Role of Black Money in Indian Elections

By Deepak Parvatiyar

November 8, 2014

There is much more than what meets the eye on the black money issue. Recently, when the government selectively revealed eight names of Swiss bank account holders who are accused of stashing black money overseas, it backfired on the Bharatiya Janata Party (BJP) too as it was found that five of these foreign bank account holders belonged to the same family which had funded the BJP as well as the Congress quite regularly – a total of Rs. 1.9 crore to the BJP in nine instalments and Rs. 65 lakh in seven years to the Congress, until 2011-12.

The revelations bring back the issue of the opaque handling of funds by political parties. They also cement the fact of dubious sources of income for the political parties and well explain the unholy connivance between the law makers and the law breakers that gives rise to crony capitalism.

Black Money Issue Runs Across the Political Spectrum

The issue of bringing back black money kept in foreign banks was first made a public issue by the BJP’s Lal Krishna Advani during the General Elections in 2009. This compelled the then prime minister Dr Manmohan Singh to make a statement that his government would bring back the black money. But nothing much happened partly because of the government’s own inaction and partly because of the technicalities involved. The issue, therefore, caught the fancy of the masses and Modi did exploit it to the hilt in the last elections!

As Prime Minister, Narendra Modi had decided to bring back the black money and expose the culprits within “100 days” of coming to power. Though he could not succeed in this objective, his initiative to constitute a Special Investigation Team (SIT) in this regard on the very first day in office was a positive step.

However, the subsequent government measures struck the wrong chords. First, when the Modi government selectively revealed a few names, many turned out to be the BJP’s donors. Second, the Supreme Court snubbed the government by rejecting the Attorney General’s argument that the full list of 782 Indians with illegal foreign bank accounts could not be disclosed till the completion of investigations and fixing of charges. Third, the apex court made the government submit the full list in a sealed cover before it.

Such developments have caused embarrassment to the government for two reasons –

1. No party, including the BJP, can deny the acceptance of donations from dubious donors

2. The complexities involved in the bi-lateral agreements involving cooperation on the issue of tracing and bringing back black money from foreign shores

Complexities involving black money

To begin with, in case the names of the account holders are leaked without any evidence against them of stashing black money, it could jeopardise any future treaties on information sharing with countries where the black money is supposedly deposited. The Swiss authorities had earlier blinked as late as in October this year and agreed to offer the requested information to India in a time-bound manner after much difficulties and repeated refusals on apparent grounds that India’s request for assistance in tracking Indian tax evaders was based on stolen data from a Geneva branch of HSBC by a former employee of the bank.

But, wasn’t the BJP aware of these complexities when Modi made such deadline-driven promise in his election campaigns before the General Elections?

Political Parties: Opaque Financial Functioning

Now let’s dwell on the issue of the involvement of political parties in accepting donations from dubious sources and not maintaining proper books of accounts. The governing rules are inadequate. Consider that the political parties are not required to account for any contribution lesser than Rs 20,000!

Even where rules seem adequate, none of the political parties follow them. Take for example a provision introduced in 1985 that made it possible for firms to donate five per cent of their average net profit from the past three years directly to political parties. Still, 93.8 per cent and 91.3 per cent of the incomes reported respectively by the Congress and the BJP before the last General Elections had come from “unlisted sources”.

An important development to introduce transparency in corporate funding though was the introduction of a new law in January 2013 to allow the corporate sector to set up electoral trusts that could make tax-deductible donations to any political party. The 2014 elections saw many big corporate houses making donations to political parties but there has been a growing feeling that these new electoral trusts too proved inadequate since black money kept pouring through circuitous routes to the political parties. (Over Rs 300 crore that was seized by the Central Election Commission during the last general elections is a glaring example).

Political parties in Indian seem to circumvent rules with impunity particularly in matters related with money. Here is another example – the Central Board of Direct Taxes (CBDT) in 2008 found that an astounding 103 candidates who had contested the 2004 General Elections had provided false affidavits to the Election Commission on their movable and immovable assets and their Income Tax returns did not match with their declaration under oath! To add salt to the injury, there were 195 cases where IT returns were not even filed by the candidates!

Black Money: Challenging Task before the Modi Government

Elections require huge money and black money inarguably plays the most important role here as it conveniently escapes the dragnet of the Election Commission and beats the cap on election expenses.

This explains why the regulatory mechanisms to curb unaccounted money have proved inadequate and little surprise that his detractors take Modi’s claims of bringing back the black money with a pinch of salt. As it goes, Caesar’s wife should be above suspicion and Modi needs to pass this acid test for his own credibility.