Funding
proposal in budget follows revelation that nearly 70% of political donations
could not be traced to any source
By Michael
Safi
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Indian voters queue to
cast their ballots. Only 1% of the population is estimated to pay income tax.
Photograph: Money
Sharma/AFP/Getty Images
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Cash donations to Indian political parties
will be capped at 2,000 rupees (£23.50), with larger donations able to be made
by “electoral bonds” under landmark funding reforms announced by the
government.
The changes were proposed by the finance
minister, Arun Jaitley, while unveiling his first national budget since
November’s shock decision to invalidate India’s two highest-value bank notes.
The budget on Wednesday also aimed to cushion
the blow of demonetisation on rural Indians and the poor while extending the
campaign against untaxed wealth of the prime minister, Narendra Modi, with an
announcement that any cash transactions greater than 300,000 rupees would soon
be outlawed.
As part of the same effort to coax Indians to
declare what they earn – in a country where only 1% are estimated to pay income
tax – Jaitley also halved the tax rate for those whose annual earnings fell
within the lowest taxable band, 250,000-500,000 rupees a year.
“We are a largely non-tax-compliant society,”
Jaitley told the Indian parliament’s lower house. “The predominance of cash in
our society makes it possible for people to avoid taxes, and the burden falls
on those who are honest and tax-compliant.”
Electoral funding experts and India’s election
commission have been urging changes to the country’s highly opaque political
funding system, with a study last week finding that nearly 70% of political
donations could not be traced to any source.
Currently, donations worth up to 20,000
rupees can be made anonymously, a figure Jaitley proposed on Wednesday to
reduce to 2,000 rupees for cash. Digital or cheque payments could be higher, he
said, with an option to donate to parties in the form of electoral bonds issued
by the Reserve Bank of India.
“It’s a significant step and one in the right
direction,” Niranjan Sahoo, an expert in governance and public policy with the
Delhi-based Observer Research Foundation, said of the cash limit.
“Most of the problems with political
financing in India is that the sources of the funding are anonymous.”
However, Jaitley clarified after the budget
speech that the bonds would not bear the name of the donor – indicating that
while the funds used to purchase the bonds would be traceable, it could be a
new avenue for donors to anonymously give money.
“It leaves a lot unanswered in terms of
transparency,” Sahoo said. “Unless you know the people who are buying the
bonds, how do you actually know the source – whether it’s individuals, corporates
or pressure groups? It creates a loophole for political parties to misuse, and
they’re good at it in India.”
Sahoo said he was yet to see the fine print
of the scheme, but said it was also likely banks would be able to invest the
money from the bonds and parties would also earn the dividends. “It’s a win-win
situation for the banks and parties,” he said.
The next step should be forcing the
declaration of any cash donations, he added, because parties still had the
option of breaking up large cash donations into 2,000-rupee segments to avoid
revealing their source. “Parties will park most of their black money under this
category,” he said.
“They should have made it mandatory that
every paisa has to be accounted for. But, this is something to keep the
political parties happy.”
Jaitley on Wednesday hailed India’s
fast-growing economy as “a bright spot in [a] world economic landscape” beset
by major uncertainty, including rebounding oil prices and the “increasing
retreat from globalisation as pressure from protectionism builds up”.
The government’s chief economic adviser admitted
on Tuesday that last year’s recall of 1,000- and 500-rupee notes – an estimated
86% of the currency circulating in India – would temporarily slow economic
growth. But Jaitley continued to defend the “bold and decisive” move. “The pace
of remonetisation has picked up and has reached comfortable levels,” he said.
Rural Indians, who are still heavily reliant
on cash and were hit particularly hard by the currency ban, were offered
sweeteners in the form of increased credit, crop insurance and a pledge to double
farmers’ incomes within five years.
The government also proposed a law to
confiscate the assets of Indians who abscond from the country after being
accused of financial or other crimes, widely understood to be aimed at the
businessman Vijay Millya.
The billionaire liquor baron fled to the UK
last year owing hundreds of millions of dollars to creditors and facing charges
including money laundering, in connection to the collapse of his business
venture Kingfisher Airlines.
Jaitley said that under the new law, the
assets of any accused criminals who left the country “would stand confiscated
until the person submits himself or herself to the law”.