Part II. General Elections 2019: Who is funding the electioneering of our political parties?

Recent amendments in various statutes bringing in electoral bonds and allowing funding from foreign sources jeopardise transparency and expose our political parties to undesirable influences and unaccounted money.

 |  6-minute read |   15-03-2019
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The second part of the two-part series looks at the implications of the amendments in FCRA, allowing political funding from foreign sources.

While electoral bonds have added anonymity to political funding and raised the concerns of the Election Commission of India, organisations and individuals fighting to clean electoral funding, amendments to the Foreign Contribution (Regulation) Act (FCRA) have added a new fear — foreign companies influencing our political parties and through them, the governance of the country.

Amendments in FCRA facilitates funding from foreign sources

The FCRA was first legislated in 1976, to protect political parties from foreign influences, among other things, which was later substituted with the FCRA 2010. Section 4 of the FCRA 1976 and section 3 of the FCRA 2010 say: “No foreign contribution shall be accepted by any political party or office bearer thereof."

Contravention of any provision of the FCRA attracts up to five years of imprisonment and/or with fine. Section 29-B of the Representation of the People Act of 1951 also prohibits political parties from receiving funds from foreign sources and government companies.

A ‘foreign source’ has been defined under both the FCRA 2010 and 1976 to include any company with a foreign shareholding of more than 50%.

Violations of both funding from foreign sources and government companies reportedly by the BJP and Congress were noticed and challenged in the Delhi High Court. In 2014, the Delhi High Court held that both the political parties were guilty of violating the FCRA and RP Act and asked the Central government to take punitive action within six months.

main_100-rupee-reute_031419075314.jpgForeign companies can continue to donate to political parties while the govt has tightened foreign funding to NGOs. (Representational image: Reuters)

Instead, the Central government first amended the FCRA of 2010 to legitimise the violations through the Finance Bill of 2016 — and then extended it to the FCRA of 1976, through the Finance Bill of 2018 to give it retrospective effect from 1976 by redefining the definition of foreign source/company.

The 2016 amendment inserted a proviso — “Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act (FEMA), 1999, or the rules or regulations made thereunder, then, notwithstanding the nominal value of share capital of a company is more than one-half of such value at the time of making the contribution, such company shall not be a foreign source”.

This change means that if the foreign shareholding in an Indian company is within the limits of foreign investment prescribed for the sector under the FEMA or the rules and regulations framed under it, the company will not be treated as a foreign source — even if it holds more than 50% shareholding.

This means foreign companies can continue to donate to political parties, even while the Central government has tightened foreign funding to NGOs like Greenpeace India and cancelled the FCRA licenses of thousands of NGOs in the past few years.

Weeks before his retirement in November 2018, the then-Chief Election Commissioner OP Rawat said, "The EC has been of the view that no foreign funding for elections should be allowed”. But what action the ECI has taken to reverse the changes is not known.

At least two petitions are now pending before the Supreme Court and Delhi High Court to force the Central government to act against the BJP and Congress for reportedly violating the FCRA Act and reverse the amendments made. These political parties were accused of violating the FCRA and RP Act by apparently accepting funding from foreign sources and government companies like STC and MMTC.

Funding from foreign sources for the BJP and Congress

The Association for Democratic Reforms (ADR) has recorded 34 instances of funding from foreign sources — 19 for the BJP and 15 for the Congress between 2003-4 and 2011-12, which were condoned through the amendments in the FCRA 2010 and 1976. Funding from the Indian subsidiaries of Vedanta, Dow Chemicals, Hyatt, etc., ranged from Rs 1 lakh to Rs 14.5 crore as shown in the table below. The BJP received Rs 19.4 crore and the Congress Rs 9.83 crore in these years.


Why is it important to regulate or check political funding?

Political parties are very important because they are the gatekeepers of democracy; they fight elections, form governments and pass legislation. Therefore, their funding has a great bearing on the functioning of our democracy and instruments of government.

The Law Commission of India, in its 2015 report on electoral reforms, lists three key reasons to seek transparency and reforms in political funding.

One, money power disturbs the level playing field for political parties and vitiates the purity of elections. Richer candidates and political parties have a greater chance of winning elections.

Two, there is widespread prevalence of black money, bribery and quid pro quo corruption which helps candidates fund their campaigns. It quotes the Supreme Court affirming the conclusions of the National Commission to Review the Working of the Constitution (2002): “The sources of some of the election funds are believed to be unaccounted criminal money in return for protection, unaccounted funds from business groups who expect a high return on this investment, kickbacks or commissions on contracts etc."

Third, unregulated or under-regulated election financing leads to two types of capture: (a) industry/private entities use the money to ensure less stringent regulation and (b) money used to finance elections eventually leads to ‘favourable policies’that is state and regulatory captures.

The way forward

It would be instructive to keep in mind that reversing the amendments being discussed would not be easy. Old timers would recall how the previous NDA government had, in 2002, tried to overturn the Supreme Court’s ruling ordering all candidates to file their criminal antecedents, along with educational and asset details, in their election affidavits. The then-NDA government had issued an ordinance first and then introduced a Bill in the Lok Sabha to block the apex court ruling. When it was brought to the notice of the apex court, the latter promptly struck down the amendment as unconstitutional.

Needless to say, the Supreme Court and Delhi High Court need to step in and reverse the amendments in different statues to bring transparency and accountability to electoral funding — as also to stop funding from foreign sources in the interests of a healthy democracy.

Also read: General Elections 2019: Even after Balakot, are major BJP states not joining General Elections, wary of an uncertain mood?


Prasanna Mohanty Prasanna Mohanty @prasannamohanty

Prasanna Mohanty is the Policy Editor, India Today.

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