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Wednesday, February 12, 2014

The Unholy 'Nexus' Between India Inc ‘Electoral Trusts’

By Debayan Das | Kolkata

SPECIAL REPORT Money can't really decide elections. But why does India's poll finance remain so murky? An intriguing paradox of contemporary Indian politics has been insufficiently noted: corporate India finances India's elections, substantially if not wholly, but it is unable to determine election outcomes. Money matters, but it is not always electorally decisive.

By now, it has become a well known fact that Electoral Trusts play a very significant role in the funding of both national and regional political parties that make use of these funds. And now, as the general election of 2014 is knocking on the door, the number of electoral trusts, set up by the top corporate houses, is also getting bigger.
 In recent times, according to a data from the Corporate Affairs Ministry, at least 10 such corporate entities have been registered, including the heavyweights like Reliance, Tatas and Birlas, who have set up ‘Electoral Trusts’ in order to OFFER funds to various political parties. The trusts have been formed under a new framework, providing considerable tax benefits for funds extended by these corporates. 


This scheme allows corporate and other entities to register their names as non-profit trusts to distinguish them from other group companies having ‘only business’ interests. The important thing here to observe is that as per the new norms, inclusion of the words 'Electoral Trust' in the name of the trust has been made a must or else the corporate companies won’t be able to make the most of it. 

Of late these kinds of 'Electoral Trusts’ have been incorporated as non-profit companies under Section 8 of the new Companies Act, 2013, and Section 25 of the earlier version of the Companies Act, as per the Corporate Affairs Ministry sources. While the regional parties mostly choose to get individual donors, giving around 20-25 thousands in form of donations and so forth, the big fishes like the Congress and BJP, in need of crores prior to the general elections, accept funds from these electoral trusts that are invariably funded by the top corporate houses in order to retain transparency in the allocation process. But most people, without having a deeper understanding of the whole election business-- played both above and under the table-- often can’t fathom out why the corporate world splashes billions on these political parties prior to the elections in the name of donation! Well, the answer is far from being simple.  

In order to get an appropriate answer to our query, a report in the Hindu Business Line can be referred here. It says, ‘Indian companies may perhaps plump for donations through electoral trusts because if they make direct contributions, they have to disclose the names of the political parties to whom such donations have been given along with the respective amounts. 


Donations to a trust would spare them the embarrassment of baring their political leanings and the resultant pain of retribution by the political party not benefiting from the company’s munificence. Everyone is aware of the fact that political parties in this country are largely bankrolled by industrial houses. And both prefer the convenience and anonymity of cash which in fact is responsible for the huge black economy in operation.’ 

Even though the new constitution has been put in place with an intend to bring better transparency in the corporate funding of political parties, most of the names of these trusts do not point toward the business groups they're linked with. Haribhakti, trustee of the General Electoral Trust has been pertinently quoted as saying in an Economic Times report that, "No group wants to be seen to be aligned with any political party for fear, if it has backed the wrong one, of getting the short end of the stick”.  

The groups that have already set up their own ‘Electoral Trusts’ under the new regime, put together by the Government recently, consist of the Anil Agarwal-led Vedanta Group, Sunil Mittal-led Bharti Group, Anil Ambani-led Reliance Group and more. In the past few years, a number of business organizations have donated a sum of Rs.378.89 crore, comprising of 87 per cent of the entire contribution from various acknowledged sources of political parties between 2004- 05 and 2011- 12, a latest report released by the Association of Democratic Reforms (ADR) has said. 

The BJP got the biggest chunk of these funds, estimating around Rs.192 crore, followed by the Congress with Rs.172 crore. Quite remarkably a huge amount of contribution came from the manufacturing sector (595 donations, Rs.99.71 crore) followed by the real estate sector. The report revealed that Congress party has received most number of contributions from trusts and group companies (Rs.70.28 crore) while BJP received the most from the manufacturing sector (Rs.58.18 crore). 

In the same way, the leading donations from mining, construction, export/ import sector were received by Congress (Rs.23.07 crore) while the biggest donation from the real estate sector was received by BJP (Rs.17.01 crore). Those of you wondering why so many notable names from the corporate sectors vouching their support to see Narendra Damodardas Modi as the next PM of India, I hope, have got a good indication about why they are doing so. 

The staggering study has also revealed that the least number of donations to the national parties were made by hospitals (16 donations, Rs.14 lakh) followed by the shipping & transport (Rs.3.67 crore) and the communication sectors (Rs.13.26 crores).Well, in a country where millions are dying on a daily basis due to the lack of infrastructure in the hospitality sector, isn’t it a pity to see some of these hospitals-- instead of focusing on how to upgrade their hospital services towards the ailing patients— are spending money to boost political campaigns of a particular political party? Incredible India Indeed! 

And if you think this was the end then let me also tell you that it is only the tip of the iceberg. According to Government officials and executives at leading consultancies, dealing with corporate affairs, at least 25 other big business houses are presently on their way to register their own ‘Electoral Trusts’, meaning more and more money would be siphoned into sponsoring political campaigns and the wellbeing of political parties. What if half of this money would have spent towards solving some of the poverty, hunger and illiteracy problems of this country! What you think readers?
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