If Nation is Expected to Go Cashless, Stop Political Parties from Taking Cash Donations

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In the November 27, 2016, mann ki baat address to the nation, prime minister Narendra Modi talked about India moving towards a cashless society. As he said: “The great task that the country wants to accomplish today is the realisation of our dream of a ‘Cashless Society’. It is true that a hundred percent cashless society is not possible. But why should India not make a beginning in creating a ‘less-cash society’? Once we embark on our journey to create a ‘less-cash society’, the goal of ‘cashless society’ will not remain very far.”

A very noble thought indeed, the practical part of implementing it, notwithstanding. The interesting thing is that the mention of this dream of India moving towards a cashless society wasn’t made in Modi’s November 8, 2016, address to the nation. In this address Modi announced the decision to demonetise the high denomination notes of Rs 500 and Rs 1,000.

Neither was it a part of the ministry of finance press release that accompanied the decision. The primary goal of demonetisation was to tackle fake currency notes and black money. As the press release pointed out: “With a view to curb financing of terrorism through the proceeds of Fake Indian Currency Notes
(FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy, it has been decided to cancel the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1000 denominations issued by RBI till now
.”

Of course, it can be said that the dream towards a cashless society goes hand in hand with the dream of eliminating black money. So, to that extent they are connected. Nevertheless, with the way the entire issue of demonetisation has been handled up until now, it is safe to say that this was not something that the government had thought about originally. They are making it up as they go along.

It is worth asking how feasible this dream is. A PwC report titled Disrupting cash: Accelerating electronic payments in India points out that 98 per cent of volume of consumer transactions in India are still in cash. The number is 96 per cent in case of Mexico, 94 per cent in case of South Africa, 90 per cent in case of China and 86 per cent in case of Japan. While this figure can be brought down, there is no way India is moving towards becoming a cashless society any time soon.

Then there are other issues. Smart phones are not a universal phenomenon. The moment one goes beyond the big cities, internet speeds both on mobile and broadband, tend to crash. There is a large portion of the population which is barely literate. So, yes there are many issues. Some structural and some cultural.

But given that the prime minister wants India to move towards a cashless society, there is one thing that he should do to tell the nation how serious he is about the cashless dream. If the nation is expected to go cashless, why are political parties still allowed to take cash donations? This is something that the prime minister and the Bhartiya Janata Party (BJP) can work towards eliminating .

Let’s look at this issue in a little more detail. As Sandip Sukhtankar and Milan Vaishnav write in a research paper titled Corruption in India: Bridging Research Evidence and Policy Options: “On the expenditure side, candidates face strict limits on spending once elections have been announced, but election authorities struggle to properly verify their reported expenditure since a substantial portion typically occurs “in the black.”” Hence, black money which mostly finances political parties and in the process elections in India.

The laws are also structured to help this. As Sukhtankar and Vaishnav point out: “For instance, corporations and parties are only legally required to publicly disclose political contributions in excess of Rs. 20,000. This rule allows contributors to package unlimited political contributions just below this threshold value completely free of disclosure.

And this is where things get really interesting. As the National Election Watch-Association for Democratic Reforms point out in a report titled Analysis of Income & Expenditure of National Political Parties for FY- 2014-2015: “A comparison of total donations declared by the parties in their IT returns (both above and below Rs 20,000) and that declared in the donations report shows that only 45% of the total donations of the parties came from voluntary contributions above Rs 20,000.”

It needs to be pointed out upfront that this analysis does not take the Congress Party into account because the Party had not submitted its accounts for 2014-2015 to the Election Commission at the time of writing the report.

The report makes multiple points.

1) Only 45 per cent of the total donations of the parties came from voluntary contributions above Rs 20,000. This means that 55 per cent of the donations came from those making donations of Rs 20,000 or lower. Hence, the donors are unknown. A total of Rs 582.72 crores (55% of total donations) of the total donations to National Parties was collected during FY 2014-15 from donors whose details are not available in the public domain. There are six national political parties: BJP, Congress, BSP, NCP, CPI(M) and CPI.

2) NCP is only party which has not received donation below Rs 20,000 during FY 2014-15. Thus all voluntary contributions are available in the public domain. It is to be noted that BSP claims not having received any donation above Rs 20,000 hence no donations details of the party are in public domain.

3) How do things look for the BJP? BJP, which declared the highest total income and highest income from donations above Rs 20,000 amongst the National Parties, had collected Rs 434.67 crores (50% of total donations) from donors whose details are unavailable.

4) The “unknown sources include ‘sale of coupons’, ‘relief fund’, ‘miscellaneous income’, ‘voluntary contributions’, ‘contribution from meetings/ morchas’ etc. The details of donors of such voluntary contributions are not available in the public domain.”

If Narendra Modi is serious about his fight against black money and moving India towards a cashless society, this needs to stop. If you, I and everybody else, are being encouraged to go cashless, why are political parties still allowed to take donations in cash and not declare the source of funds.

Since the entire demonetisation issue is more about making a political point, the BJP can take a step forward on this front and promote the usage of Unified Payment Interface for cash donations that are made to a political party. In fact, the BJP should make all donations of less than Rs 20,000 compulsorily to be made through the Unified Payment Interface.

This will work at multiple levels. The BJP will score political points over its rivals and allow Modi to take a moral high ground again. The economy will become more cashless. Further, there will be less infiltration of black money in political parties, given that those making a donation of Rs 20,000 or lesser can be identified as well.

The column originally appeared on November 30, 2016, in Vivek Kaul’s Diary.

 

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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