Demonetisation: India can't win its black money war by going soft on political parties

It is becoming abundantly clear that all the hoopla and about going after black money through demonetisation was more of a spoof. The media, particularly the social media, was hyper about how many stashes of black money political parties had lost, with names like Mamata Banerjee, Mayawati and Arvind Kejriwal figuring conspicuously.

Then there was plenty of news about politicians from various parties caught with lakhs or crores of cash. That the banks too were laundering cash without political involvement itself is questionable. But the fact remains that bulk of the cash seized as 'black money' is new currency. All this while frequent briefings including the current withdrawal limit of Rs 24,000 a week is not respected by many banks because they simply don’t have the cash unless you can stand in queues for days drawing Rs 4,000 or Rs 6,000 each day. Statements of more money being sent to rural areas, but then many news channels show chaos in rural areas as well.

Revenue secretary Hasmukh Adhia. Reuters

So why not come clean and admit it will take 4-6 months to set things right, instead of 2-3 weeks which banks admit is impossible?

In the backdrop of the above, it was a shocker to hear revenue secretary Hasmukh Adhia telling reporters that political parties depositing the demonetised Rs 500 and Rs 1,000 notes in their account(s), will not face income tax investigation – so sky is the limit. Adhia was replying to in response to a question that whether the government is also investigation political parties/political treasuries depositing their own cash in banks. Adhia specifically said, "If a deposit is 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. If the individual is putting money in his own account, then we will get information." But politicians are no fools in such matters; stash must’ve gone white already through accounts of followers, Jan Dhan, whatever. Sections 13A of the Income Tax Act, 1961 grants exemption from tax to political parties in respect of their income from house property, other sources, capital gains and income by way of contributions received from any person.

Significantly, Adhia's statement came on a day winter session of Parliament ended with all the shouting and sloganeering about demonetisation, AgustaWestland helicopter scam, allegations, counter allegations – of which the end result remains a question mark in the same vein as over past decades. For that matter in the case of AgustaWestland, no defence deal or scam can happen without the express involvement of the defence secretary and the DG (Acquisition), who before signing defence deals, make sure that the bribes reach the intended beneficiaries. Even Gen VK Singh, former COAS and presently MoS (External Affairs) states clearly in his autobiography that the corruption pipeline goes right up to the PMO. So let us see how thorough this probe and prosecution will be and with what end result. Does this explain why AK Anthony is doing jumping-jack putting all the blame on the IAF, least CBI probes how much was his cut in the AgustaWestland scam and what route it followed?

The 1993 Vohra Committee report while establishing the nexus between governmental functionaries, political leaders and others with various mafia organisation and crime syndicates, enabling development of significant muscle and money power to operate with impunity, had finally opined that "leakage whatever about the linkages of crime Syndicate senior Government functionaries or political leaders in the states or at the centre could have a destabilizing effect on the functioning of Government." So, naturally there was no follow up to this report. But in this era of digitisation and connectivity (no matter not complete) all you need is an opinion poll pan-India as to which cross-section has and makes maximum black money in India, the overwhelming majority will be the political parties and politicians, corporate-with-blessings of the polity, and the like. In fact, that is the talk in every nukkad, shop, bank, gatherings of any size. But then is not what the 1993 Vohra Committee Report was implicitly pointed out?

So, if the bulk of the black money and loot is with the political parties, even though bulk is not in currency, where do we go from here – what sort of black money recovery are we executing? Sure Sections 13A of the Income Tax Act, 1961 grants exemption from tax to political parties in respect of their income from house property, other sources, capital gains and income by way of contributions received from any person. But given that government has launched a war against black money and corruption, why could Sections 13A of the Income Tax Act, 1961 not be amended before the demonetisation drive was launched.

This should have been very much possible considering the surreptitious manner in which FCRA Act 2010 was amended, legalising foreign donations – from ‘unknown’ sources? Why couldn’t a limit be put on what the political parties can deposit in their account and beyond which what percentage would be taxed, and how steep? After all, there are financial limits laid on electioneering also. Leaving limitless deposits by political parties without any taxation actually amounts to a farce being played about fighting a war against black money and corruption through demonetisation, permitting other hoarders now to deposit any amount with 50 percent taxation notwithstanding.

When Modi recently remarked about ‘state funding’ of elections, he was aware that money matters in politics because parties need ever-increasing resources for administration and election campaigns. But he was possibly looking for solutions to problems like: how money should not be allowed to buy access to decision-making power; how to sanction illicit donations and prevent trading in influence; should the state impose limits on corporate donations; and, should parties receive public funding? But looking at the mammoth political expenditure in our country, would it be ethical to use public funds for elections, what will be the tax burden on the common man, and how will it affect development? If that is the reason for the impossible drive of going cashless overnight without adequate infrastructure and education, to simply tax every transaction, it certainly needs a serious relook. It doesn’t take any intelligence to realize that next couple of years, India will need a mix of cash and cashless. If we don’t want to admit it, that is a different issue. The litmus test for Modi, therefore, is how to draw the black money out from the political parties, without which the war on black money will be largely ineffective.

The author is a veteran Lt. Gen.