Absence of disclosures and poor enforcement of transparency leaves gaping hole in India’s electoral bond scheme

By: |
New Delhi | Updated: July 30, 2018 1:29:05 AM

The electoral bond scheme of 2018 flatters to deceive as it enables companies, including trusts with foreign donations to contribute with the protection of anonymity and without restriction, to political parties.

The electoral bonds can only be encashed by registered political parties, excluding individuals, further distorting the election landscape.

The Robert Mueller investigation has indicted (loosely analogous to filing a charge sheet) dozens of individuals and has initiated criminal prosecution against nearly thirty people, including foreign individuals, in connection with Donald Trump’s 2016 presidential campaign. In England, the Electoral Commission is investigating overspending by the ‘Leave’ campaign, raising questions on the democratic sanctity of the Brexit referendum. In this background, how robust are Indian election campaign laws? Indian electoral laws lack adequate regulatory framework and enforcement mechanisms and therefore, a Robert Mueller-like investigation cannot happen in India. Under these circumstances, our elections can be held hostage to the highest bidder—including overseas entities.

In India, Representation of People Act and the Conduct of Election Rules (election laws) regulate the manner in which elections are conducted. They are woefully inadequate to deal with imbalance and irregularities in campaign financing. Election laws do provide for code of conduct for political representatives and maintenance of records by political parties. However, the limited disclosures in election laws, Companies Act and Income Tax Act and restrictions in Foreign Contribution Regulation Act (FCRA) are not sufficient to deal with critical issues in campaign finance. The Law Commission of India in its 255th report (LCI report) on electoral reforms has noted that more than 75% of the total donations that political parties receive come from unknown sources. Out of `4,894 crore, only `435 crore was received by political parties through known sources of income. The report further attributes such large proportion of unaccounted receipts to black money—and yet, there is neither a legislative mandate for investigation nor does the Election Commission have powers of investigation like tax authorities in India.

The electoral bond scheme of 2018 flatters to deceive as it enables companies, including trusts with foreign donations to contribute with the protection of anonymity and without restriction, to political parties. These bonds can only be encashed by registered political parties, excluding individuals, further distorting the election landscape. By legislating anonymity to political contributions by companies and trusts, the limited disclosures mandated under Companies Act has been obliterated. Electoral bonds have been touted as having the potential for ‘…cleaning up and enabling transparency in funding of political parties’. However, the Companies Act amendment removing the cap on the limit of 7.5% of the average net profits in the preceding three financial years on contributions by companies, may incentivise incorporation of shell companies solely for the purpose of making political contributions. As the Mueller and the Brexit campaign investigations reveal, sham devices and foreign contributions have the potential to dramatically change the way different electoral classes interact with state machinery.

Apart from legislating an unequal ground for electoral contests, from a corporate governance perspective, anonymity would deny shareholders the right to know if the company has made political contributions. Electoral bonds also undermine FCRA, which seeks to regulate flow of foreign contributions into India, specifically, in respect of political contributions. Currently, there are no checks and balances prescribed in the electoral bond scheme to differentiate between a domestic NGO or a foreign-funded NGO for the purposes of subscribing to electoral bonds.

Enabling and facilitating funding through a scheme such as the electoral bond scheme is indeed innovative. However, the conspicuous absence of disclosures and enforcement of transparency leaves a gaping hole in checks and balances. In the wake of the Mueller and Brexit campaign investigations, the larger questions of corporate and foreign entities influencing domestic elections has been completely reinforced through a scheme such as the electoral bond scheme.

The provisions of anonymity also lead to the possibility of corporates making political contributions for the purpose of lobbying—another area with no legislative and regulatory framework. The current government has tried to take certain measures towards black money, anti-money laundering, fiscal transparency and tax compliance. Citizens and companies are beholden to rigorous standards of fiscal probity and transparency through demonetisation, GST and KYC measures of linking and re-linking accounts. It is time that the political representatives hold themselves accountable to the same standards. Our parliamentarians would do well to heed the recommendations of the LCI report to reform electoral financing laws by rooting out tainted monies, imposing restrictions on black money in politics and strengthening powers of the Election Commission. The observations in relation to tainted money in politics have also been reiterated by the Supreme Court of India in Ashok Shankarrao Chavan v Election Commission of India (2014) and PUCL v Union of India (2003). If our representatives and institutions fail to reform electoral laws and systems, elections in India will be a privilege of those with access to undisclosed financial muscle and our claim to being the largest democracy will be nothing more than a sham.

By Ms Ananth and Rahul Rishi, Authors are with Nishith Desai Associates

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.