In the face of a political storm against his decision to ‘demonetize’ Rs 500 and Rs 1000 bills, Prime Minister Narendra Modi has called on all political parties to “work together to change the negative perception of people about politicians”. At one level, the prime minister has asked opposition parties not disrupt his government’s business in the current Winter Session of Parliament. However, delving further into the release issued by the Press Information Bureau after the all-party meet on Tuesday, one does discover something rather engaging. 

“Prime Minister, Shri Modi said that it was time the issues of state funding of elections and holding simultaneous elections in the country were discussed,” the release said. Rather than merely urging the opposition parties not to wash out the current session in protests, Modi has raised some significant points. But as argued in these columns, the simultaneous election policy is a very dangerous idea, against federalism and in support of “pan-Indian” parties whose agendas would typically dominate in an election cycle. The inevitable dominance of “national” issues, due to the greater amount of media focus and money power in play, would adversely hurt the breadth of debates on people’s issues. 

Experts, meanwhile, are split on the question of state funding for elections. Coming back to the Centre’s ‘demonetization drive’, there is little evidence to suggest that its latest move will stem the flow of black money in our economy. Instead, the move has severely hit informal sectors, including agriculture and construction. Speaking to Mint, Pronab Sen, India’s former chief statistician, said: “At the moment the focus has been on just the last point of sale, which is retail sale. The problems are going to start at the upstream levels where production and distribution actually take place. So things can choke up, and that will have a multiplier effect." 

Moreover, the government has not spelt out its expectations from the move to withdraw all Rs 500 and Rs 1,000 notes from the system in fine detail. Supporters of the prime minister often argue that he is willing to look beyond immediate gains and take a decision that poses significant risks for him and his party. Not only does the move endanger vast sections of the Indian economy, but it also hurts small traders, a base that the Bharatiya Janata Party (BJP) considers their core voter base, they argue. 

Going by this argument, the prime minister would do well to introduce reforms that would clean up political funding. Data examined by the Association for Democratic Reforms (ADR) brings up some startling revelations. “We compared the income of political parties submitted to the Income Tax department and the contributory reports submitted by them to the Election Commission of India in which they declare donations above Rs 20,000,” said ADR founder Jagdeep Chhokar. “The sources of the remaining 80 percent of the income are shrouded in mystery.” 

These revelations indeed raise difficult questions about the damaging influence of unaccounted money on the democratic process.  The current regulatory framework under which political system functions also encourages the use of black money.  Political funding is one of the primary conduits for unaccounted wealth. According to a report by the Centre for Media Studies nearly Rs 30,000 crore was likely to be spent on the 2014 general election, though official spending accounts by parties and candidates put the figure at under Rs 2,000 crore. As per the rules, political parties in India are supposed to file annual income and expenditure statements with the Election Commission. 

All contributions above Rs 20,000, with the names, addresses and PAN numbers of the donors, have to be submitted to the EC. Analysis by ADR, however, show that most parties circumvent this rule by attributing significant portions of their income to contributions less than Rs 20,000, with PAN numbers, addresses and names often missing. According to the ADR, 73.5 percent of the BJP’s funds between 2004 and 2011, amounting to Rs 952 crore, came from unknown sources either because the amounts were listed below Rs 20,000 or information about its major donors were incomplete. 

The Congress, however, led the way with Rs 1,951 crore. The influence of party funding on government policy, as the Indian public has witnessed time and again, is apparent. Greater transparency is the need of the hour since it is the common man who has entrusted the government to spend his/her hard-earned tax returns. “At the time of the election, a nexus is formed between the businessman and the politician, and that is crucial,” argued Arun Kumar, an eminent economist, who has been pursuing the subject of the black money long before it became part of the national conversation. “That nexus has to be cracked,” he added. Can Modi break this nexus? 

To further facilitate transparency in our political system, the Centre would do well to pass legislation, whereby political parties are brought under the ambit of the Right to Information Act. Over the years, the Right to Information Act has emerged as a powerful tool for the Indian public to promote transparency and hold those in power accountable. In line with previous UPA government, the current ruling dispensation told the apex court last year that political parties should not be brought under the purview of the Right to Information (RTI) Act. 

All national and regional political parties must disclose for public scrutiny complete details of their income, expenditure, donations and funding including details of donors making contributions to these political parties and their electoral trusts. The electoral system is generating huge black money, and large sums of money are being spent on every election. Is any political party, including the BJP, which has as much unaccounted money as any other, willing to take up these issues on a war footing? Experts argue that most parties will not raise the subject primarily because it involves disrupting the very model they conduct elections. Is Prime Minister Modi willing to take a significant risk and clean up political funding in this country?