Govt. Set To Remove Cap On Donations To Political Parties: We Are Repeating Americas Huge Mistake
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Govt. Set To Remove Cap On Donations To Political Parties: We Are Repeating America's Huge Mistake

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On Tuesday, 21 March, the government made 40 amendments to the Finance Bill, 2017. Some of the major changes include lowering the legal limit on cash transactions from Rs 3 lakh to Rs 2 lakh and making Aadhaar Card mandatory for filing Income Tax Returns (ITR) and for applying for PAN Card. The proposal is set to come into effect on 1 July 2017.

However, the focus of this article is on one particular amendment which will prove to be catastrophic for Indian democracy and corrupt our politics. Finance Minister Arun Jaitley surprised all by adding an amendment to the Companies Act, 2013 (text of the Act can be read here).

This amendment implies two major things:

  1. It removes the cap that barred companies from donating more than 7.5% of their average net profit to a political party.
  2. It removes the requirement that made it mandatory for a company to disclose the name of the party to which the donation has been made.

The cap on corporate donations to political parties was placed for a legitimate reason: to ensure that democracy could not be bought. Eliminating the cap removes the checks put in place to avoid any nexus between the government and the private sector. Eliminating the cap allows corporations to donate to parties freely – and anonymously – and thus gain political favours from select candidates. Above all, removing the cap makes it nearly impossible for independent, new candidates without influential connections or a hefty bank account to succeed in politics – because they will always be out-cashed.

“This means, for example, that an infrastructure firm could theoretically pay up to 50% of its net profits to a single party as donation without anyone getting wiser as to which party has been paid … this throws open the possibility that an order to build a highway or a railway bridge could be given to a firm and that firm could pay the donation to the party in power which placed the order with it … The beauty is that if this happens, it will be legitimate and no questions can be asked by any ethics committee of Parliament or by any CAG audit.” – A senior official with the Comptroller and Auditor General’s office to The Telegraph.

The Finance Bill also seeks to amend the Representation of People’s Act (which governs elections in India) to ensure that electoral bonds are anonymous. Firstly, electoral bonds are like promissory notes; any person can buy these bonds from a notified bank, and then deposit them in an account listed out by a political party. Those buying these bonds to put money into political parties do not have to record who they are.

It is not as if we don’t know the disastrous consequences of unlimited corporate donations to political parties. To realise that the move is both suspicious and harmful, one need only look to another large democracy: the United States. Since the US Supreme Court ruling in favour of unrestricted campaign spending in 2010, American politics has taken a violent downturn – and partisanship is at a historic high.

To understand why the PM Modi government’s move to eliminate the cap on corporate donations to political parties, one needs to understand Citizens United.

Citizens United v. Federal Election Commission

Citizens United v. Federal Election Commission is a US constitutional law case dealing with the regulation of campaign spending by organisations.

In 2010, the United States Supreme Court held (5–4) that freedom of speech prohibited the government from restricting independent political expenditures by a nonprofit corporation. The Court ruled that the First Amendment of the US Constitution – which guarantees free speech – prevented the government from placing limits on independent spending by corporations and individuals.

The principles articulated by the Supreme Court in the case have also been extended to for-profit corporations, labour unions, and other associations. The decision allowed big businesses – such as arms companies, drugs or insurance companies, oil companies – to donate freely and extensively to candidates who backed their cause.

The full text of the ruling can be read here.

Citizens United: The aftermath

“I think that there’s going to be, over time, a backlash … when you see the amounts of union and corporate money that’s going to go into political campaigns.” – John McCain.

Commentators lament that the Supreme Court’s ruling, made to uphold free speech, has stained electoral transparency, corrupted politics, and made the unholy nexus between politics and corporations more intertwined, more opaque, and more dangerous.

The Citizens United ruling “opened the door” for unlimited election spending by corporations; most of this spending ended up being funnelled through special interest groups and corporate lobbyists.

The single most destructive consequence of the ruling was the validation and strengthening of super PACs. A super PAC is a political action committee (PAC) that can procure and spend an unlimited sum of money. A super PAC cannot contribute directly to a politician or political party, but it can spend independently to campaign for or against political figures.

As of 2014, less than four years since the ruling, “outside” spending on political candidates more than doubled. According to the Brennan Report, of the $1 billion spent in federal elections by super PACs since 2010, nearly 60% of the money came from just 195 individuals and their spouses.

The disaster that was Citizens United

“This ruling opens the floodgates for an unlimited amount of special interest money into our democracy. It gives the special interest lobbyists new leverage to spend millions on advertising to persuade elected officials to vote their way — or to punish those who don’t. I can’t think of anything more devastating to the public interest … The last thing we need to do is hand more influence to the lobbyists in Washington or more power to the special interests to tip the outcome of elections.”Barack Obama, 2010.

Critics predicted that the ruling would “bring about a new era of corporate influence in politics,” allowing companies and businesspeople to “buy elections” to promote their financial interests. Since 2010, the spike in large expenditures has largely come from “a small group of billionaires”, based largely on ideology.

Thanks to the Citizens United ruling, while people can make a maximum of $5,200 donation directly to a candidate, they can make unlimited contributions to super PACs. Furthermore, these donations can be done anonymously and they have no cap on them.

The biggest problem with the Citizens United ruling is not the fact that unlimited money can be donated to select candidates, making it impossible for candidates with less money to succeed. The biggest problem with the Citizens United ruling is that it allows extremely wealthy individuals to ensure that their choice of candidates wins elections, and only they do.

The result? These extremely wealthy individuals have a stranglehold on the electoral process and governance. They can get their candidates to do their bidding, to cut down regulations and pass legislation that favour these wealthy individuals’ companies – invariably at the expense of poorer citizens.

As Bloomberg’s Zachary Mider noted, “The result has been a shift in power away from the political parties and toward the donors themselves.”

India must learn from the US’s mistakes

“[Because of unlimited campaign spending,] you’ll see the disappearance of transparency in government, the corruption of the press, and the diminishment of local control. For capitalism to work, you need democracy to work. And right now [the US doesn’t] have democracy. We have what I would call a corporate kleptocracy, an oligarchy by the corporations and the wealthy.” – Robert F Kennedy Jr, environmental activist & attorney, 10 October 2016, Texas.

The Indian government’s recent amendment, quite like the Citizens United ruling, puts corporate power over individual rights. Eliminating the cap on corporate donations to political parties gives private enterprises unwarranted say in the electoral process and governance. Corporations don’t have free speech, citizens do.

Are we willing to live in a democracy where a small group of super-rich individuals donate endlessly to their choice of candidates enabling them to conquer television airtime and newspaper advertisements and campaign billboards and banners? Allowing their choice of candidates to win elections, thereby cementing their ability to control these candidates even after they win? Are we willing to live in a democracy where this small group of super-rich individuals further their own interests and corporate ambitions at the expense of the rest of the country?

Hopefully not. Because such a system would not be a democracy.

The Modi government needs to rethink the amendment seriously. It is unnecessary, calamitous, and will degrade the health of our democracy, perhaps irreversibly. Since the Citizens United ruling, corporate special interests in America have dominated the political process, the media’s integrity has fallen, and public faith in the government has plummeted. The ruling sharply divided the American people and concentrated the powers of the government and the economy in the hands of a few super-rich people, who grew in clout and wealth at the expense of everybody else.

We should learn from America’s mistakes. The amendment is slated to go into effect on 1 July 2017. The government should reverse its decision for the sake of democratic values.

Also read: Capping Cash Donation To Political Parties At Rs 2000, An Appreciative Move But Is It Viable?
Political Parties Received Rs 7,833 Crore Funding From Unknown Sources In Last 11 Years: ADR
Guilty Of Taking Foreign Funding, Congress And BJP Withdraw Appeal In Supreme Court Against Delhi HC Ruling On FCRA Violations

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Editor : Sudhanva Shetty Shetty