War on black money or political eye wash? Cash donations to parties capped at Rs 2000

In a move to apparently clean up political funding, the central government today announced that there will be a cap on cash donations to political parties at Rs 2000 per source. But since political parties can still get anonymous donations up to Rs 20,000, whether this move will actually reduce black money in politics is unclear.

This announcement comes just days ahead of polls in 5 states in the country.

Presenting the 2017-18 Budget, Finance Minister Arun Jaitley also announced an amendment to the RBI Act to enable the issuance of ‘electoral bonds’. These bonds can be purchased in an authorised bank against a cheque or digital payment, and can be redeemed in the registered account of a political party.

"This reform will bring greater transparency and accountability," Arun Jaitley said.

While political parties are exempt from taxation, they are mandated to file IT returns. Since all parties can get funds from anonymous donors up to Rs 20,000, most of them have so far declared a large part of their funding in anonymous chunks. This has led to widespread belief that black money is used to fund parties and elections.

But even as the cap on cash donations is announced, no change has been made to the Rs 20,000 anonymous donation rule. Which means, parties can still declare that the money they have received is through anonymous donations in Rs 2,000 chunks. 

Claiming that there was currently no transparent method of funding for political parties, Jaitley said, "There is a need to cleanse the system of political funding in India."

Prime Minister Narendra Modi, while addressing the nation said, "There has always been a lot of debate about political funding. Our government has now presented a transparent procedure for the same."

Opposition parties have welcomed the government's move as well. Addressing the media after the Budget speech, Congress vice president Rahul Gandhi said, "We welcome any move made by the government to bring transparency in political funding."