Budget shock for netas! Political parties cannot take cash donations of above Rs 2,000

In a major move towards bringing greater transparency in political funding, the government today capped anonymous petty funding to political parties at no more than Rs 2,000 from the existing Rs 20,000. This is also one of the key proposals that had been moved by the Election Commission of India to the Law ministry for approval.

The government also announced a proposed amendment to the RBI Act to enable issuance of electoral bonds which will be redeemable by the political parties in their registered accounts within a specified time frame.

Post demonetization, there has been considerable demand on checking black money in political funding and with good reason.

Only last month, a report released by the Association of Democratic Reforms (ADR) had released a report on the Sources of Funding of National and Regional Parties of India: FY 2004-05 to 2014-15 (11 years) revealing that over two-thirds of the funds cannot be traced and are from ‘unknown’ sources. The ADR report points out that 69% of the total income of the National and Regional political parties between FY 2004-05 and 2014-15 is from anonymous sources- Rs Rs 7,832.98 cr of the total : Rs 11,367.34 cr.

As per the ADR report, 83% of total income of the Indian National Congress, 65% of BJP, 94% of Samajwadi Party, 100% of Bahujan Samaj Party and 86% of Akali Dal was through anonymous sources.

BSP is the only party to consistently declare receiving NIL donations above Rs 20,000 between FY 2004-05 and 2014-15 thus 100% of the party’s donations came from unknown sources. The total income of the party, however, increased by 2057% from Rs 5.19 cr during FY 2004-05 to Rs 111.96 cr during FY 2014-15. The income of National Parties from unknown sources increased by 313%, while the income of Regional Parties from unknown sources increased by 652% in the same period.

As per current rules, political parties are not required to reveal the name of individuals or organizations contributing than Rs. 20,000- a direction issued by the EC through its 2014 Guidelines on transparency and accountability in party funds and election expenditure matter. The new announcement by the Modi government will force political parties across the board to rework their funding mechanisms and put out details of the bulk of their donors in public domain.

The EC had proposed a ceiling of Rs 2,000 in anonymous contributions instead of asking for declaration of donor identity for every amount mainly because political parties have earlier argued that they receive quite a few small donations in the ‘hundi’ like system which is very difficult to account for. Accordingly, the Election Commission had kept the Rs 2,000 cleaning in their proposal to the government.