Prime Minister Narendra Modi deserves credit for taking the first concrete step towards bringing down the size of the black economy by demonetising currency notes of high denominations. However, the move has unleashed a massive liquidity crunch across the economy. That is because India is predominantly a cash-based economy with the size of cash relative to the GDP being one of the highest in the world. After initial suggestions that the transactional troubles would be over within a few days, the prime minister eventually asked the country to give him 50 days to sort things out. In return, he promised a cleaner economy. He has also assured the people that he will not stop at demonetising and will turn his attention towards other aspects of the black economy, such as benami properties and stashed gold. These are laudable objectives. But as common people go through daily hardships, including showing their identity cards every time they deal with their own money, the one thing that will determine how the people rate Mr Modi’s drive against black money is the transparency in political funding.
The chief argument against demonetisation has been that it is a move that only affects the stock of black money (held in currency notes of Rs 1,000 and Rs 500). It does not affect the flow of black money. And if there is one consensus around tackling black money, it is that political parties should declare their funding. It is an accepted fact that parties spend far in excess of the stipulated expenditure limits in elections. Income tax regulations do not require parties to reveal sources that provide less than Rs 20,000 and this provision has allowed parties to accept huge donations, albeit in smaller tranches. There is no clarity either on where this money is coming from, say, whether it is from the drug trade, or where this money is spent, say, on liquor or distribution as hard cash. Needless to say, political funding has implications on the choice of policymaking.
In 2013, the Central Information Commission ruled that political parties were public authorities and, as such, were within the purview of the Right to Information Act. Its ruling, given the appeal, was applicable to the six national parties. However, barring the Left parties, which opened themselves up to financial scrutiny, no other party has made any advance on this matter. In fact, political parties have repeatedly and shamelessly closed ranks in this regard to the extent that they are effectively in violation of the CIC ruling with RTIs being rejected. The point is not just about the sanctity of the CIC order but that of the larger principle of transparency in public life. The question is: If a common man is expected to come clean on his finances then why not the political parties, especially when their funding is the fountain of black money?
Mr Modi has been trying to build consensus among political parties in favour of his fight against the black economy — in vain as Parliament adjournments bear witness. Yet there is a way by which he can achieve a breakthrough both politically as well as in his fight against black money: He can unilaterally announce that his political party, the Bharatiya Janata Party, will disclose its electoral funding. This would, under the pressure of public opinion, force the political decision-makers of India, across political parties, to comply with norms of financial probity that are expected of the man on the street.
READ OUR FULL COVERAGE ON THE MODI GOVT'S DEMONETISATION MOVE
READ OUR FULL COVERAGE ON THE MODI GOVT'S DEMONETISATION MOVE