Electoral bonds | India must learn from US, UK to clean politics, its financing

The Supreme Court verdict invalidating electoral bonds is welcome on three counts: one, it upholds the principle, violated by the scheme of electoral bonds, that the voter has the right to know if the parties that seek their support are beholden to interests other than the common weal; two, it removes the charade of political funding reform that the electoral bonds removed; and, three, it restores the confidence and trust that the public must have in the nation’s judicial system, which had, indeed sagged in the wake of a series of judicial pronouncements that endorsed the government’s position in controversial matters.

Will SC ruling expose all corporate funding?

However, less welcome are two other related pronouncements – one, directing the State Bank of India (SBI) to furnish details of which party received how much through electoral bonds since 2017, when they came into being, to the Election Commission of India (EC), for the commission to publish on its website, and, the other, observing that corporate funding of political parties necessarily introduces partisan bias in the government’s policy and action.

The public does have a right to learn whom, among the political parties that claim to represent the public interest, companies fund and how much. Disregarding this right, Parliament gave an assurance of confidentiality to companies that chose to fund political parties via electoral bonds. Many companies acted, trusting this assurance. The Supreme Court has essentially torn this veil of anonymity over the gifting of electoral bonds to parties by companies. Can companies now ever trust a government scheme, before its validity has been established through trial by judicial fire? In practice, this disclosure does not amount to much because only a fraction of actual corporate funding of parties takes an accountable form, whether electoral bonds or donation by cheque.

Chequered past of political funding

India has never had a tradition of transparent political funding. Political activity started in colonial times, and the industrialists who funded the Congress were probably not keen to be identified as funders of nationalist revolt. They gave money to the Congress on the quiet, the party accepted the money and spent it on politics, and politics alone. The Communists raised funds from the people, and, in any case, no one who funded the Communists could afford to be identified as Soviet sympathisers. All political outfits kept their funding opaque. The tradition carried over into Independent India.

While, in the early days, scrupulous treasurers ensured that donations meant for political activity were used only for such activity, over time, that integrity eroded. Funds were collected for favours, and by extortion, including as protection money for not penalising the conduct of business. The money went to build not just political war chests but also individual fortunes of some leaders.

Disbursal of special favours by the government to corporate patrons or extraction by coercion entails collusion by civil servants. This suborns the integrity of administration, and invites babus to turn to retail corruption on their own account as well.

Who funds ‘illicit’ politics?

Politics costs money. The funds have to come from somewhere. Rare is the Indian citizen who actively contributes to the political party of his or her choice. They expect the parties to fund themselves. Sure enough, the parties do that, and they raise their funds from companies.

Much of political activity in India is illegal, of the kind that cannot be shown on any reasonable book of accounts. Under what head do you put hundreds of crores spent on inducing MLAs to defect, split parties and topple governments? Can any self-respecting leader afford to admit that the masses crowding their rallies were gathered by paying each attendee a sum of ₹1,500? How do you declare the money spent on bribing voters with liquor and cash on the eve of polling day? Illicit politics cannot be funded by money raised in any identified form. Nor can perfectly legitimate expenditure, if its total volume exceeds the limit set by the EC. So, parties need the bulk of their funding to come in an unaccounted form.

Political funding, corruption go hand in hand

A company might fund a political party with a formal donation. If it has any sense, it would hand over much larger amounts, in cash or in kind, through informal, unaccounted means.

Such political funding entails not just influence peddling by large companies, but also subversion of corporate governance and the norms of financial reporting. Companies have to find ingenious ways to take money out from their operations to fund political parties. That ingenuity comes naturally to them, as many promoters build personal fortunes taking money out of the company’s transactions, in any case.

All company officials who collude in this activity forgo their professional integrity. India’s specific form of political funding spreads corruption across the board. It is small wonder that, in 2023, India dropped eight rungs, from 85^th to 93^rd, in Transparency International’s ranking of 180 countries on a Corruption Perception Index.

Road to reformation

India has to reform its political funding, as a core piece of cultural, economic, political and corporate reform. How do we go about it?

With Donald Trump in unalloyed control of the Republican Party in the US, that country no longer serves as an exemplar of functional democracy. But that does not mean that there is nothing to learn from the US. Several states bar contributions by companies. Other states impose the same limits on corporate donations as on individual donations. Individual donations to candidates and their committees are capped rather stringently. But there are bodies such as Political Action Committees (PACs) and Super PACs that face no limits on contributions. But such contributions have to be transparent as to the identity of the donor. This has been circumvented by routing donations through ‘dark non-profits’, whose sources of funding are opaque.

Britain would appear to track political activities by individual parties. India should track political activity at all levels, starting from the polling booth hinterland and going all the way up to the panchayat, town, district, state, and national levels. Election Commission bodies and independent watchdogs comprising citizen volunteers could contribute to such recording of political activity. The expenditure incurred in each activity can be assessed, and aggregated at the national level. These figures must then be made public, for the party concerned and rivals to dispute in either direction. A body of the Election Commission can arbitrate the challenge and finalise the figure at each level. The parties must then show how they raised the money to meet this expenditure.

Political contributions should be mandated to be made through electronic means, by UPI for small amounts and by electronic, bank-to-bank transfer in the case of larger amounts. These leave an audit trail.

Cleaning up politics is a pre-requisite for its transparent funding. This goes beyond any Supreme Court ruling. The present ruling is welcome as an occasion to open up the debate on how to clean up politics and its financing.

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal)