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Corporate Funding In Indian Political Structure: A risk to Indian Democracy

Possession of power makes men blind and deaf, they cannot see things which are under their very nose and cannot hear things which invade their ears. There is thus no knowing what power-intoxicated government may not do. So...patriotic men ought to be prepared for death, imprisonment and similar eventualities. (YI, 13-10-1921, p. 327) - -Gandhi

Democracy requires the participation of all and non should be ignored, this is the concept that was believed by the makers of constitution and our great freedom fighters. There needs to be a society were in everyone is treated equally. There should not be any discrimination on the basis of races, caste, religion, gender etc.

These elements constituted the philosophical basis of Indian Democracy that is ensured by the Indian Constitution. The founders of the constitution has provided the citizens with rights and duties. Thus electing our representatives is one of our rights as well as our duties that we need to do as citizens of this Country.

Over the 73 years of Independence the Country has witnessed quite a few number of elections both into the state legislative assemblies as well as to the Houses of Parliament. However over the years there has been speculations that election in our country are hugely funded by Corporations and such a system has paved way for corruption and favouritism which has had an ill effect in the economic growth of the country.

In India over the years there has been a trend of huge election expenses being undertaken by the political parties to secure their win, even though there are spending caps allotted by the election commission it is quite clear that the limit has been exceeded in quite a large number of constituencies. However these expenses could not be directly linked to the political party or the candidate as these are frequently identified as expenses done by individual citizen who support the candidate and so the candidate or the party cannot be held liable.

The history of Corporate funding of political parties in India dates back to the freedom movement. The Birlas were one of the leading donors of the INC(Indian National Congress). And after independence it is quite evident that the Business class as a whole had certain leverage over the shaping of the Congress governments economic policy. In the 1960s the congress and the Swatantra Party were the main beneficiaries of donations from big business companies such as Tatas and Birlas who together accounted to almost 34 percentage of total company contributions between1962 and 1968.

In 1969, the Indira Gandhi government imposed a complete ban on corporate funding (via deletion of the Section 293A of the Companies Act) to break the nexus between politics and businesses. To beat this ban, political parties started raising funds by publishing souvenirs, in which advertisements were placed by the business houses. Businesses also resorted to tax evasions, black-market operations and other illegal mechanisms due to political compulsions and the threat of selective raids and nationalization.

This period also saw the rise of briefcase politics through which vast amounts of black money was transferred into the Congress Party account. This led to an era of license permit raj, this arrangement also suited the businesses. To end this, Rajiv Gandhi government, took a crucial decision of lifting the ban in 1985.

This trend of spending a large volume of money for ascertaining the win by the political party has led the Political structure in India to be more inclined to favor Corporations rather than ideologies. This has thus been widely caused an inclination in the part of the government towards Corporates.

An example of this so called inclination could be seen in the wide rage of Corporate tax exceptions, loan waivers, governmental incentives, opening up of industries or sectors to promote privatization. It is quite clear that these policies has benefitted the economic growth of the country but in the current scenario it is clear that such a form of economic development does not have the consistency. So in the current scenario it is quite clear that there is a need for change from such a structure.

So to facilitate such a change there is a need to avoid corporate funding into the political parties which can provide a platform to avoid favoritism and help in providing efficient actions. To do that it we have to accept that there is such an issue and then understand its depth and finally take action to prevent such invasion of corporates into the policy making.

History of Corporate funding in India

The history of Corporate funding of political parties in India dates back to the freedom movement. The Birlas were one of the leading donors of the INC (Indian National Congress). And after independence it is quite evident that the Business class as a whole had certain leverage over the shaping of the Congress governments economic policy.

In the 1960s the congress and the Swatantra Party were the main beneficiaries of donations from big business companies such as Tatas and Birlas who together accounted to almost 34 percentage of total company contributions between 1962 and 1968.

In 1969, the Indira Gandhi government imposed a complete ban on corporate funding (via deletion of the Section 293A of the Companies Act) to break the nexus between politics and businesses. To beat this ban, political parties started raising funds by publishing souvenirs, in which advertisements were placed by the business houses. Businesses also resorted to tax evasions, black-market operations and other illegal mechanisms due to political compulsions and the threat of selective raids and nationalization.

This period also saw the rise of briefcase politics through which vast amounts of black money was transferred into the Congress Party account. This led to an era of license permit raj, this arrangement also suited the businesses. To end this, Rajiv Gandhi government, took a crucial decision of lifting the ban in 1985.

Post Liberalization period and Corporate funding

In 1991 when the country took a strong step through the economic reform of LPG Liberalization, Globalization and Privatization it brought with it the concept of corporate funding into the political scene. Even though the country has a historic connection with corporate funding from the independence movement.

The Volume of Corporate funding increased to a point which the country had never witnessed earlier. This economic reform of Liberalization and the new pattern in politics i.e the Coalition politics formed a great opportunity to both the political parties as well as to the Corporates that were interested to fuel corporate funding into the politics. These efforts were majorly made through floating neutral trust which is more commonly known as electoral trusts.

Prior to this the focus were majorly on seeking favors from government to secure license, permits and quotas. However post the Liberalization the reasons for the major contributions were highly secretive and were more focused on not letting multinational Corporations enter the Indian market and to structure policies in ways that benefits the contributors. This however has now been changed and contributions have made focusing on opportunities for private investments and for structuring policies in such a way that it favors monopolizing an industry.

Recent changes to the Legislations of Corporate funding

The post-liberalization period has witnessed a steady rise in the corporate funding of elections through both the traditional route of contributing directly to political parties and through other institutionalized innovations like electoral trusts. A major change affecting corporate donations was brought in 2013 by amending the Companies Act. This legislation raised the earlier 5 per cent limit to 7.5 per cent, allowing corporates to donate up to 7.5 percent of the net average profits earned in the preceding three years.

While this was done to allow more funding space for political parties, the 2017 Finance Act, brought by the current National Democratic Alliance (NDA), removed the earlier limit (by amending the Section 182 of Companies Act 2013). In addition, changes were made in the Foreign Contribution Regulation Act (FCRA), 2010 via the 2018 Finance Bill to allow foreign companies registered in India to make political donations.

Some other recent developments in this field of corporate funding can be seen in legalisation of Electoral Trusts and Electoral Bonds. While the electoral trusts scheme was floated as early as 1996 by the Tata Group, this form of corporate donations received legal sanctity in 2013 by bringing these entities under the Section 25 of the Companies Act, 1956. The electoral bonds scheme was introduced through the Finance Act 2017. It allows anyone, including corporates, to donate to political parties via electoral bonds.

To sum up, it could be said that effective amendments in the field to increase the flow of corporate funds into the political system has been taken and has been widely initiated and accepted by the political parties as these law pave way for more corporate funds into the political party thus helping them to secure their win in elections. And these massive transformations in this field has been happening since 2013.

These are the data compiled by the Association of Democratic Reforms (ADR).

It is clear from the data there is an excessive reliance on corporate funding and it can turn political and democratic processes into a plutocracy in the longer run. The recent changes in laws particularly the removal of the 7.5 per cent cap in corporate donations, the amendment of the FCRA, 2010 allowing foreign companies registered in India to make political donation and the introduction of electoral bonds without the mandatory donors' identities are likely to push the country toward a plutocracy.

And even more worrisome is the growing asymmetry in corporate donations to major political parties. This will have much more serious implications for the health of democracy in India in the near future. There is enough proofs to suggest that money plays a disproportionate role in determining election outcomes in India and elsewhere.

This is the precise reason why many democracies have gone for public funding mechanisms to provide a level playing field to all political parties big, small, old and new ones. Equity in political finance is a hallmark of a healthy democracy. It is high time India adopts such a policy to defend such a worrisome development.

White Collar Crimes in the recent past:

The connection between the political parties and the donors to their Corporate funding's have resulted in a steady rise in the volume of Corporate Crimes in the Country. Over the period from 2008- present there has been a number of scams were in it was publicly seen that major contributors to these corporate funding's have used their positions of authority and have initiated scams for their benefits.

Another way in which these donors get benefits for their donations can been through policies made by the government that are beneficial to the donors the most recent example of such a policy can be said to be the passing of these ordinances The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020, The Farmers (Empowerment and Protection) Agreement on Price Assurance and farm service Ordinance and The Essential Commodities (Amendment) Ordinance 2020 even when farmers were in the streets protesting against these ordinances.

Some of the more known scams that were brought into the view of the public were as follows:
2G Spectrum Scam (2008): One of the biggest scams in India. The telecom minister A. Raja was charged for issuing 2G licenses to private telecom players at very cheap rates in 2008. No rules and regulations were followed while issuing the license to the Companies. The scam cost Rs 1.76 lakh crore to the government.

The government kept the entry fee for spectrum license at 2001 prices. In this case licenses were also issued to the companies with no prior experience in telecom industry. The mobile subscriber base in India touched 350 million in 2008 from 4 million in 2001. However it is to be noted that no politician or Company involved in the scam has not yet been found completely guilty.

Satyam Scam (2009): Indian investors and shareholders were badly affected by the scam involving Satyam Computer Services. The Satyam Scam involved Rs. 14,000 crore and was one of the biggest scams in the corporate world. Former Chairman of the company Ramalinga Raju was involved in the scam, who kept everything under cover.

He later confessed of falsifying the company's accounts by US $1.47 billion. The role of few officers of the government are also of prime importance in this scam as they were the parties that had the duty to check the accounts of the company. But were corrupt and failed to comply with their duties which eventually lead to such a huge scam. Later, 46% share of Satyam was bought by Tech Mahindra, who absorbed and revived the company.

Coal Scam (2012):

With the Coal Scam, the government bore a loss of Rs 1.86 lakh crore. The CAG presented a report and stated the irregularities involved in the auctioning of 194 coal blocks. The government decided not to auction coal blocks between 2004 and 2011. The coal blocks were then sold to different parties and private companies. This decision led to huge loss in terms of revenue. In this it was quiet evident that these decisions by the government were made for the benefits of few individuals at the cost of revenue to the State.

The list of scams under Congress UPA government is too long. A few more in the list are Telgi scam, Insurance scam, Telecom scam (Sukh Ram), Fodder scam, Ketan Parekh scandal, Taj corridor case, Oil-for-food programme scam, Bombay Stock Exchange Fraud, Madhu Koda, and money laundering worth Rs. 4000 Cr.

The Modi Governments elected in the 2014 was also been the epicentre of a large number os scams in which Corporates have been a major part. However it is to be noted that most of these Scams shown in the below picture are from different states and the publicity that these scams received in the main stream media was also limited.

This is because the media has itself been victims of widespread corporatism and has fallen from grace the media is no longer neutral media it has chosen sides and this is a very alarming situation that our country is facing. The educated literate citizens of the country may find the true news eventually but for the large section of the citizens of our country who blindly believes these main stream media they are being served Agendas which is quite frankly a nightmare.

The above shown picture is referred from a post by TMC during a campaign in February 2019. This clearly shows that it was not just the UPA government that has given their donors an influence over the policy maker. The Current government is also guilty for providing its donors to have a equal influence in its policy making.

Corporate funding in other Countries

The concept of Corporate funding of elections is widely prevalent in the United States and in countries of European Union. The history and practice of the corporate funds in elections in these countries has shown us a clear picture of the pitfalls of the excessive reliance on such donations.

In the USA, the campaign finance structure followed was primarily through the route of donations. Prior to this, these campaign finances were raised through soft money. In these fundraising dinners it is documented that millions of dollars were raised. The Bipartisan Campaign Reform Act,2002 in the US banned these practices.

However in 2009, a Supreme Court decision in the Citizens united Case (Citizens United v Federal Election Commission (FEC),558 U.S. 310 (2010)) removed limits on contributions to political parties by trade unions and corporations. This has made the US politics excessively dependent on big Corporations for donations. In the last two elections of US the spending during the elections cycles have exceeded 6 billion constantly and the major donator to these spending's have been the Corporates.

Most of these funding have come from the Political Action Committees (PACs). In US there are strict public disclosure legislations and on both the Federal candidate and the political committees. Donations by corporations to political parties are disseminated by the media to ensure public awareness. The regulatory agency to monitor these funds are the Federal Election Commission.

The American example clearly shows an example on how being excessively dependent on corporate funding can lead to plutocracy. Banning corporate funding is seen as a way to prevent the distortion of the political process. However such an approach can be counterproductive by driving donations under the table avoiding the transparency.

In the UK the Principle of transparency has been ensured by the PPERA 2000(Political Parties, Election and Referendums Act, 2000) which provide a far more public scrutiny compared to US. And also and the most important the Companies that donate to these are required to seek approvals from the shareholders before making such donations. This has accelerated a decline in corporate funding in the country. The regulatory body in UK is its Election Commission and it reports directly to the parliament on all funding related matters.

In France all political contribution from legal entities are banned which means Corporate funding is not possible in France and is based on the principle of ensuring equality in politics and for the same reason the trend of spending and exorbant amount for the election campaign is also curbed. The enforcement body in the country is the National Campaign Accounts and Political Funding Committee (CNCCPF) and they verify that the political parties comply with these regulations governing their finance.

In African Continent as well most of the countries face the situation were in their elections are widely funded by Corporates and eventually when a political party comes into power they repay these contribution by the corporates through ways for sanctions that benefit these corporates like, providing them with tax exceptions, giving licenses and the list goes on. There have been instances were in these kinds of help from the government have even happened in covering up the criminal activities these corporates engage in these countries.

Conclusion
Transparency in political funding is the key principle which needs to be followed for the formation of a strong independent democracy. In India there were major laws and regulations that governed the subject however it is quite evident from the kinds of amendments that were made in this regard from the early 2013 that a more relaxed approach has been taken.

In the current scenario and in the current political structure were in the political party that has been provided with the most corporate funds is governing the nation and most of its states it is clear that the political parties are quite happy with the way they are given donations in the form of corporate funding's that help them with the money they need for securing the win for their candidate.
However this approach of the policy maker has taken India into a situation were in the policies that should help the poor and less privileged has taken a different direction and it has started to benefit the contributors or the donors.

It is clear on how this change has effected the country both in a social as well as in an economical way. This kind of policies may provide with a short term benefit for the countries economy in a small way but when tested in the long run these kinds of policies has found to be of no use or has been rejected. Thus it is time that the policy makers should avoid supporting their contributors and focus on making the right policies for the country.

Corporate funding despite being in existence for such a long time in Indian politics, it lacks two basic principle that are important for the existence of a healthy democracy. Firstly, Transparency i.e., it should be publicly disclosed and secondly the consent of the share holders i.e., unlike in UK (United Kingdom) in India there are no regulations that require a company making a political donation to ascertain the consent of the shareholders for it.

Thus for making corporate funding more acceptable into the Indian democracy and for the existence of a health democracy i.e., never under any influence it is important that therebe regulations which brings these funds under RTI which could provide with public disclosure and also there is need for regulations by which it is to be made compulsory on the part of the company making these corporate donations that it take the consent of their shareholder for such a political donation as in UK.

A much publicized alternative to reduce the influence of the donor over the government is said to be the ban on Corporate funding. However in the current scenario it is to be noted that such a ban could be counterproductive. Thus taking into consideration the current scenario a much lighter approach needs to taken such as introduction of limits on corporate donations, not providing tax exceptions for corporate donations, implementing strict regulations that shareholders permission is required for implementing such a donation and the most important is to create an independent effective regulatory body or confer these regulatory powers onto the Election Commissions or SEBI (Securities and Exchange Board of India).

Reference:
  1. https://www.indiatoday.in/india/story/modi-shah-are-grandfathers-of-corruption-tmc-lists-a-to-z-of-bjp-scams-1448365-2019-02-05
  2. Samya Chatterjee and Niranjan Sahoo, ORF Issue Brief, available at https://www.orfonline.org/wp-content/uploads/2014/03/IssueBrief_69.pdf
  3. Venkatesan, V., Chequered Relations, Frontline, available at http://www.frontline.in/navigation/?type=static&page=flonnet&rdurl=fl1616/16160100.html , Volume 16, 1999, last visited on March 14, 2013
  4. Sachar, Rajinder, Clean Politics demands no corporate funding to Political Parties, Mainstream Weekly, available at http://www.mainstreamweekly.net/article1322.html , Vol XLVII, No 19, 1999.
  5. The politics of the ban on corporate donations, refer to Jha, Prem Shankar, Time to rock the vot e , Tehe l k a , ava i l abl e a t http://a r chive.t ehe l k a . com/stor y_ma in5 0 . a sp? filename=Ne100911coverstory.asp and Mantri, Rajeev, Narendra Modi as the Anti-Nehru, Livemint, available at http://www.livemint.com/Opinion/DCrr6B9v1MvR6QTEMGDcJM/NarendraModi-as-the-antiNehru.html.
  6. Kochanek, Stanley A., Briefcase Politics in India: The Congress Party and the Business Elite, Asian Survey, Vol. 27, No. 12 (Dec., 1987), p. 1290.
  7. Krishna, Gopal, Politics of Funding of Elections and Electoral Reform, Think India Quarterly, available at http://www.thinkindiaquarterly.org/ArticleDetails.aspx?ArticleId=357&Id=44 , Volume 15, Number 1, 2012, last visited on April 10, 2013.
  8. Treat funding to political parties as expenditure: ICAI, Business Line, available at http://www.thehindubusinessline.com/industry-and-economy/economy/article1127792.ece.
  9. Crumley, Bruce, France's Stringent Election Laws: Lessons for the America's Free-for-All Campaigns, available at http://world.time.com/2012/04/20/frances-stringent-election-laws-lessons-for-theamericas-free-for-all-campaigns/ , last visited on October 27, 2013.

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