Electoral Bonds: How compromised is our democracy

[dropcap]W[/dropcap]HEN India goes to the polls later this month, its electoral field will be flush with money – the likes of which the country has never seen before. A slew of “reforms” in campaign finance laws has enabled an attractive regime of funding for election donors.  For the first time, donors have been provided with an opportunity to hide their identities from the glare of the general public through special banking instruments called electoral bonds.  The new rules allow corporations to bankroll political parties even if they are partly owned by foreign entities. And this is not all; the Central Government has also removed caps on donations made by corporations to political parties with no obligation to disclose that information to shareholders. An increasing number of foreign players are believed to have made donations to key political parties.

As a result, a Center for Media Studies report says that spending on the general elections is set to rise to a whopping 500 billion rupees – a rise of 40 per cent in election expenditure as compared to previous elections. But in a pool awash with cash, critics fear, this large influx of money coupled with opaque transactions, unlimited corporate funding and vested international interests, will seriously undermine the spirit of democracy.


A Veil over Corporate Donations


Section 182 of the Companies Act 2013 (the Act), in its earlier avatar, prohibited corporations from giving donations to political parties beyond 7.5% of net profits of the three immediately preceding financial years. With the amendment to this section through the Finance Act 2017, that limit on the maximum amount that can be contributed by a company to a political party has been removed.

The Finance Act 2017 has also removed the compulsion of giving particulars of the total amount contributed to political parties by corporations as it was earlier provisioned in the Companies Act. The Act also had a mandatory requirement of disclosing the name of the political party to which funding had been made. After the amendment, corporations are now neither required to give particulars of political funding nor disclose the names of political parties to whom donations have been made.

While making these amendments, the government has paid little heed to the Law Commission of India’s 255th report on Electoral Reforms which states that, “Unregulated, or under-regulated, election financing leads to two types of capture: the first involves cases where the industry / private entities use money to ensure less stringent regulation, and the money used to finance elections eventually leads to favourable policies.  The second involves cases of “deeper capture”, where through their disproportionate and self-serving influence, corporations capture not just regulators, but also the views of ordinary citizens and what they think of as “public interest.”

Similar concerns have been raised in a recent public interest petition filed in the Supreme Court of India by the Association for Democratic Reforms.  As a result of these Amendments, the PIL argues, “Loss-making companies will also qualify to make payments. This has increased the danger of quid pro quo and if any benefits are passed on to such companies by the elected government.” ADR’s petition further states that the recent amendments in campaign finance laws are violative of bare text of the constitution.

Allowing corporations to flush money without capping and accountability is in turn, “auctioning of our democracy to the highest-paying corporation” N Bhaskara Rao, Chairman of the Centre of Media Studies told The Leaflet.

But the government purports this scheme as a lesser evil than the previous conventional system of political funding which relied on donations in cash. Union Finance Minister of India, Arun Jaitley is reported to have said, “As against a total non-transparency in the present system of cash donations where the donor, the donee, the quantum of donations and the nature of expenditure are all undisclosed, some element of transparency would be introduced in as much as all donors declare in their accounts the number of bonds that they have purchased and all parties declare the quantum of bonds that they have received. “

The argument of curbing black money in politics through anonymous electoral bonds has its own detractors.  The India Today magazine has reported Niranjan Sahoo, senior research fellow at the Observer Research Foundation in Delhi as saying that even though the donation will now be subjected to a digital paper trail, “media, civil society and public will not know who pays whom,” and the non-disclosure clause will more or less legalise anonymous donations and crony capitalism.

Critics also say that the government’s stated rationale for introducing electoral bonds was that they would protect donors from harassment by enabling anonymous contributions. But, in reality, the particulars of the transaction through electoral bonds will be available with the Reserve Bank of India which in turn works under the Central Government. The introduction of electoral bonds, therefore, tilts the dice in favour of the ruling party.


Foreign Funding: The Invisible Forces


In 1967, parliamentary debates reveals, an enquiry conducted by India’s Intelligence bureau came to the conclusion that political parties in India were funded by foreign powers for the elections that year. The debates also talk about the propaganda carried out by Soviet radio – Peace and Progress – to influence the general elections of 1967.

In the turbulent state of affairs, Indian parliament understood that India had become a playground for world powers,; who were crafting ingenious means to latently push across huge sums of money through puppet organisations and destabilise the country.

Therefore, in 1976, at the height of the Emergency imposed by Indira Gandhi, the Parliament enacted the Foreign Contribution (Regulation) Act with the object to insulate sensitive areas of Indian national life – journalism, judiciary and politics -from extraneous influences stemming from beyond our borders.

Interestingly, in the year 2014, the Delhi High Court ruled upon a petition filed by the Association for Democratic Reforms that the biggest Indian political parties, the Bharatiya Janata Party and the Indian National Congress, were guilty of accepting foreign funds in contravention of FCRA. But the current dispensation led by Prime Minister Narendra Modi brought retrospective amendments in the FCRA, thereby absolving both national parties from punishment under the law.

This judgment of the Delhi High court is not isolated evidence of direct illegal foreign influence in India’s internal affairs says Prof. CP Bhambri, veteran political scientist and emeritus professor at the Jawaharlal Nehru University. Speaking to The Leaflet, Prof Bhambri said that there is ample evidence of the illegal influence of foreign powers in India’s political affairs since its independence. He drew attention to the activities of Jayaprakash Narayan, who was an honorary president of the Congress for Cultural Freedom’s India chapter. It was revealed later that the United States Central Intelligence Agency was instrumental in the establishment and funding of the Congress for Cultural Freedom, an anti-communist freedom advocacy group.

Dr Bhambri also said that while Indira Gandhi, who was the Prime Minister when the FCRA law was passed, was a zealous defender of India’s sovereignty, the stance of current Prime Minister Modi was full of contradictions when it came to allowing foreign powers to influence India’s internal affairs.

Although, various provisions of the FCRA law remain intact after recent amendments, the Central Government has now removed prohibitions on companies (within the meaning of Companies Act 1956) to bankroll political parties even if more than one half of its nominal share (more than 50 %) is held by a foreign company provided that nominal value of share capital is within the limits specified for foreign investment under FEMA Act, 1999.

Simply put, amendments in the Finance Act 2017 allows donations from foreign companies having majority stakes in Indian companies, provided that these companies follow the FEMA guideline pertaining to foreign investment in their respective sectors.

While the government has justified this measure saying the amendment would ensure that the “definition of ‘foreign source’ remains consistent with the FDI Policy of the Government of India; and provisions of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014. Professor Jagdeep Chhokar, Founder and Trustee of Association for Democratic Reforms do not agree. Speaking to The Leaflet, Chhokar said repeated attempts at amending the FCRA had, and have, only one objective: To save the BJP and Congress from being prosecuted for the violations of FCRA, as determined by the Delhi High Court in its judgment of March 28, 2014. He also maintains that if the BJP and Congress are condoned for FCRA violation through retrospective amendment of the law, it would set a dangerous precedent for our democracy.

Coupled with the removal of a cap on foreign funding, it can be concluded that these recent amendments allow foreign corporate powers to impact Indian politics.

The Congress and the BJP are not the only culprits, according to ADR. Regional parties also receive foreign funding.


Election Commission of India at loggerheads with the government



Apart from outside backlash, the government is also facing internal resistance from the Election Commission of India over recent amendments in campaign finance laws. The Election Commission of India has said that “recent amendments will allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign powers.”

The commission also said that it had warned the Ministry of Law and Justice about these amendments way back in May 2017. “The Election Commission of India has time and again voiced the importance of the declaration of donations received by political parties and also about the manner in which those funds are expended by them for better transparency and accountability in the election process,” it submitted at a recent Supreme Court hearing.

Commenting on the electoral bond issue, EC reiterated before the Supreme Court of India that, “This is a retrograde step as far as transparency of donations is concerned.”

Loopholes in Law


According to Sam Van Der Staak, Programme Manager, International IDEA (an inter-governmental organisation that supports sustainable democracy), there are numerous legal anomalies in India regarding political funding.

  • India lacks a comprehensive political finance Act.
  • There are no donation and spending limits for candidates and political parties.
  • India bans anonymous donations to political parties, not to candidates.
  • There are reporting requirements for political parties, or for candidates.
  • There is no state funding.
  • India lacks formal penalties for funding violations.

In light of these observations, an increase in election finances is going to enable only a small subset of the population fit for contesting in elections. It can also be inferred that an increase in corporate donations also mean that parliament will be driven by corporate agenda instead of the will of the general people.

A clutch of petitions has been filed before the Supreme Court of India over amendments in FCRA law. But it looks almost impossible that the Supreme Court will tender a judgment in these cases as elections are at India’s doorstep. In such a scenario, the fundamentals of India’s democracy rest with the quintessential wisdom of its voter. Before it is too late, the Indian voter has one final chance to deny extraneous influences on the elections and make an informed choice – a difficult situation, when the details of political parties and their candidates remain scanty.

The Leaflet