The Other ‘Fund Crunch’: How India’s Political Funding limits Inc’s Global Opportunities

T K Arun

If Indian companies are to go global, find global partners accountable to their shareholders and laws that call for clean operations that are at least noiseless, if not quite squeaky and receive inexpensive capital from abroad, Indian politics has to clean itself up.

While we are all proud of India’s democracy, few of us bother to fund any political party. We are content to let parties fund themselves by mobilising funds as they traditionally have from the time of the freedom struggle when industrialists like G D Birla used to fund the Congress. But most such funding was informal, with no structured, transparent disclosure of who funded which party and to what extent.

It is reasonable to assume no industrialist was keen to reveal to the colonial administration to what extent he was funding the primary movement trying to overturn the colonial rule. Since the movement that received the funds used these to run the movement and a few extras like ‘keeping Gandhi in poverty’, to quote Sarojini Naidu, and not to build anyone’s private fortune, this informal nature of political funding did not matter.

After Independence, the nature of funding continued to be informal, but the purposes to which such contributions from industrialists were put became more diffuse – to such an extent that the political class became obscenely rich, even without any recognisable sources of legitimate income. As someone explained, only half-jokingly, funds are given to the politician by nazrana, a gift of propitiation at the outset, shukrana, an offering in gratitude for services received, and, in some cases, zabarana, tribute collected by force.

Sale of patronage, loot of the exchequer, by awarding contracts to favoured players who kick back a portion of the inflated project cost, and simple extortion – political parties fund themselves through these means.

What about the recorded contributions via cheque and electoral bonds? These are only a fraction of the actual receipts of parties. Electoral bonds are a sham: they are opaque, the identity of the giver masked to ordinary voters and parties, save the ruling one, which, through the arms that control the banks, can find out who bought the bond with a particular serial number and which party redeemed it. Further, they pretend that political funding is now moving to non-cash, institutional means.

However, the political practice remains extra-institutional, with the buying of votes with cash, booze and even drugs reportedly routine and elected governments being toppled with the help of elected representatives willing to change sides for consideration. Such ‘extracurricular’ activity cannot be carried out with money whose spending accounts must be shown. Electoral bond proceeds can be used for buying advertising but not for mobilising a crowd for a rally.

The counterpart of the political system’s demand for unaccounted donations is the compulsion of companies and their promoters to generate such funds off the books. This could be done by inflating project costs for which loans are raised and taking out a portion of the project spending during implementation through promoter-affiliated companies by acquiring a company whose seller agrees to give to the acquiring company’s promoter a slice of the acquisition cost.

Such building of war chests to fund politics makes Indian production seem more capital-intensive than it is. Worse, for some entrepreneurs, setting up a new project is so lucrative that operational excellence goes out of the window, and the interest in running the project result is limited to not getting disqualified for a future loan. The padded capital cost structure erodes competitiveness. Further, it is vulnerable to thorough scrutiny of the kind of foreign capital providers are likely to put the Indian company through.

If Indian companies are to go global, find global partners accountable to their shareholders and laws that call for clean operations that are at least noiseless, if not quite squeaky and receive inexpensive capital from abroad, Indian politics has to clean itself up.

Political parties should crowdsource their funds via Unified Payments Interface (UPI). There is no longer need to insist on identified payers only for contributions above ₹20,000. Even a ₹10 payment made via UPI is fully traceable. If people can drum up, for a political party, half the enthusiasm they show for a weekend tipple, politics can mobilise thousands of crores of rupees from the people directly without being beholden to or forcing corruption upon industrialists. And ‘extracurricular’ politics should cease.

The Election Commission should stop relying on party submissions for political expenditure and, instead, capture data – directly and via crowdsourcing – on political activity and associated expenses and use big-data analytics.

These can be supplemented with political action committees that companies can fund openly to promote policies they favour. These would signal the industry’s preferences on larger issues instead of passively suffering policy choices that bow to misguided ideology.

This article was first published in The Economic Times as The other ‘fund crunch’: How Indian politics holds back India Inc’s global opportunities 7 February 2023.

Read more by the author: Budget 2023: Maximum Government for Maximum Economy



    IMPRI, a startup research think tank, is a platform for pro-active, independent, non-partisan and policy-based research. It contributes to debates and deliberations for action-based solutions to a host of strategic issues. IMPRI is committed to democracy, mobilization and community building.

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  • TK Arun

    TK Arun is a Senior Journalist and Columnist based in Delhi.

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