New Delhi

In a master stroke, Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1000 currency notes to curb the menace of black money and undisclosed wealth. The move to ban Rs 500 and Rs 1000 notes is aimed at clamping black money, but it is bound to hamper the funding of political parties including Narendra Modi’s Bharatiya Janata Party (BJP) ahead of crucial Assembly elections in Uttar Pradesh and Punjab. Parties across the political spectrum raise funds for campaigning and other activities from various sources, however huge amount of money come from undocumented sources.

With Narendra Modi banning the old Rs 500 and Rs 1000 notes, political parties, especially regional outfits, will have a tough time. According to Milan Vaishnav, senior associate in the South Asia program at Carnegie Endowment for International Peace, sudden ban on Rs 500 and Rs 1000 is extremely bad news for political parties including BJP months before Assembly polls in Uttar Pradesh. Vaishnav, who research on the Indian political economy, opined that the move will actually make a dent on black money and have adverse impact on small parties.

“It’s going to be hugely disruptive. Parties are going to have to scramble to find alternative sources of funding and the smaller parties are going to have the toughest time. From the perspective of BJP, which probably has the most diversified sources, this will choke up some of its funding, but (it will) also (hit) their rivals,” Milan Vaishnav told Quartz India in an interview.

Donations received by political parties in India had risen a whopping 151 per cent last year and BJP topped the list of voluntary contributions declaring a total of Rs 437.35 crore which is more than twice the aggregate declared by the INC, NCP, CPI and CPM in FY14-15, said the report of Association for Democratic Reforms (ADR).

Assembly elections in Uttar Pradesh and Punjab are around the corner and political parties are actively campaigning. For campaigning, political parties need financial support which often comes from big businessmen who get benefits if their party comes to power. In order to keep names of their funders secret political parties don’t disclose the sources. For example, the Congress party does not contain the Cheque/DD numbers, for 192 donations amounting to Rs 138.98 crore last year. This forms 98% of total donations above Rs 20,000 to the party. Notably, parties don’t have to disclose the source of any contribution below Rs 20,000. Similarly, Rs 83.915 lakh was declared as received by BJP from 20 such donors whose PAN details, Address and Mode of contribution (together) were unavailable.

After ban on Rs 500 and Rs 1000, what is the other option for political parties? According to Vaishnav, political parties are smart in India and they have found an alternate ways to raise funds. “….parties are very good and very smart about adapting. My research shows that, already, rather than giving out lump sums to parties, builders would just pay on behalf of the party. If I am a political party and I make a big advertisement buy and I am presented with an invoice from the media house, the builder directly assumes those costs and no cash changes hands,” said Vaishnav.

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