Budget 2017: Reforms in Political Funding

The Union budget presented by finance minister Arun Jaitley on 1 February 2017, unveiled a slew of measures including political funding reforms.  For political-electoral reforms, the budget 2017 included the recommendations made by Election commission of India. Earlier, the Election Commission had recommended a reduced cap of Rs2,000 to regulate anonymous donations and curb political parties that are established only with “an eye on getting the benefits of income tax exemption” available to political parties.

 Limit on cash donations

The budget reduced anonymous cash donations to political parties up to Rs2,000. It is one-tenth the current level. In Budget speech, Arun Jaitley also announced a Rs 3 lakh cap on cash transactions. He said the government is considering a law to confiscate properties of offenders, including those suspected of economic crimes, who flee the country.

Earlier, political parties were bound to maintain a record containing details of the donor for every donation above Rs 20,000 in cheque but not less than this. This limit created a loophole of splitting the funds into smaller denominations and not maintaining any record for the same.

The reduced amount of undeclared donations will help in tackling this problem of maintaining the record of donated money.
Donations would still be made without any limit by account payee's bank draft or cheque, or e-clearing system through a bank account or electoral bonds.

Digital boost in Political Donations

This reform also intends to discourage cash transaction and encourage transparency in political donations. For this, the budget proposed the idea of providing an additional alternative to digital payments.  Apart from it, the use of digital payments in political donations adds an additional challenge i.e. maintaining the secrecy of donations.

Finance Minister mentioned that donors have also expressed reluctance in donating by cheque or other transparent methods as it would disclose their identity and entail adverse consequences. And to resolve such concerns, the finance minister proposed the introduction of electoral bonds which is explained below.

Introduction of Electoral bonds

The budget 2017, mentioned a proposal by the Reserve Bank of India (RBI) to allow political parties to issue electoral bonds to raise money. Under this process, these bonds can be bought from any notified bank and used as donations.
The bond will be redeemed via the Election Commission or any other body formed for regulating the same at the bank account specified by the political party. The election commission or any other regulatory body would be acting as an intermediary. This process will make the donations anonymous for the political party, which will not be able to know the source of money.

Each party will specify only one bank account.
Apart from it, the political parties will be obliged to file returns of donations with a consolidated amount, instead of specifying each donation obtained within a specified time period under the Income-tax Act.

Amendment in  the RBI Act

 For issuing the electoral bonds, certain modifications would be required in the Reserve Bank of India (RBI) Act. The finance minister has given a date for the implementation of this change from April 1, 2018.