Foreign Funding For Political Parties: All You Need To Know

Foreign funding and electoral bonds are the shadowy duo with the ability to add opaqueness to the Indian electoral system

Bjp congress logos

In the 2018 budget, the government of India made certain hasty amendments to a number of legislations, enabling foreign funding to Indian political parties. Ever since activists and members of civil society have cried foul, saying that this would be an instrument of massive subversion of the Indian democracy.

The legalisation of foreign funding has been bought into retrospective effect since 1976, which means that all foreign funding since 1976 would now not be under the purview of scrutiny. This was done by amending the provisions under the Foreign Contribution (Regulation) Act (FCRA), 2010.

This came on the heels of the electoral bonds scheme introduced in 2017, which enabled anonymous donations to political parties by means of nameless promissory notes.

Electoral Bonds

Finance Minister Arun Jaitley introduced the electoral bond framework post the budget of 2017 and touted the system to be a game-changer in the way parties across India could raise funds.

However, the fine print of the electoral bond system made it clear that the donor information to parties can be kept private, neither would political parties know the source from which they have received donations through these bonds.

The anonymity is ensured since the bonds are issued as promissory notes. These bonds provide:

  1. A promise of value to the bearer (in this case the value of the bond promised to the political party when deposited).
  2. No mention of the donor on the bond.
  3. Anonymous transferability.

The intermediaries facilitating this transaction would be notified banks, most prominently the State Bank of India (SBI). As per section 7.4 of this Ministry of Finance notification:

The information furnished by the buyer shall be treated confidential by the authorised bank and shall not be disclosed to any authority for any purposes, except when demanded by a competent court or upon registration of criminal case by any law enforcement agency.

The Finance Act of 2017 exempts income given to parties via electoral bonds from:

  1. Disclosure under the Representation of People's Act, 1951, requiring income disclosure of all political parities exceeding rupees twenty thousand in contribution. (Section 136)
  2. Income tax for individuals (section 11)

Electoral bond donations is not tax-exempt for parties, as released by the SBI through a question and answer sheet, which can be found here

A snapshot from the FAQ page

The Finance Bill is one of the bills passed in the course of passing the budget - and it amends taxation policy, and public income frameworks. This bill, when approved by Parliament, gives the government (that includes public/political institutions ) the authority to earn through taxation and non-taxation sources, and to control its income.

You can find the Finance Act, 2017 here.

Electoral Bond Receipts

According to ADR, for the electoral bond tranche that was issued in March 2018, parties received ₹222 crores through electoral bonds.

Of this, the BJP received the almost 95% of the proceeds, standing at almost 210 crores; the Congress receiving ₹5 crores and other parties the remaining ₹7 crores.

Foreign Funding

Foreign funding to political parties emanated from the budget of 2018 and issues two aspects of receiving foreign funding:

  1. Changing the definition of what a foreign entity is
  2. Legislating foreign funding that political parties have received since 1976. The threshold before this was only 2010.

The Finance Bill of 2018 as passed by Parliament made amends to the Finance Act of 2016 to get retrospective amendments, changing the foreign contribution tolerance limits from 2010 to 1976.

This means that initially, all foreign donations received before September 26, 2010 could be put under scrutiny. This amendment by the Finance Bill pushes this date back August 5, 1976, effectively giving this bill a retrospective effect by almost 35 years.

Snapshot of section 217 from the Finance Bill, 2018, showing the amendment.

The Finance Bill also amended the FCRA, 2010; section 2, which prohibits political candidates and parties from accepting donations from abroad.

You can view the Finance Bill, 2018 here.

These amendments state that companies in which foreign entities who have businesses in India and whose holdings in them do not exceed half the company's ownership capital at the time of making this contribution (i.e. who do not hold an ownership stake) shall not be classified as a foreign company.

This means that foreign companies can now use their subsidiaries in India, even where they do not have majority stakes, to contribute to political parties. Coupled with the anonymity provided by electoral bonds, experts and activists call this duo a threat to the India electoral system, as reported by Al-Jazeera.

Minister of State for Home Affairs, Kiren Rijiju told the Rajya Sabha in a written reply on March 7, 2018 (which falls in the budget session of 2018) that the main purpose of passing the retrospective amendment through Parliament was to keep the definition of "foreign source" consistent with the foreign direct investment policy of the government. Another reason was to align foreign contributions to the first FCRA, 1976, which was scrapped and re-enacted through the Act's 2010 iteration.

This reply can be read here.

Litigation against these provisions

The Association Of Democratic Reforms (ADR) - a political watchdog, NGO and a compiler of political submissions and data - had filed a suit against the rules in the Supreme Court involving the BJP and Congress.

In 2014, when the previous provisions of the FCRA were in force and foreign funding only before 2010 could be put under scrutiny, the BJP and Congress had allegedly accepted donations from Vedanta Resources, registered in England and Wales. However, this was indirect, as Vedanta Resources owned controlling stakes in Sterlite Inc. and Sesa Goa, which made the contributions.

Vedanta is owned by Anil Agarwal, an Indian national.

The Delhi High Court, in its order on March 28, 2014, held both the political parties guilty, directing the Ministry of Home Affairs and the Election Commission of India to take action against them, taking view of their donations up to 2009 (which is before 2010, which could be put under scrutiny).

Both the parties appealed against this verdict in the Supreme Court, but their petition was dismissed by the SC on November 29, 2016. BOOM had a telephonic conversation with Ms. Shivani Kapoor,Program Manager (Legal) at ADR. She had the following statement to share on the case:

The Delhi High Court in 2014 did order the Ministry of Home Affairs and the Election Commission of India to take action against the political parties in six months. Their Special Leave Petition (appeal) was dismissed by the Supreme Court in 2016. However, no action was taken. We have filed a contempt petition in Delhi High Court, which is still pending.

Shivani Kapoor

This boils down to the donation volumes that both these parties receive. Incidentally, these two parties have a mammoth chunk of all declared donations going to all seven national parties in India.

The BJP alone accounts for close to 93% and the BJP and Congress together account for approximately 98% of all declared donations of national political parties, according to information compiled by the ADR based on party declarations to the ECI.

BOOM has previously written done a data story on the the income, income sources and donor numbers of national political parites in India here.

However, this is not the only litigation being pursued in the sphere of political funding sphere.

The ADR is also pursuing three separate cases on the following three issues:

  • Against the amendments to the Foreign Contributions Regulation Act, which ADR terms as arbitary and unconstitutional
  • Litigation against the electoral bond scheme
  • A petition to add political parties under the purview of the Right to Information Act, 2005.

A list of ADR's legal initiatives can be found here.

In lieu of these three cases, Ms. Kapoor added,

The Supreme Court has clubbed these cases together, and it is up for hearing on March 26.

This story was updated on April 15 to show electoral bond receipts

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