Budget 2017: Finance Minister Proposes Rs 2,000 Limit On Cash Donations To Political Parties

Announcing what may be seen as its biggest gamble yet, the Narendra Modi government on Wednesday said that it would kick-start the process of political funding reform. Announcing the Union Budget for 2017-18, Finance Minister said that a number steps would be taken to bring in greater transparency into political funding.

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The steps being suggested in Budget 2017 by the government include:

• Maximum donation in cash from one person restricted to Rs 2,000
• Political parties can take larger donations via cheque and digital payments
• The government intends to seek amendments to the RBI Act to allow for “electoral bonds”
• Political parties will be allowed to purchase electoral bonds against cheques
• The bonds will be redeeemable only in the designated account of a registered political party
• The electoral bonds will be redeemable within a prescribed time period

The major one among being the limit on undisclosed donation from one person to Rs 2,000. Earlier, the parties could take up to Rs 20,000 in donations without disclosing the names of the donors.

“In accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2000 from one person,” Jaitley said in his budget speech.

The FM added that the government will also amend the RBI Act to enable issuance of electoral bonds which will operate based on the guidelines set by the government.

While the government sought to promote digital transactions for funding political outfits which provide a transaction trail, the move is likely to boost public accountability, experts said.

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BloombergQuint spoke to economist Ajit Ranade who has studied political funding. Ranade said that the move is a great first step but there's a “long way to go”.

“It's a great beginning towards cleaning political funding. What you want is complete transparency in donations as well as income and expenditures of a political outfit, but this will also help cut down unreported flows,” Ranade said.

He added that political parties should ideally be under the purview of Right to Information Act so that the documented details about their functioning, income and expenditure are out in the public domain.

The government has taken a number of measures to bring down corruption and formalise the economy, Jaitley said in his Budget 2017 speech. The decision to scrap old Rs 500 and Rs 1,000 notes was one such decision, said the finance minister.

The curbs on undisclosed political funding though are likely to be a key step in the process. The government had faced criticism post demonetisation on letting political parties go unchecked when it comes to their funding.

Radhika Pandey, consultant at the National Institute of Public Finance and Policy, told BloombergQuint that the Rs 2,000 limit is a “radical reform” and is likely to clean up the political funding system.

“It will induce greater accountability as everything will be under check. It will curb anonymous funding as every receipt will be under check,” Pandey said. She said there are some weak points like no limit on the number of people who can donate less than Rs 2,000.

“It is a good starting point though some loopholes still remain,” Pandey said.

This was echoed by political scientist and psephologist Yogendra Yadav in a tweet.

Reducing cash limit for political funding from Rs 20K to Rs 2K is meaningless. Because there is no limit in number of persons. # Budget2017

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