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If Nation is Expected to Go Cashless, Stop Political Parties from Taking Cash Donations

Nov 30, 2016

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In the November 27, 2016, mann ki baat address to the nation, prime minister Narendra Modi talked about India moving towards a cashless society. As he said: "The great task that the country wants to accomplish today is the realisation of our dream of a 'Cashless Society'. It is true that a hundred percent cashless society is not possible. But why should India not make a beginning in creating a 'less-cash society'? Once we embark on our journey to create a 'less-cash society', the goal of 'cashless society' will not remain very far."

A very noble thought indeed, the practical part of implementing it, notwithstanding. The interesting thing is that the mention of this dream of India moving towards a cashless society wasn't made in Modi's November 8, 2016, address to the nation. In this address Modi announced the decision to demonetise the high denomination notes of Rs 500 and Rs 1,000.

Neither was it a part of the ministry of finance press release that accompanied the decision. The primary goal of demonetisation was to tackle fake currency notes and black money. As the press release pointed out: "With a view to curb financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy, it has been decided to cancel the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1,000 denominations issued by RBI till now."

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Of course, it can be said that the dream towards a cashless society goes hand in hand with the dream of eliminating black money. So, to that extent they are connected. Nevertheless, with the way the entire issue of demonetisation has been handled up until now, it is safe to say that this was not something that the government had thought about originally. They are making it up as they go along.

It is worth asking how feasible this dream is. A PwC report titled Disrupting cash: Accelerating electronic payments in India points out that 98 per cent of volume of consumer transactions in India are still in cash. The number is 96 per cent in case of Mexico, 94 per cent in case of South Africa, 90 per cent in case of China and 86 per cent in case of Japan. While this figure can be brought down, there is no way India is moving towards becoming a cashless society any time soon.

Then there are other issues. Smart phones are not a universal phenomenon. The moment one goes beyond the big cities, internet speeds both on mobile and broadband, tend to crash. There is a large portion of the population which is barely literate. So, yes there are many issues. Some structural and some cultural.

But given that the prime minister wants India to move towards a cashless society, there is one thing that he should do to tell the nation how serious he is about the cashless dream. If the nation is expected to go cashless, why are political parties still allowed to take cash donations? This is something that the prime minister and the Bhartiya Janata Party (BJP) can work towards eliminating.

Let's look at this issue in a little more detail. As Sandip Sukhtankar and Milan Vaishnav write in a research paper titled Corruption in India: Bridging Research Evidence and Policy Options: "On the expenditure side, candidates face strict limits on spending once elections have been announced, but election authorities struggle to properly verify their reported expenditure since a substantial portion typically occurs "in the black."" Hence, black money which mostly finances political parties and in the process elections in India.

The laws are also structured to help this. As Sukhtankar and Vaishnav point out: "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."

And this is where things get really interesting. As the National Election Watch-Association for Democratic Reforms point out in a report titled Analysis of Income & Expenditure of National Political Parties for FY- 2014-2015: "A comparison of total donations declared by the parties in their IT returns (both above and below Rs 20,000) and that declared in the donations report shows that only 45% of the total donations of the parties came from voluntary contributions above Rs 20,000."

It needs to be pointed out upfront that this analysis does not take the Congress Party into account because the Party had not submitted its accounts for 2014-2015 to the Election Commission at the time of writing the report.

The report makes multiple points.

1) Only 45 per cent of the total donations of the parties came from voluntary contributions above Rs 20,000. This means that 55 per cent of the donations came from those making donations of Rs 20,000 or lower. Hence, the donors are unknown. A total of Rs 582.72 crores (55% of total donations) of the total donations to National Parties was collected during FY 2014-15 from donors whose details are not available in the public domain. There are six national political parties: BJP, Congress, BSP, NCP, CPI(M) and CPI.

2) NCP is only party which has not received donation below Rs 20,000 during FY 2014-15. Thus all voluntary contributions are available in the public domain. It is to be noted that BSP claims not having received any donation above Rs 20,000 hence no donations details of the party are in public domain.

3) How do things look for the BJP? BJP, which declared the highest total income and highest income from donations above Rs 20,000 amongst the National Parties, had collected Rs 434.67 crores (50% of total donations) from donors whose details are unavailable.

4) The "unknown sources include 'sale of coupons', '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."

If Narendra Modi is serious about his fight against black money and moving India towards a cashless society, this needs to stop. If you, I and everybody else, are being encouraged to go cashless, why are political parties still allowed to take donations in cash and not declare the source of funds.

Since the entire demonetisation issue is more about making a political point, the BJP can take a step forward on this front and promote the usage of Unified Payment Interface for cash donations that are made to a political party. In fact, the BJP should make all donations of less than Rs 20,000 compulsorily to be made through the Unified Payment Interface.

This will work at multiple levels. The BJP will score political points over its rivals and allow Modi to take a moral high ground again. The economy will become more cashless. Further, there will be less infiltration of black money in political parties, given that those making a donation of Rs 20,000 or lesser can be identified as well.

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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21 Responses to "If Nation is Expected to Go Cashless, Stop Political Parties from Taking Cash Donations"

R Varadarajan

Dec 3, 2016

A very well written balanced article. I would go one step ahead. The entire cash receipt received by BJP after FY 2015/16 should be returned/refunded to the respective donors/subscribers with a request to send the same through online. Proof of the pudding is in the eating !!!!

Like 

Vivek Sharma

Dec 2, 2016

That "charity begins at home" is an English idiom, is evident. Our politicians do not understand it, much less, believe in it. And this cuts across the political spectrum. They are all slimy and corrupt. The rules they make are for everyone else but themselves. Huge salary hikes, illogical subsidies, and most creature comforts are what our politicians expect for themselves. The rest can take a walk!
If Mr. Modi does indeed have a "56 inch ka seena", let him show it by making a rule that "all political donations must be in only white". The entire nation will appreciate his guts and applaud his leadership by example!

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NK Purohit

Dec 1, 2016

"Some animals are more equal than others!" And Political Animals are the MOST equal!
Look at the easy way they gift themselves pay and facilities hikes without a whimper from even the hardcore leftists and look at how hard it is to resolve OROP!

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vswami

Dec 1, 2016

As regards election funding, so far mostly done by vested interests,anonymously, the alternate idea of funding by State, in the eminent opinion of EC, based on years' experience, could only turn out to be a "half measure". Could that,in the nature of things, be at all sanely expected,to be otherwise ever!

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gregory dhan

Dec 1, 2016

I am very much agree with your opinion that donation for political party funding must be stopped.In the same time election commission also be provided much more power to look after &check it.

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vswami

Dec 1, 2016

INSTANT
As independently read by one, more so in between lines, the write-up has, unwittingly or otherwise, proceeded on the premise, not rightly so, that the color of cash (the whole lot of high value notes withdrawn) is nothing but 'black' ; and can never ever be or have been 'white'. To be precise, the underlying fallacy in the thinking behind is no different from what some of the well-known economic experts, of eminence, have openly aired as their opinion.

To diligently search for material aplenty, in public domain, to incisively read and merrily explore in more dimensions.

It is now left only to the rest of the economic experts at large, within/without the governmental portals, to seriously consider and decide whether a dream of 'cashless society', as canvassed, by itself , if not eradicate , but at least control the proliferation of black (parallel) economy in times to come !

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atanu gupta

Dec 1, 2016

Rightly raise the points. Modi should go election reform first. Propaganda of cashless is bullish. How far it will compatable with present mobile set is doubtful. In subtown and in rural areas the connectivity is horrible. NaMo has only idea of his state. On that basis he visualises the whole country status.But one thing I must appreciate the movement of cashless. After demonisation the expenditure of the people drastically come down. 'kilo to pawkilo'.

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SNIGDHESH PATEL

Dec 1, 2016

It looks that we (Indian people) donot deserve democracy. I think PM Modi is doing atleast some thing for this nation. I believe demonitising is good thing may be first and small step to wards corruption. All the media , news paper and so called intellectual people are critise Mr Modi's view by some extent. Some say he should do like this or that or whatever. But all over general population is very happy. Lets wait what other citizen feel and how they react in election!

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Bhalchandra Upadhyay

Dec 1, 2016

This is a most appropriate step any and all political parties should and must take.
Second idea that government funding of election will not stop use of black money because the candidate will do additional expenditure through black money. Political parties will have laddu in both hands.

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Prasad

Dec 1, 2016

well said.

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