The general elections will draw to a close in a week's time and come 16th May, we will know the fate of various political parties. The markets are certainly expecting that a change in the government would be good for the economy. Be that as it may, it is time to consider a very serious issue: The murky world of electoral funding.
As per an article in the Business Standard, the money that is spent on elections is mind boggling. Quoting a Delhi based think-tank the article says that over the past five years, parties have spent about Rs 1,500 bn on election campaigns! And this is just an estimate. The real figure could be higher. But what is even more disturbing is that over half of the amount could have come from unaccounted sources. This is where corporates come in. Corporate funding of poll campaigns has increased significantly, only a small amount really makes it to the category of 'known sources'.
This is the sad reality of India Inc. They fund parties that they hope will favor their cause if those parties come to power. This is true at the state level and at the centre. To counter this, the new Companies Act has introduced a rider regarding the funding of political parties. As per the new law, if the contribution being made for a 'political purpose' does not result in a direct funding of any party then the corporate can contribute without any limit. This would defeat the very purpose of introducing this clause as the term 'political purpose' can have a very wide meaning. Also what is disappointing is that the amount that companies can contribute has been increased from 5% to 7.5% of average net profit of the past three years.
We believe that corporates have misused the existing regulations regarding electoral funding. The new Companies Act also does not address these concerns. Also, the tax breaks enjoyed by corporates for such funding have been retained. Thus there is unlikely to be any reduction in corporate funding of political parties.