We Know How Much Money a Political Party Makes and From Where?


Here is the truly interesting part. 


The law governing all things elections is the Representation of People’s Act 1951 (amended multiple times since then.) Section 29C of the Act states that cash donations to political parties of any amount are allowed, but any amount above Rs. 20,000 has to be reported with the source of the donation. This was easy enough to circumvent - cash donations were merely split into buckets of Rs. 19,999 and voila - zero transparency. In Budget 2018 however, the maximum amount of cash that could be received (anonymously or otherwise) was reduced to Rs. 2,000. How much will this help? Do we underestimate the capacity of political parties to indulge in creative accounting and show multiple donations of Rs. 1,999 rather than Rs. 19,999?

 2019 Elections: Where Do Political Parties Get The Donation To Campaign?


Here are some numbers, which put the problem of anonymous donations into perspective. “Total income of the National Parties from known donors Rs. 589.38 crore, which is 37.8% of the total income of the 7 National parties during FY 2016-17.” 


A staggering 72.2% of donations to political parties is from unknown sources.


Read this part again and think about how it affects how political parties can represent the electorate’s interests. We simply do not know who the people or companies are behind the money. This leaves open multiple possibilities of the democratic process being subverted. Is this money from corporates? How does this conflict of interest translate to policy making? So many more questions.


Unsurprisingly the party in power has 3 times the income of the next biggest rival, according to an NDTV report on breakdown of incomes by political parties. Oh also, these donations are Income tax exempt, and nothing stops parties from not reporting the amount of money coming into their coffers.


So Did Budget 2018 Do Anything to Fix This?


Apart from reducing the maximum amount of cash donations to Rs. 2,000, there was another big announcement - a new type of financial instrument called electoral bonds. A donor buys electoral bonds from specified banks, and deposits it in the accounts of the political parties they want to donate to. The donors have to declare in their accounts the amount of political bonds they have purchased, and the political parties have to declare the amount they have received via this route. The names of the donors are not revealed, which theoretically is still less than ideal. The only clear advantage is that the donations are made through tracked channels rather than via cash. This is now being used by large donors - Data shows that 99.9% of electoral bonds bought so far are worth Rs. 10 lakh or 1 crore.


From the frying pan into the fire?


Do Citizens Have a Right to Know How Much Political Parties Make And From Whom?


Yes, on the first part and no on the second part - as demonstrated above. What is clear, however, is that politicians will go to any extent to protect their sources of cash. Do you remember the recent noise about NGOs receiving foreign funding? In theory, any money from abroad is suspect because the intentions behind it are not clear (I’m stretching this argument). So shouldn’t our political parties, representatives of the people, sworn by the Constitution to govern and protect us, be measured by the same yardstick?


Of course not.


In Budget 2018, another provision was passed which exempted donations from foreign sources to political parties from scrutiny. The law that governs funding from foreign sources to NGOs and political parties is the same - the Foreign Contribution Regulation Act (FCRA). In fact, the Delhi High Court in 2015 had held that donations by Vedanta plc. (a UK based conglomerate) to the BJP and Congress were illegal because they violated the FCRA.

According to an article in The Hindu,  


"Through Finance Bill 2016 passed earlier, the BJP government had amended the FCRA to make it easier for parties to accept foreign funds. Now, it has amended it further to do away with the scope for scrutiny of a political parties’ funding since 1976.


The retrospective amendment will help BJP and Congress escape the fallout of a 2014 Delhi High Court judgement that held both guilty of violating the FCRA. The FCRA was passed in 1976. It defined a company — Indian or foreign — registered abroad or with subsidiaries abroad as a foreign firm. It was later repealed and replaced with the FCRA, 2010.


The BJP government, through the Finance Act, 2016, had also changed the definition of a foreign company by saying a firm with less than 50% of share capital held by a foreign entity would no longer be a foreign source any more. This amendment also came into effect retrospectively from September 2010.


Before the change approved last week, foreign funds received by a political party before September 26, 2010, when the FCRA was enacted, were open to scrutiny.


Once Clause 233 in the Finance Act 2016 was passed, BJP and Congress simultaneously withdrew appeals in the Supreme Court against a Delhi High Court verdict that held them in violation of the law on foreign funding.”


In sum, foreign funding was illegal according to law. Funding from Vedanta was challenged in the High Court, which ruled that it was illegal. Government amended law to ensure that no foreign funding to political parties from 1976 can be questioned in a court of law. Congress and BJP withdrew their appeals to the 2014 High Court judgment.


Oh and here’s the kicker - all of these amendments were passed without debate in the highest law making body in the country. Without. Debate.


Read the above section again. Weep.


Thankfully, there is a PIL in the Supreme Court protesting this.


Is There a Limit On How Much Each Candidate Can Spend During Elections?


Yes, there is. Rule 90 of the Conduct of Election Rules 1961 specifies limits on spending, and directs candidates to declare their spend (Rs. 70 lakh for each parliamentary constituency). Easier said than done, since there are no mechanisms to monitor in place, and even then it is very difficult to trace expenses to a particular candidate.


So Now What?


Do you remember how we are now required to link our Aadhaar cards with our PAN numbers and how that is Step 1 towards killing black money and corruption in the system? Should we now wonder why the same standards of probity are not applied to our lawmakers - those we elect to safeguard our interests? If every penny of our hard earned money is accountable, why is it different for political parties? How can we trust our politicians if we are not sure in whose interest they are acting?

 2019 Elections: Where Do Political Parties Get The Donation To Campaign?


This has been mentally taxing to write, and I’m sure if you’ve reached here you’re at least mildly pissed (hopefully really angry). That is good. Stay mad. Remember this when somebody tries to convince you about one party vs. the other. Make sure you ask these tough questions. Most of all remember this over the next year, make sure you have election identity cards, and make sure you vote.


Until next time.


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