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Modi-Jaitley Have Just Missed Their Loha Garam Hai Maar Do Hathoda Moment

Feb 2, 2017

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To every thing there is a season, and a time to every purpose under the heaven - Pete Seeger

Or if you are the kind who gets analogies from Hindi cinema more easily, the finance minister Arun Jaitley and prime minister Narendra Modi, have missed their loha garam hai maar do hathoda moment, to clean up the face of electoral funding in India.

The way things stand as of now electoral funding in the country continues to be extremely opaque. As the finance minister Jaitley put it in his budget speech: "Even 70 years after Independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections."

What prevents political parties from having evolved a transparent method of electoral financing? As Sandip Sukhtankar and Milan Vaishnav write in a research paper titled Corruption in India: Bridging Research Evidence and Policy Options: "For instance, corporations and parties are only legally required to publicly disclose political contributions in excess of Rs. 20,000. This rule allows contributors to package unlimited political contributions just below this threshold value completely free of disclosure."

Hence, political parties are allowed to accept cash donations of up to Rs 20,000 and then not declare who made those donations. In fact, as the Association for Democratic Reforms points out in a recent report titled Analysis of Sources of Funding of National and Regional Parties of India FY 2004-05 to 2014-15 (11 years): "The unknown sources are income declared in the IT returns but without giving source of income for donations below Rs. 20,000. Such unknown sources include 'sale of coupons', 'Aajiwan Sahayog Nidhi', 'relief fund', 'miscellaneous income', 'voluntary contributions', 'contribution from meetings/ morchas' etc. The details of donors of such voluntary contributions are not available in the public domain."

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Not surprisingly, political parties make full use of this provision. The analysis carried out by the Association for Democratic Reforms points out that the total income of national political parties between 2004-2005 and 2014-2015 stood at Rs 9,278.3 crore. The Congress, BJP, BSP, CPI, CPI(M) and NCP, were the six national political parties, considered for this analysis. The All India Trinamool Congress was recognised as a national party only in September 2016.

Around 71 per cent or Rs 6,612.4 crore of the declared income of national parties came from unknown sources. In case of 51 regional political parties which were considered for analysis, the total income over the decade amounted to Rs 2,089 crore. Of this, around 58 per cent or Rs 1,220.6 crore, came from unknown sources.

Hence, overall, around 69 per cent of the income of political parties between 2004-2005 and 2014-2015, came from unknown sources. This during an era when you and I had to offer an identity proof for more and more financial transactions. In fact, recently I found out that even to apply for an ISBN (International Standard Book Number) for a book, requires an Aadhar card. Meanwhile, political parties can continue to accept cash donations of up to Rs 20,000, without revealing the identity of the donor.

In the budget presented yesterday, the finance minister Jaitley and prime minister Modi, have tried to correct this. As Jaitley said in the budget speech: "In accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2,000/- from one person."

Hence, the Rs 20,000 limit has been lowered to Rs 2,000. This has been hailed by many as a brave move. As former election commissioner S Y Quraishi told The Indian Express, "It is a positive move and also an acknowledgment that political funding is an issue that needs to be addressed. As the Budget also says, this is the first step and not the final one. I hope this will be taken to the logical conclusion."

"Reducing the cash funding of political parties to one-tenth of what it used to be and the introduction of electoral bonds are two significant steps in curbing corruption," A.K. Verma, a Kanpur-based political analyst, told Mint.

The Section 29C of the Representation of People Act, 1951, allowed political parties to accept donations of Rs 20,000 from anonymous individuals. This has now been reduced to Rs 2,000. This basically means that all the political party receiving cash donations needs to do is to split one cash donation of Rs 20,000, into ten cash donations of Rs 2,000, and continue with the system as it has evolved.

As Professor Jagdeep Chhokar, founding member of the Association for Democratic Reforms told The Hindustan Times: "Earlier, those who did not want to declare donations used to issue receipts for Rs 19,999. Now they will do the same for Rs 1,999. The business will run as usual."

How does this move in anyway make the entire electoral financing system more transparent, as suggested by Jaitley in the budget speech? This half-baked measure is not going to change things in any way.

If Modi and Jaitley were serious about cleaning up electoral funding they would have simply banned cash donations to political parties and at the same time there would be no donations from unknown sources.

If individuals in this country are expected to go cashless and make use of digital payment mechanisms, the political parties should be expected to do the same as well. It is much easier for them to get the necessary infrastructure in place.

This is basically yet another move by Jaitley and Modi to deviate attention from the real problem of black money financing Indian elections and one set of rules for political parties and another for citizens. Now they have something to say about having done their bit. And that's that. Instead, they really had an opportunity to clean up the electoral financing system in the country. But they chose not to.

Also, it is worth pointing out here what Chhokar says: "The law was that the political parties were bound to declare donations over Rs 20,000. It did not mean that they could not declare donations below that amount... So those who want to hide the source of their donations, still have a way out." But that, as they say, this is easier said than done.

To conclude, as a friend put it to me yesterday, it's time to run another petition.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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16 Responses to "Modi-Jaitley Have Just Missed Their Loha Garam Hai Maar Do Hathoda Moment"

manmohan khetan

Feb 6, 2017

Dear Vivek,
Being a columnist does not mean always attacking a guy who works. Pl learn to appreciate good steps eveny baby steps taken in right direction. At least there is a PM who works and delivers.

I agree that political views should not be part of this paid services. There are multiple other channels to express political views. This platform is getting used for non core objectives. Pl stop.

Like 

Ravi shah

Feb 4, 2017

I totally agree with what Vivek is saying.Some people say this is not a political platform but as a citizen of India we have right to reform the system.If everyone says that we are not related to politics then do u think Netas will come and clean the system? We are asked to declare single rupee and Netas can do anything? PM and Jaitley did not do enough to clean the politics.It seems they just want to show we did try but half heartedly.
Mr Vivek don't get discourged by arm chair critics just bypass them and start second petition.

Like 

manish

Feb 2, 2017

would you please for once grow up and stop acting like mani shankar aiyar.

This is not a forum for you to do politics

hope someone from equity master has some sense to stop such articles, As usual you wont publish my comment but for god sake dont make equitymaster a platform for someone to air personal political bias,

Like 

Sanjay Gupta

Feb 2, 2017

I don't think Modi or even Jaitely have missed any moment. Rather we should have praised it that such a step has been taken so boldly. There is atleast a leader who thinks that this type of corruption should go.....a political leader who belongs to the same system and fighting against the same. At least he has made a beginning which cannot be expected from any other leader.... Its very easy to comments on an action but we should at the same time the situation under which such an action has been taken. Its easy to say that demonatisation failed but its rarely said that we have got a leader who thinks out of box and takes such steps..... enumerate personal benefits which he thought he will get get after such an exercise..

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Sudheendra

Feb 2, 2017

Prime Minister Modi is not walking the talk. Clean up of India should start with Political Funding. I am for yet another petition for 100% transparency in political funding and return filing. Political Parties are the law makers and cannot have different set of rules...

Like (1)

Rajeev Gupta

Feb 2, 2017

Nobody in India dares to do anything good at the cost of his own loss and political career. It is only Modi ji like leaders who can dare to take such drastic step to curve black money and menace of terrorism. I don't know what will be its impact on the economy of the country as a whole in the time to come but one thing which is apparently visible that it has broken the backbone of our disgruntle neighbor who every time pushed fake currency and terrorists to disturb our country and take the precious life of our soldiers and innocent citizens. Nothing is more precious than life of a soldier or a citizen of our country.
Can you validate all such things just putting some data and statistics to prove the authentic effect? Statistics alone does not reflect anything meaningful. The important thing is the entire context. You have tried to paint only one side of picture and that too the way you liked?
Have you ever written details of all corruptions of UPA Government, all-around loot & loss made to exchequer during UPA tenure and its ill effects on the economy of our country?
You have quoted "The Section 29C of the Representation of People Act, 1951, allowed political parties to accept donations of Rs 20,000 from anonymous individuals. This has now been reduced to Rs 2,000. This basically means that all the political party receiving cash donations needs to do is to split one cash donation of Rs 20,000, into ten cash donations of Rs 2,000, and continue with the system as it has evolved"
Do you think, it is so easy and possible to split every transaction ten times every time?
Please don't make a habit just to criticize all things of this Govt. for the sake of criticism only even may be bold and good for the Country.Please look at the whole picture, fake currency, terrorism, promoting banking transaction, financial inclusion etc. Please write something rational that makes good sense.

Like (1)

Ravi

Feb 2, 2017

Mr Vivek,
I have had enough of listening to this political rant on a platform like Equitymaster.
I am a 'Reserve' member of Equitymaster. I am here for one and only one reasons - Timely investment advise.
All of us have our political inclinations and I am sure all have their own point of view. No one is dumber/smarter than others.
I would truly appreciate if all blogs from Equitymaster are focused on just economic/investment advise and stay away from political rants.
Until then I am unsubscribing from your blog posts. Such a waste of time.

Like (2)

Rajendra

Feb 2, 2017

Why Mr. Vivek Kaul oppose every decision that government take? Are u working for Congis?
You are a person sitting in front of TV and commenting that Sachin should have played that ball to six instead of 4. It's easy for blabh blabh...

Like (1)

K.G.Solegaonkar

Feb 2, 2017

Thanks for raising this issue. The reasons against reducing the limit 20,000 to 2000 would remain same even for any still lower amounts. So something more effective and practical may have to be proposed.

But the idea of a petition must be taken up seriously to make the change useful instead of waiting for another opportunity.

Like (1)

SP

Feb 2, 2017

Government should also put a limit say 10% or 20% which funding by unknown sources can not exceed.

Like (1)
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