New parties narrow cash gap with old

New parties narrow cash gap with old

New Delhi: New political parties seem to have successfully piggybacked a rapidly expanding economy, changing rules and coalition dynamics to catch up with older and more established rivals in raising money, according to income-tax (I-T) filings.

Click here to listen to an interview with Amitabh Singh, partner with global tax advisory services Ernst and Young, on tax laws that govern political parties in India


The aggregate assets of seven parties, including the 123-year-old Indian National Congress and the 56-year-old Bharatiya Janata Party (BJP), which grew out of the Bharatiya Jan Sangh, were almost Rs580 crore according to these filings, but two parties of relatively recent origin, the Samajwadi Party (SP) and the Bahujan Samaj Party (BSP), account for a little more than one-fifth of this number.

And even more significantly, some of the new parties have as much, if not more, money than older parties on their books.

Also See Filling Up Coffers (Graphic)

For instance, in 2005-06, the most recent year for which data is available, the SP had Rs72 crore of cash (and bank balance) on its books, of which Rs40.34 crore came from voluntary contributions. The BSP had Rs24.67 crore. That compares with Rs27.49 crore for the Congress and Rs26.25 crore for the BJP.

These findings are the result of a Mint analysis of the information provided by the I-T department in response to a right to information (RTI) application filed last year by the Association for Democratic Reforms, an Ahmedabad-based non-political group that aims at bringing about government and electoral reforms.

To be sure, older parties have bigger balance sheets than newer ones — the balance sheet size of the Congress is Rs228.5 crore compared with the BSP’s Rs44.06 crore — and most parties end up spending a lot more than the numbers presented in the chart on elections.

The numbers are also interesting because it is among the first look at the closely guarded balance sheets of political parties. The details were made available in July by the I-T department after the Central Information Commission, overruled the objections of political parties.

The seven political parties on whom data was sought and provided are the Congress, the BJP, the Nationalist Congress Party, (NCP), the BSP, the Communist Party of India (CPI), the Communist Party of India (Marxist), or CPM, and the SP. While the first six are recognized as national parties by the Election Commission, the SP has been included because of its growing influence in national politics, especially after its recent alliance with the Congress.

While Rs200 crore, or 35%, of the total assets of the seven political parties is in cash, around Rs84 crore is in fixed assets. Interestingly, over the five-year period for which data was provided, the cash and assets of some of the relatively new parties have risen rapidly.

For instance, the balance sheet of the BSP, which was elected to power in Uttar Pradesh last year, on 31 March 2002 showed fixed assets of Rs98,000. The following year, it jumped to Rs58 lakh and, by the end of 2005-06, it rose to Rs11.73 crore.

The largest leap in its asset base came in 2001-02, which was also the year the BSP chief Mayawati came to power for the third time as chief minister of Uttar Pradesh.

Justifying the growth in assets, Ambeth Rajan, treasurer of the BSP, said: “An increase in the value of immovable assets is directly related to the number of people who voted for us, since we take money from our voters. Compare the percentage of votes in favour of the BSP in 2002 and 2007 and then you will know. It is directly proportionate to the number of votes. In 2007, 20.70 million people voted for us."

Easier rules

One reason for the rapid growth in the size of the balance sheets of most parties between 2001-02 and 2005-06 is a change in rules. In 2003, India enacted a new law that made private donations to political parties easier. This law allows contributions by private firms to political parties with a maximum limit of 5% of their profits. It also makes contributions by cheques mandatory and asks that parties audit their annual accounts and maintain a list of donors who give more than Rs20,000 and submit this to the Election Commission.

The numbers do not come as a surprise to Pratap Bhanu Mehta, president, Centre for Policy Research, a New Delhi-based think tank. “We must understand that today in the context of an altered economy, one can generate huge assets and funds from many different sources as compared to earlier. Also, the size of UP (Uttar Pradesh) is equal to that of nine other states. So, its leading parties possessing major wealth seems fine," he said.

India’s economy has expanded rapidly over the past few years and for the year ended March, the country’s national income at current prices was estimated at a little more than $1 trillion (Rs46.9 trillion).

The link between an expanding economy and the swelling balance sheets of political parties isn’t a straightforward one, said E. Sridharan, an expert who authored a study on political finance in India for University of Pennsylvania Institute for the Advanced Study of India. “More funds are available in a faster growing economy, but a more liberalized economy means that parties in power do not have the kinds of controls like licensing and import licensing that they used to have that could be used to export funds from business."

While newer parties have begun to match their older rivals in fund-raising, these are yet to translate into share of seats in the Lok Sabha. Of the 542 seats in the current Lok Sabha (excluding the Speaker), the Congress won 153, the single largest, followed by the BJP with 129 seats, the CPM with 42 seats, the SP with 39, the BSP 17, the NCP 11 and the CPI 10.

Krishnamurthy Ramasubbu contributed to this story.

This is the first of a three-part series that scrutinizes the I-T returns of six recognized national parties.