Finance Bill: Modi govt just made political funding more opaque; transparency remains a promise

One of the less discussed developments in the Finance Bill 2017 is the way Narendra Modi government has effectively made corporate funding of political parties more opaque, contrary to its promise of bringing in more transparency.

The Finance Bill has made two important changes (read a story here) in this regard. First, it has scrapped a ceiling that earlier restricted a corporate entity from donating more than 7. 5 percent of its average net profit in the 3 immediate preceding fiscal years to a political party. This is still fine, since one can argue that companies won’t have to do tricks to covertly donate cash to a political party to maintain a give-and-take relation.

 Finance Bill: Modi govt just made political funding more opaque; transparency remains a promise


But, the second provision gives a completely different turn to the story. In the Finance Bill, the government has proposed to cancel an existing rule that requires corporate entities to disclose, in the profit and loss account, the name of the political party to which the funding is made. The company only needs to make a mention of the amount contributed under this category. Soon, the Companies Act will be amended to make these amendments a law.

Now reading the two together, this is what it finally looks like — a company can now contribute any amount it wants to a political party without disclosing the name of the party to shareholders. This is indeed disturbing since it defeats the very purpose of bring in more transparency in political funding. It will be almost impossible for the public or the shareholder to find out the real beneficiary (political party) to which the company is donating funds. Corporations can make these ‘donations’ to the political party in power to make sure that it stays in the good book of the incumbent. In return, the company can ask for favours while awarding contracts or formulating government policies. There is a chance that the beneficiary names can still come out if someone moves the court or the Election Commission, but the process will be complex and time taking.

A report (read here) in The Telegraph quotes a senior officer with the CAG office, saying thus: “This means, for example, that an infrastructure firm could theoretically pay up to 50 percent of its net profits to a single party as donation without anyone getting wiser as to which party has been paid... this throws open the possibility that an order to build a highway or a railway bridge could be given to a firm and that firm could pay the donation to the party in power which placed the order with it."

"The beauty is that if this happens, it will be legitimate and no questions can be asked by any ethics committee of Parliament or by any CAG audit," the report further quotes the official.

Now, why would a government that strives for a transparent economy by nudging the citizens to rapidly shift to Aadhaar-based cashless transactions/ more disclosures exempt political parties from the transparency rule? It is understandable that why none of the opposition parties, including the main Opposition party, the Congress, raised this issue. All drink from the same pot. But, the consequence of this action will be continuation of corporate-political nexus that will remain a black spot on the Modi government.

The recurring question is if the common man can be forced to embrace transparency in all his dealings, the government should ensure that the same rule applies to the political parties in the country as well. Worst, these amendments will be passed without even a discussion since Finance Bill is a Money Bill which means it won’t require the Rajya Sabha nod.

Ever since the Modi government took over power in 2014, its approach to political funding appeared to be clean. Even when the limit of anonymous cash donations was reduced to Rs 2,000 from Rs 20,000 in the last Union Budget, the move appeared directionally positive, though not foolproof. A political party could still make thousands of cash receipts showing donations below Rs 2,000 donations from an anonymous source and get away with no questions asked.

But, that move signaled the government’s intention to gradually clean up the mess of opaque political funding that is the root cause of all corruption in the system and a lifeline of corporate-political unholy nexus. The latest changes in the Finance Bill, however, raise serious concerns. We have enough evidence in the past to show that how the corporate-political nexus has weakened the economy. One of the reasons why the state-run banks in the country are neck-deep in bad loans is nothing but unholy relation between politicians and corporations.

Right now, about 12-13 per cent of the total loans given by banks are stressed assets, which means they are problematic areas in the balance sheets of these banks. When a phone call or missive comes from a political office to a bank, no matter what autonomy we are talking about, the banker can hardly turn away the ‘request’. Such lending diluted the due diligence and prudential norms, and finally resulted in a situation where a large number of unworthy companies and crony-promoters secured large amounts of bank money, which is ultimately public money. This led to large-scale non-performing assets (NPAs), creating a near-crisis situation among certain public sector banks. Right now, of the total NPAs, over 90 percent is on the books of the state-run banks. The banking sector is not the only one which has been affected by the involvement of corporate-political nexus. But, we have not yet learned lessons from the past.

To sum up, the changes in the Finance Bill, pertaining to corporate funding of political parties, has made the entire process even more opaque and, certainly, do not augur well for the Modi government which has all-along promised transparency in the system. The Aam Aadmi deserves to know more.

Updated Date: Mar 23, 2017 15:15:32 IST