Friday, February 3, 2023

The foreign hand in political funding

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Only 20 percent of the income of political parties can be traced. What about the rest?

By Usha Rani Das

In 2014, the Delhi High Court convicted the Indian National Congress and the Bharatiya Janata Party of violating the Foreign Contribution Regulation Act (FCRA) 1976. Two years later, neither the Election Commission of India (ECI) nor the central government has taken the matter forward. The charges related to the two political parties receiving donations from “foreign sources”.

Both the BJP and the Congress had appealed in the Supreme Court against the judgment but the matter is still pending.  The High Court, while hearing the case of Association for Democratic Reforms and Anr vs Union of India and Ors, held that donations received up to 2009 by the two parties was in violation of the FCRA Act.

Association for Democratic Reforms founder Jagdeep Chhokar

In the case of the BJP, donations it had received from M/s Sterlite Industries India Ltd, M/s Sesa Goa Ltd and Cairn India were from a “foreign source”, and hence in violation of the law. The High Court found that these companies are controlled by Vedanta Resources plc, a company registered in the UK. The annual report of Vedanta said that it held 55.1 percent of Sterlite’s shareholdings. Vedanta also has the controlling shareholding of Sesa Goa. Vedanta, the mineral and metals trading company, is owned by London-based entrepreneur Anil Agarwal. In the case of the Congress, the party had accepted foreign funds in the form of Rs 10 lakh from M/s Stewart Holl (India) Ltd, controlled by a foreign source, namely, the M/s Goodricke Group.

The High Court then directed the Union home ministry and ECI to reappraise the receipts of political parties within six months. According to EAS Sarma, one of the petitioners in the case and a former secretary to the Government of India, the home ministry took no action. Instead, he says, within the time allowed, both the BJP and the Congress filed appeals before the Supreme Court. Sarma and the Association for Democratic Reforms (ADR) filed another petition in the High Court which says that “the Home Ministry cannot administer FCRA in view of the inherent conflict of interest and, therefore, the FCRA function should be transferred to a judicial tribunal”. Sarma says the arguments just to admit the writ have been going on for a year.

The Delhi High Court directed the home ministry to reappraise the receipts of political parties. But according to one of the petitioners in the case, no action was taken.

The Congress and the BJP are not the only culprits, according to ADR. The association has also filed complaints before the home ministry on FCRA violations committed by some regional political parties with the home ministry, once again, “dragging its feet” as Sarma puts it. The complaint refers to the Telugu Desam Party and the Shiromani Akali Dal receiving funds from M/s Accolite Software India Pvt Ltd and M/s Sigma Freudenberg Nok Pvt Ltd, respectively. Both are subsidiaries of companies registered in other countries. What the petitions and proceedings, or lack of it, reveal is that regional parties also receive foreign funding.

The more sensational revelation is that income tax returns of political parties ob-tained by ADR using the RTI Act reveal that only about 20 per cent of the income of political parties comes from donations that they disclose to ECI under Section 29C of the Representation of People Act. As ADR founder Jagdeep Chhokar told India Legal: “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. The sources of the remaining 80 per cent of the income are shrouded in mystery.” This naturally raises questions about the pernicious influence of illegal money on the democratic process.


Both the BJP and Congress declined to answer questions on the issue. Noted activist and founder of the Loksatta Party, Jayprakash Narayan told India Legal: “The political funding reform law of 2003 in the wake of a Tehelka expose provided an incentive for funding legitimate political activities. It gave full tax exemptions to donors and corporates. The law came to provide a legitimate window for funding. It is nowhere contemplated that you can receive funding from foreign citizens or companies. If they have violated it, serious punishment should be imposed.” He added: “Whether one can receive funding from NRIs is still a grey area and under discussion but there should not be any provision for undisclosed foreign funding. He agrees that criminally prosecuting national political parties would be an absurd solution but clearly, legal provisions need to be incorporated to penalize such actions and tighten the laws.


As of September 16, 2014, there were a total of 1,761 parties registered in India, with six national, 49 state and 1,706 unrecognized parties. Recognized parties have to submit details of their financial contribution with the ECI according to Section 29A of the Representation of People’s Act while unrecognized parties have to file the report with the Chief Electoral Officer of their respective states; failing which they are exempted from tax benefits. An ADR analysis of the total income and expenditure incurred by national parties during FY 2014-15, as declared by the parties in their IT Returns submitted to the ECI, found many anomalies like incomplete details of donors, duplicate PAN details and cheque numbers. Some of the interesting details are:

  • Between FY 2014-15 and FY 2015-16, the income of BJP increased by 44.02 percent (Rs 296.62 crore), BSP increased by 67.31 percent (Rs 45.04 crore), NCP increased by 22.05 percent while that of the CPM increased by 1.68 percent (Rs 2.05 crore). The Congress’s income decreased by 0.79 percent (Rs 4.74 crore). CPI’s also decreased by 24.28 percent (Rs 59 lakh).
  • The BJP declared the maximum income from donations which amounted to Rs 940.39 crore.
  • A comparison of total donations declared by the parties in their IT returns (both above and below Rs 20,000) and that declared in the donation report shows that only 49 percent of the total donations of political parties came from voluntary contributions above Rs 20,000. A total of Rs 648.66 crore (51 percent of the total donations) donated to national parties was from donors whose details are not available in the public domain. Total income of political parties from unknown sources is Rs 1,130.59 crore.
  • The BJP had collected Rs 434.67 crore from donors whose details are unavailable.
  • The maximum expenditure for the Congress has been towards election expenditure, BJP’s towards advertisements and publicity followed by travelling.


In an order dated March 12, 2016, the Election Commission of India issued a notification for some political parties to de-register themselves after an inquiry showed that some were inactive for a long time while others did not exist at all. Yet, they were all drawing funds. There were 81 parties involved, including New Democratic Party, Bharatiya Jantantrik Parishad, Bharatiya Jan Shakti, Tripura Pragatishil Gramin Congress, Pondicherry Mannila Makkal Munnani, Rajiv Makkal Congress and Nav Samaj Dal. Says Chhokar: “In India, anybody can form a party. One has to fulfill some basic criteria and you are good to go to collect funds from any source.” Under Section 13A of the Income Tax Act, political parties are exempted from paying tax and this benefit is being exploited in India. The Section clearly indicates that the object is to ensure that there is transparency in the process of financial functioning of political parties. The parties need to maintain their audited accounts and comply with provisions of the Income Tax Act. Some regional parties have defaulted on this on a regular basis.

Association for Democratic Reforms founder Jagdeep Chhokar says that anybody can form a party in India and only a basic criteria needs to be met to collect funds from any source.

Political parties are also required to annually provide details of donors who contributed above Rs 20,000 in a year. They have found out a way through this too. As Chhokar says: “We heard that there were parties giving receipts of Rs 19,990. When the Income Tax Department enquired, it found that the receipt number/draft number were in serial numbers from the same bank on the same bank. It then called up some 20 people at random to come and verify their existence. This led to a huge ruckus and ultimately they had to withdraw.”



The problem is that the ECI has limited powers. It cannot de-register a party. The apex court had in 2002 declined to empower ECI with the power to de-register a political party. The SC judgment had said: “De-registration of a political party is a serious matter as it involves divesting of the party of a statutory status of a registered political party. We are, therefore, of the view that unless there is express power of review conferred upon the Election Commission, the Commission has no power to entertain or enquire into the complaint for de-registering a political party for having violated the Constitutional provisions.” Upset with this judgment, ECI took the case to the Law Commission of India which is still pending.


What was more, in February 2016, the government provided for an amendment to FCRA, 2010 in the 2016 Finance Act. It amended Section 2(1) (j) (vi) of FCRA, 2010, by adding a proviso removing companies like Sterlite and Sesa Goa from the definition of “foreign source” in the FCRA Act. The addition reads: “Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made there under, then, notwithstanding the nominal value of share capital of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source.” It is retrospective, being deemed to have been inserted in the FCRA 2010 with effect from September 26, 2010.

Sarma wrote to PK Sinha, the cabinet secretary and Rajiv Mehrishi, Union Home Secretary, on the retrospective amendment of FCRA. He wrote: “When the UPA government retrospectively amended the Income Tax law in 2012 to safeguard public revenue of more than Rs 10,000 crores payable by Vodafone, those in the present government had branded it as highly objectionable. The NDA government’s memory seems to be short, as the amendment now effected by it in respect of the FCRA, through the Finance Bill, is not only retrospective in application but it also raises a serious concern about allowing foreign companies to have the freedom to fund Indian political parties and thereby compromise the national interest.


“That such an amendment should come through the backdoor through the Finance Bill, not as a direct amendment to the FCRA, raises concerns about the motives underlying the amendment.

“Had the government proposed an amendment to the FCRA directly by introducing an amendment Bill in the Parliament, it would have provided an opportunity to both the Houses of the Parliament as well as the public at large to discuss and debate the implications of the Bill and its likely impact on the national interest….

“I feel the amendment would soon open the floodgates to electoral corruption on a very large scale.”


Loopholes in the law

According to Sam Van Der Staak, Programme Manager, International IDEA (an inter-governmental organization that supports sustainable democracy), there are numerous legal anomalies in India regarding political funding.

  • India lacks a comprehensive political finance Act.
  • There are no donation and spending limits for candidates and political parties.
  • India bans anonymous donations to political parties, not to candidates.
  • There are reporting requirements for political parties, or for candidates.
  • There is no state funding.
  • India lacks formal penalties for funding violations.


Former journalist and an AAP member, Ashish Khetan told India Legal: “Funding should be received in cheque and not in cash. Most of the political parties receive cash and that becomes their channel to line black money into their political activities. Parties should not be allowed foreign funding. The government should take steps against them if they have violated FCRA act.”

The other issue that many activists feel strongly about is that there should be no distinction between NGOs and political parties where foreign funding is concerned. By removing companies like Sterilite and Sesa Goa from the definition of “foreign source” in FCRA 2010, the government subtly opened the floodgates for political parties to receive foreign funding.

Bureaucrats and activists accuse the government of its lackadaisical behavior when taking actions against political parties in contrast to its quick response in suspending the licenses of NGOs that violated the FCRA Act in India.

Other solutions can be distilled from laws in countries. Now that it is clear that 80 per cent of funding for political parties is unaccounted for, the need for stricter control and greater transparency of foreign funding for political parties is an urgent requirement. Going by past records, however, that seems an overly ambitious demand. 

Lead Illustration: Anthony Lawrence

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