Almost everyone in India loves good democracy, while worrying that it is funded by black money generated through corruption. Over the years, many countries have gravitated towards a system that allows parties to accept money from companies as long as everything is out in the open and shown on everyone's books. India used to allow such contributions until Indira Gandhi, possibly worried that her rivals would get all the money, banned them in the early 1970s. For nearly 15 years, India practised this hypocrisy. Then in 1985, it allowed companies to make donations to political parties subject to a maximum of five per cent of average net profit over the previous three years. The problem of tax treatment and vendetta still remained, though. So more recently the idea of political trusts, which can receive donations by cheque from different sources, was born. And now comes news that companies have started to set up these electoral trust companies. The first off the block are Vedanta's Janhit Electoral Trust and the Mahindra Electoral Trust Company. Others are likely to follow suit. All will enjoy tax benefits, but the trusts will have to disclose how much they paid to political parties during the financial year. There is no ceiling on how much can be paid. The names of group companies - which are required to have been in existence for more than three years - that contribute to the trust will not, however, have to be disclosed. This is to protect the company that was unlucky enough to have contributed to the losing side. Just how much this route will generate in a country where there is a premium on cash remains to be seen, but a good beginning is being made.
An important question is whether India is finally giving up on the idea of state funding for political parties. Since 1975, committee after committee set up by the government has favoured this. However, major practical difficulties remain. The main problem has always been of the mandatory claim for money that a political party can make and this made the problem of apportionment virtually unsolvable. Another unsolvable problem is that of expenditure. The current levels of Rs 16 lakh per constituency for an Assembly election and Rs 40 lakh for a Lok Sabha election are grossly unrealistic. But what would be a realistic sum? And can it be fixed at the same amount for all constituencies regardless of size? In any case, whatever the amount, there will always be some incentives to spend in excess of the limit. Debate on this can be, and has been, endless.
Finally, there is the question of quid pro quo between companies and political parties: will more transparent methods take care of the problem? Globally, the answer is no. In fact, tax laws will likely become more complex. That said, anything that reduces the influence of black money, and permits smaller political parties to access at least some private but transparent financing, can only improve matters.
