India's Top Court to Examine Modi's Political Funding Plan

(Bloomberg) -- India's Prime Minister Narendra Modi's attempt to eliminate corruption in election funding has landed in the country's top court amid allegations that the measures will lead to a spike in anonymous political donations.

The Supreme Court of India on Tuesday agreed to hear a public interest litigation, akin to a class action suit, that challenges the introduction of electoral bonds and seeks a ban on cash donations to political parties. A bench headed by Chief Justice Dipak Misra sought replies from the finance and law ministries, apart from the poll panel. The court hasn't fixed a date for next hearing.

In the annual budget speech this February, India's Finance Minister Arun Jaitley introduced "electoral bonds" as a measure designed to cleanse the funding to political parties. Unlike debt instruments, these bonds resemble promissory notes backed by the nation's central bank, which allow donors to pay political parties with banks as an intermediary. The government had also cracked down on cash donations reducing the permissible amount to 2,000 rupees ($31) from 20,000 rupees limit earlier.

A petition filed by a non-government organization, Association For Democratic Reforms, said the attempt to clean up political donations had opened the "floodgates to unlimited corporate donations" and "anonymous financing".

"The consequence of these amendments is that now the annual contribution reports of political parties need not disclose the names and addresses of those contributing by way of electoral bonds," according to the petition, adding that the measure will lead to creation of shell companies.

A study by ADR based on an analysis of funding of the six national and 51 regional political parties showed nearly 70 percent of the 113 billion rupees in party funding over an 11-year period came from unknown sources, according to income tax returns of parties.

To contact the reporter on this story: Upmanyu Trivedi in New Delhi at utrivedi2@bloomberg.net.

To contact the editors responsible for this story: Ruth Pollard at rpollard2@bloomberg.net, Unni Krishnan