National

A Check On The Coffers

The hawala scam and the chaotic poll scenario have upset the industry-politician fund-flow cart

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A Check On The Coffers
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THE unmarked envelopes that Indian business has been handing over to politicians over the last month are slimmer than those for any other previous election in the last two decades. A number of diverse factors—some of them not so obvious—have contributed to this sea change from even last year when the right-hand man of one of the country's leading industrialists met a former central minister—now hawala-tainted—for the first time. "I don't know you, I don't wish to know you. You want my friendship? Pay me Rs 1 crore," was how the minister began the conversation.

The hawala scam kicked off a public debate—that still continues—on the subject of political funding, an issue conveniently brushed under the carpet in the past. Right from the Election Commission (EC), which made its suggestions, to the Confederation of Indian Industry (CII), which set up a working group to give its recommendations (see box 1), to industrial groups like the Hindujas, which used the opportunity to propound their views on what ails Indian polity, everyone jumped onto the bandwagon.

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Then the Congress and the BJP conducted what later turned out to be mere public relations excercises by sending out appeals for contributions by cheque. Sitaram Kesri, the Congress treasurer, was first off the block, doing a repeat of what he did before the 1993 assembly elections, initially sending out 200 letters and then many more to both Indian and transnational corporates asking for donations. An excerpt: "I seek your generosity in donating liberally for the cause for which we are fighting as the results of the ensuing elections would be of paramount importance for paving the way towards a certain direction. We believe in cutting down the election expenses and also in state funding of election for which we are committed and are striving for the same. Till this is achieved, you would appreciate that fighting the forces who are against the unity of the country needs considerable funding and for this we appeal to you to contribute generously by cheques which would be duly and gratefully acknowledged by official receipts." The BJP soon followed suit with similar requests.

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On April 3, based on a petition filed by H.D. Shourie of the Delhi-based Common Cause, the Supreme Court delivered its critique on political funding. And put numerous restrictions on the candidates and their party's campaign expenditure (see box 2). Chief Election Commissioner T.N. Seshan decided to treat the judgement as a basis for the guidelines he issued to the election observers. Enough pressure for the Indian politician to clean up his act? Yes and no. Enough leeway for the Indian industrialist not to pay up? More yes than no.

"We'll still be contributing to the coffers of the politicians during these elections, though it will only be half of what we paid last time round," says one of the country's leading industrialists on the condition of anonymity.

Adds R.C. Bhargava, managing director, Maruti Udyog Ltd and chairman of CII's working group on political funding: "The pressures are low this time and both politicians and industrialists are scared due to scandals like the Jain diary case, because both parties are equally guilty." Industry views requests for contributions by cheque with scepticism. "I wonder how far it will be successful. After all, you need to get approval from your board, show it in your profit-and-loss account and make a note of it in your annual report. And then shareholders can always raise a hue and cry," opines a senior executive of one of India's largest blue chip companies.

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Political donations do not classify as business expenses, and thus aren't tax deductible. But most importantly, contributions by cheque virtually negate the quid pro quo that forms the logical basis of political funding by business. The point is to pay secretly to get undue favours in return. A cheque payment becomes a charity donation without the usual tax breaks. And since the payment becomes public, the corporate would, in fact, need to fund all political parties across the board to avoid victimisation, just in case another party were to come to power. The option, of course, is to show small cheque payments on the balance sheet and make bulk payments in cash, as has been done traditionally.

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The CII's outgoing president, Rajive Kaul, puts it succinctly: "Despite the parties seeking funds through cheque, everyone knows that it is far from the actual situation. Bulk of the payments are made in cash and the transactions are mostly underhand." Though some blue chips like Telco, Bombay Dyeing and Mahindra & Mahindra have reportedly made donations by cheque in the past, the habit hasn't exactly caught on. Adds Bhargava: "Funding of democracy is mostly under the table. No matter what the Government or the industry says against it, there is always a quid pro quo involved in political funding."

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THERE’S another very important reason why politicians aren’t raking in asmuch as they did in the past: liberalisation. Finance Minister Manmohan Singh hasdisbanded the licence-permit raj to a significant extent, reducing the necessity of quidpro quo payments for a licence here, and a quota there.

The other critical element is the current political instability. The last two monthshave proved beyond doubt that concepts like loyalty to party, leader or subordinate is nowhistory. "Some politicians have surprisingly shown a slight hesitation in acceptingcontributions, because their partners in crime today, may just be arch foes tomorrow, everwilling to spill the beans," says a Delhi-based industrialist.

But the most important factor reducing the flow of money from corporates to politiciansis the near certainty of a hung parliament. "No businessman wants to waste his moneyon a political party which either won’t be part of the government or will not havethe authority to take decisions from which he can benefit," says a Delhi trader. Ofcourse, as election day draws near, and the pressure to spend on the campaign increases,candidates may throw caution to the winds. Industry is also complaining that faced with aliquidity crunch it doesn’t have enough money for itself, and so can hardly spare anyto fund election campaigns.

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But donations of smaller amounts, especially in the rural areas, continue. Localbigwigs still garland candidates with currency notes, apart from handing over themandatory envelope. But in urban areas, fund collection from traders is relatively low-keythis time. In Delhi’s Sadar Bazaar, one of the city’s leading wholesale markets,party workers hadn’t begun their rounds as Outlook went to press. "Theydon’t usually leave it till this late. I wonder if they’ll turn up at all,"says a trader, unable to offer an explanation either.

The hawala scandal, the Election Commission and the Supreme Court have also forcedpolitical parties to become more organised and less blatant about their demands. Take thecase of a sugar baron who applied for an industrial licence in a north Indian state a fewyears ago. He received a personal letter from the state chief minister informing him thathe had been granted the licence. Impressed with this gesture, when the 11th Lok Sabhapolls were announced, the industrialist went to the politician, now no longer the chiefminister, to repay his debt with a briefcase containing a few lakh rupees. Two days later,he received an envelope containing numerous benami receipts from the party’s stateheadquarters. Clearly indicating that the money had been duly forwarded to theparty’s election fund and not retained by the candidate himself, which is more oftenthan not the case.

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And so, while politicians may take time to fully clean up their act, they are treadingcautiously with regard to accepting funds from business. Who knows where the next hawalamay come from. 

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