One year later: A mixed bag of acche din for the aam aadmi

narendra_modiMost communication that works is essentially so simplistic that even a school going child can understand it. Narendra Modi’s pitch in the 2014 Lok Sabha elections: “acche din aane waale hain, hum Modi ji ko laane waale hain,” was one such example.
It was so good that one year later, people still remember it and given half an opportunity ask: “
kahan hain acche din?(where are the happy days?)” That’s the thing with communication which is dumbed down to a level of a school child—it works, but it also leads to people asking questions in the days to come.
On May 26, 2015, the Narendra Modi government will complete one year and it is time to ask that proverbial question: “have the good days come?” In this column I will try answering that question from the point of view of the
aam aadmi or the common man.
Inflation as measured by the consumer price index averaged a very high 10.2% between 2007 and 2013. In April 2014, before Narendra Modi was sworn in as the prime minister, the consumer price index inflation was at 8.59%. By April 2015, this number had fallen to 4.87%.
More often than not, the credit for this tends to go to the Reserve Bank of India. But what one needs to keep in mind is the fact that food products constitute nearly half of the consumer price index. And there is no way that the RBI can influence food prices.
Several steps taken by the Modi government helped on this front. One of the first decisions made by the government was to release 5 million tonnes of rice into the open market from the stocks maintained by the Food Corporation of India. News reports suggest that eventually only around 2 million tonnes was sold. But just the news that the government was selling was enough to contain inflation.
Active steps were taken by the government to contain rapidly rising onion prices as well. As Ashok Gulati, former Chairman of the Agricultural Costs and Prices,
wrote in a recent column in The Financial Express: “A slew of measures were announced by the government to contain the damage from surging food inflation. It not only restricted exports of onions but also imported onions and dumped them in major onion markets at prices below import cost. It also used the stick and raided many onion traders/hoarders.” And that clearly helped.
Over and above this, the minimum support price(MSP) of rice was raised by only Rs 50 per quintal or 3.8% to Rs 1360. The MSP is the price at which the government buys rice from the farmers, through the Food Corporation of India(FCI) and other state government agencies. This increase of 3.8% was much lower than the average increase of 9% per year in the MSP of rice since 2007-2008.
These measures helped to control food inflation. Food inflation hurts the poor the most. Half of the expenditure of an average Indian family is on food. In case of the poor it is 60% (NSSO 2011).
Further, Rahul Gandhi said in a farmer’s rally recently that the Congress government had raised the MSP of rice and wheat, the Modi government hadn’t. What Rahul and the Congress party need to understand is that everyone associated with agriculture does not own land. As per the draft national land reforms policy which was released in July 2013, nearly 31% of all households in India were supposed to be landless. The NSSO defines landlessness as a situation where the area of the land owned is less than 0.002 hectares. Any price rise, particularly a rise in food prices which is what an increase in MSP leads to, hurts this section of the population the most.
Hence, on the food inflation front, the Modi government has been able to deliver
acche din for the aam aadmi.
What are the other benefits that the aam aadmi has got over the last one year? In the two budgets that the finance minister Arun Jaitley has presented, the total deductions allowed under some of the most important sections of the Income Tax Act have been increased. The deduction under Section 80C has been increased from Rs 1 lakh to Rs 1.5 lakh. The deduction allowed on a home loan on a self-occupied property has been increased to Rs 2 lakh from Rs 1.5 lakh earlier. The deductions allowed for the payment of medical insurance premium has been increased from Rs 15,000 to Rs 25,000.
The Modi government has also been very aggressive on the financial inclusion front with the Jan Dhana Yojana. The government claims to have opened 15 crore bank accounts which allow account holders an overdraft of Rs 5000. This is a near saturation coverage. Nevertheless, 70% of these accounts remain dormant. What this tells us is that the communication around the Jan Dhana Yojana still remains weak.
While this is a good move at the individual level, the scheme clearly isn’t financially viable and the government hasn’t made it clear as to who will bear the cost of servicing all these accounts. As Diwakar Gupta, former Managing Director of the State Bank of India,
told Sreenivasan Jain of NDTV, no-frills banking “will never be profitable for banks. SBI has opened 3.6 crore accounts and the balance in them is Rs1,400 crore. So, it’s an average of Rs 400 per account. The bank on Rs 400 a year will make Rs 12. The cost of just putting it (the account ) on the core banking system, answering few questions, depositing, withdrawing, paying, reconciling all are significantly higher.”
Further, interest rates and EMIs have fallen a little over the last one year, but not significantly enough to get people to borrow and spendi at the same rate as they were in the past. Also, affordable housing in cities and town continues to remain a dream. The Economic Survey estimates that the shortage of urban homes stands at 1.88 crore units.
There has been no improvement on this front in the last one year. While, no one expects the government to solve the housing problem in one year, no concrete plan has been put forward either. Also, while the government keeps talking about a crackdown on black money that has left the shores of the country, but there is no talk about a crackdown on the massive amount of black money that lies within the country and a massive amount that continues to be generated.
A large part of this money gets invested into real estate, thus driving up prices.
A FICCI report on black money published in February 2015 points out: “The Real Estate sector in India constitutes for about 11 % of the GDP15 of Indian Economy, as these transactions involve high transaction value. In the year 2012-13, Real Estate sector has been considered as the highest parking space for black money.”
Only, once this nexus is broken down will affordable housing become the order of the day. Further, while corruption at the top-echelons of the government may have fallen, at lower-levels it is business as usual. Also, one of the main things promised in Modi’s campaign was the creation of jobs. Things are yet to move on that front.
Long story short—Narendra Modi has managed to deliver on some of the “
acche din” hype that it had managed to build in the run up to the 2014 Lok Sabha elections. It has fallen short on many fronts as well. But given the hype was so simplistic that was inevitable.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on May 21, 2015

When US can’t get its black money back, does India have a chance?

rupee
Over the week, the Parliament passed the Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015, which up until now has been better know as the foreign black money Bill. Now it has become an Act. The ministry of finance 2012 white paper on black money defines black money as: “any income on which the taxes imposed by government or public authorities have not been paid.”
In my past columns on
DailyO I have maintained that while chasing black money that has left the shores of the country might seem possible it is not feasible. The reason for this is fairly simple. The money could be absolutely anywhere in the world.
In India, we like to believe that the money is stashed away in Swiss Banks. But that isn’t the case.
Data released by the Swiss National Bank, the central bank of Switzerland, suggests that Indian money in Swiss banks was at around Rs 14,000 crore in 2013. In 2006, the total amount had stood at Rs 41,000 crore.
There are around 70 tax havens all over the world and the black money that has left the shores of this country could be stashed almost anywhere. An estimate made by the International Monetary Fund suggests that around $18 trillion of wealth lies in international tax havens other than Switzerland, beyond the reach of any tax authorities.
A 2013 estimate in The Economist pointed out: “Nobody really knows how much money is stashed away: estimates vary from way below to way above $20 trillion.” Some of this money definitely originated in India.
And given that the black money that has left India could be absolutely anywhere, chasing it isn’t the best way of going about things. There would be more bang for the buck by concentrating on black money that is still in the country.
This, in short is the argument I have made against trying to get the black money that has left the Indian shores, back to India. A standard response to this on the social media is that if the United States can do it why can’t we. So here is the answer.
The foreign black money Act passed by the Parliament this week is inspired by the Foreign Account Tax Compliance Act (FATCA) of the United States. This Act was passed in 2010. The Act was brought in after it was revealed that Swiss banks were helping American citizens hide their earnings.
As per the Act, American taxpayers are required to file a new form (Form 8938) declaring their foreign financial assets with a value greater than $50,000. This form needs to be filled up along with the annual tax return. If the taxpayer does not file the Form 8938 , he can face a fine of $10,000, which can go up to $50,000 for subsequent offences. Any tax payer who pays lower tax because he does not disclose foreign financial assets could be subject to a penalty of 40%.
The provisions of the foreign black money Act passed by the Parliament are along similar lines. One of the provisions of the Act allows undisclosed foreign income as well as assets to be taxed at the rate of 30%, without allowing for any exemptions or deductions which are allowed under the Income-Tax Act, 1961. This will be accompanied by a penalty equal to three times the amount of tax.
Getting back to FATCA—as per the Act, every financial institution outside the United States needs to figure out whether it has American citizens as clients. Having done that it needs to report the information to the Internal Revenue Service of the United States
.
Due to this, the conventional view now seems to be coming around to the idea that tax havens are now cooperating with the United States and handing over information regarding their clients to the United States.
Hence, the question is, if the United States can do it, why can’t India? And the answer lies in the fact that the United States is a global superpower. In 2013, the military expenditure of the United States amounted to $640 billion. This was nearly 36.5 percent of the global military expenditure of $1.75 trillion. In comparison, the total budget for the Indian defence services in 2015-2016 is around $2.5 billion.
With so much money being spent by the United States, the military apparatus of the United States can drop bombs anywhere in the world at a few hours’ notice. As David Graeber writes in
Debt: The First 5000 Years: “The U.S. Military … maintains a doctrine of global power projection: that it should have the ability, through roughly 800 overseas military bases, to intervene with deadly force absolutely anywhere on the planet.” It is this military might of the United States that has led to the tax havens cooperating with it.
Nevertheless, as the Americans like saying: “show me the money”. Or to put it simply, how much revenue has the Internal Revenue Service of the United States managed to collect because of FATCA? Jane G. Gravelle writing in a research paper titled
Tax Havens: International Tax Avoidance and Evasion for the Congressional Research Service estimates that FATCA is expected to “have a relatively small effect, $8.7 billion over 10 years, when compared with estimated costs of international evasion of around $40 billion a year.” So on an average the United States expects to recover $870 million per year, when the international tax evasion by Americans is around $ 40 billion per year. Hence, the recover rate for FATCA is 2.2%.
What this clearly tells us is that even the United States does not expect much out of FATCA, initially. This, despite being the only global superpower. In this scenario, how much chance does India have of recovering the black money that has left its shores?
As Bob Dylan once said(or should I say sang): “
The answer my friend is blowin’ in the wind”.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column appeared on DailyO on May 14, 2015

Mr Rahul Gandhi, what about jijaji Robert Vadra and his closeness to DLF?

rahul gandhi
Rahul Gandhi seems to have taken a liking to calling the Narendra Modi government a “
suit boot ki sarkar”. He made that jibe again in the Parliament yesterday where he said: “This government is anti-farmer, anti-poor. This is a suit-book ki sarkar.”
Rahul, as he did in the past, was trying to suggest that the Modi government was essentially batting for the corporates and not for the farmers of this country. But what the Gandhi family scion is forgetting in the process is that only a few years back India’s largest listed real estate company DLF was batting for his brother-in-law Robert Vadra.
Let’s recount what happened in the case of DLF and Vadra. DLF gave a Vadra and advance of Rs 50 crore for more than three years, and this advance was the money used by Vadra to go on a land buying spree in Rajasthan as well as Haryana, with more than a little support from the respective Congress governments in both these states. As we shall see Vadra had very little of his own money in the business and without the money from DLF he wouldn’t have been able to do anything. What does Rahul Gandhi have to say about this link?
In October 2012, the Daily News and Analysis(DNA) reported that between July 2009 and August 2011, Vadra bought at least 20 plots of land with an area of more than 770 hectares in Bikaner district in Rajasthan. In fact Vadra was willing to pay Rs 65,000 per hectare of land when the going rate was not more than Rs 30,000 a hectare
The Gandhi family son-in-law made these purchases through companies which included Real Earth Estates Pvt Ltd, North India IT Park Pvt Ltd, and Skylight Realty Pvt Ltd. As the DNA report pointed out: “A clutch of investors, including Vadra, apparently privy to information on upcoming industrial projects in the vicinity,
reaped huge profits with land values appreciating by up to 40 times since 2009 [the italics are mine]…These companies together invested Rs2.85 crore in barren land here during this period.”
So, Vadra bought land being privy to information that ensured that the value of the land would go up many times in the days to come. And he made a killing in the process. Vadra bought land through his companies just before a memorandum of understanding was signed between the Rajasthan government and private firm for a “Rs45,000-crore project to manufacture silicon chips for the telecom industry.”
Vadra was essentially trading on insider information, which wouldn’t have been difficult to get given that a Congress government led by Ashok Gehlot was in power in the state.
The interesting bit here is how Vadra went about financing the purchase of land. The money for it came essentially came from DLF. One of the Vadra companies which bought land in Rajasthan was Real Earth Estates Private Ltd. The company had an issued capital of Rs 10 lakh as on March 31, 2010.
Nevertheless, as on March 31, 2010, the company had 10 plots of lands listed under fixed assets. These plots were worth were bought for Rs 7.09 crore. Of these three plots were in Bikaner in Rajasthan and had been bought for Rs 1.16 crore. How did a company with an issued capital of Rs 10 lakh manage to buy land which cost Rs 7.09 crore in total?
This is where things get even more interesting. The balance sheet of Real Earth Estates as on March 31, 2010, shows that it had an unsecured loan of Rs 5 crore from DLF. An unsecured loan is a loan in which the lender does not take any 
collateral against the loan and relies on the borrower’s promise to return the loan. Why was DLF being so generous to Vadra? Can Rahul Gandhi give us an answer for that?
Real Earth Estates also had borrowed another Rs 2 crore from Sky Light Hospitality Private Ltd, another Vadra company. The total loan amounted to Real Earth Estates amounted to Rs 7 crore. And this money was used to buy 10 plots of land, of which three plots were in Bikaner.
Where did Sky Light Hospitality get the money to give Real Earth Estates a loan of Rs 2 crore? As on March 31, 2010, Sky Light Hospitality had an issued capital of Rs 5 lakh. How did a company with an issued capital of Rs 5 lakh, manage to give a loan of Rs 2 crore, which was 40 times more.
Enter DLF—the company had given Vadra’s Sky Light Hospitality an advance of Rs 50 crore. When the controversy first broke out DLF had said in a statement: “Skylight Hospitality Pvt Ltd approached us in FY 2008-09(i.e. the period between April 1, 2008 and March 31, 2009) to sell a piece of land measuring approximately 3.5 acres…DLF agreed to buy the said plot, given its licensing status and its attractiveness as a business proposition for a total consideration of Rs 58 crores. As per normal commercial practice, the possession of the said plot was taken over by DLF in FY 2008-09 itself and a total sum of Rs 50 crores given as advance in instalments against the purchase consideration.”
The first instalment of the Rs 50 crore advance that DLF gave Vadra was paid on June 3, 2008. An October 2012 report in The Hindu points out that “ the 3.531- acre plot…M/s Sky Light Hospitality,…[was] sold to DLF Universal Ltd on September 18, 2012.”
Hence, the Rs 50 crore advance stayed with Vadra’s Sky Light Hospitality for more than three years.
An advance unlike a loan is made interest free for a short period of time. Further, Vadra had access to a part of the Rs 50 crore advance for more than four years, given that the first instalment was paid by DLF in June 2008 and even though the sale was registered only in September 2012.
DLF in its statement tried telling us that this was par for the course. But how many other such advances did the company make. As The Financial Express wrote in an October 2012 editorial: “DLF has not been able to cite other instances of where interest-free advances have been given, and over such long periods of time.”
So clearly DLF had a soft corner for Robert Vadra, who is the son-in-law of Sonia Gandhi and the brother-in-law of Rahul Gandhi, the president and the vice-president of the Congress party. The Congress led UPA government was in power between 2004 and 2014.
This Rs 50 crore was at the heart of Vadra’s operation and was used by him to buy land as well as flats. Rs 2 crore out of this Rs 50 crore available with Sky Light Hospitality was used to give a loan to Real Earth Estates Private Ltd. Effectively DLF gave money amounting to Rs 7 crore to Real Earth Estates Private Ltd to buy land. Of this Rs 1.16 crore was used to buy land in Bikaner.
What does Rahul Gandhi have to say about this? Now that he has accused the Modi government of being a “suit-boot ki sarkar” and being close to corporates, he could possibly explain this closeness of his brother-in-law Robert with a corporate? After all, Caesar’s wife must be above suspicion.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on May 13, 2015

Less than 5.8% of farmers benefit from the minimum support price system

agriculture

Towards the end of April, the Parliament’s Committee on agriculture made a rather bizarre commendation to the government. “The committee urged that steps should be taken to fix remunerative pricing with 50% profit margin over cost of production for all the 24 crops without any further delay as recommended by this committee,” the committee said.
What does mean? The committee has basically recommended that the government should ensure that the minimum support prices that it declares for various agricultural crops should give the farmers a profit of 50% over their cost of production. The government declares minimum support prices for 24 agriculture crops which include rice paddy, wheat, jawar, bajra, maize, ragi, pulses, oilseeds, copra, cotton, jute, sugarcane, and tobacco.
Even though it declares the minimum support price for 24 crops it primarily buys only rice and wheat from farmers through the Food Corporation of India(FCI) and other state procurement agencies.
Why do I say that the suggestion of the Parliament’s Committee on agriculture is bizarre? The answer to this question lies in the
Report of the High Level Committee on Reorienting the Role and Restructuring of Food Corporation of India (better known as the Shanta Kumar Committee Report). The report makes some interesting points using data from the 70th Round of NSSO (National Sample Survey Organisation) on The Key Indicators of Situation of Agricultural Households.
As per this survey there are 90.2 million agricultural households in India. From this, during the period July to December 2012, only 18.67 million households reported selling paddy. Of this number only 13.5% sold to a procurement agency (i.e. either FCI or other state procurement agencies). This essentially means that only 2.52 million households sold paddy to the procurement agency. Of this who sold to a procurement agency only 27% of their sales were at the minimum support price.
Between January and June 2013, 5.46 million households reported selling paddy. Of this only 10% or 0.55 million households sold to a procurement agency. And of those who sold to a procurement agency only 14% of their sales were at the minimum support price.
The situation is similar when it comes to wheat. As per the survey, between January and June 2013, 13 million households reported the sale of wheat, but only 16.2% reported to have sold wheat to a procurement agency. Of those who sold to a procurement agency, only 35% of their sales happened at the minimum support price.
So what does this mean? The total number of agricultural households who were able to sell rice paddy and wheat to the procurement agencies works out to 5.21 million. As the Shanta Kumar Committee Report points out: “The number of households comes to just 5.21 million (2.55 million paddy households during July-Dec 2012; 0.55 million paddy households during Jan-June, 2013; and 2.11 million wheat households during Jan-June 2013).”
The figure of 5.21 million forms 5.8% of the total number of agricultural households of 90.2 million. In fact, this number is also on the higher side once one takes into account the fact that there are households that sell both paddy and wheat to the procurement agencies. Further, as mentioned earlier not all wheat and paddy is being sold to procurement agencies at the minimum support price.
After taking these factors into account, the number of direct beneficiaries from the minimum support price announced by the government and the procurement system set up to buy paddy and wheat, comes out to be even lower than 5.8% of the agricultural households.
As the Shanta Kumar Committee Report puts it: “The direct benefits of procurement operations in wheat and rice, with which FCI is primarily entrusted, goes to a miniscule of agricultural households in the country.”
Further, the procurement benefits large farmers in a few selected states like Punjab, Haryana, Andhra Pradesh and lately from Madhya Pradesh and Chhattisgarh. Large farmers are the luckiest of the lot—they have a ready made customer in the form of the government for what they produce and they don’t need to pay any income tax either. What muddles the situation further is that in some states, the procurement agencies buy nearly 70-90% of the wheat and rice and literally crowd out the private sector.
This crowding out leads to food prices going up.
Food inflation hurts the poor the most. Half of the expenditure of an average Indian family is on food. In case of the poor it is 60% (NSSO 2011). What Rahul and the Congress party need to understand is that everyone associated with agriculture does not own land. As per the draft national land reforms policy which was released in July 2013, nearly 31% of all households in India were supposed to be landless. The NSSO defines landlessness as a situation where the area of the land owned is less than 0.002 hectares.
Any price rise, particularly a rise in food prices which is what an increase in MSP leads to, hurts this section of the population the most. Didn’t the Parliament committee on agriculture consider this, before making the recommendation that it did? If yes, why do they want to make things difficult for a major section of the population, by recommending what they have? Or are MPs too close to large farmers that benefit the most from rising minimum support prices?
The grain bought by the government is sold through the public distribution system (PDS). This grain is sold at extremely subsidized prices. Rice is sold at Rs 3 per kg and wheat is sold at Rs 2 per kg. The trouble is that the PDS is terribly leaky. As per NSSO 2011 the PDS leakage is 46.7%. This means that of every 100 kgs of grain distributed through the PDS, 46.7 kgs hits the open market. This is not surprising given the huge gap in prices between grain sold through the PDS and that sold in the open market. In fact, in some states the leakage is as high as 70-90%.
And this led the Shanta Kumar Committee to ask: “Given such large leakages, one must question the reasons behind this, and whether it is worth keeping FCI pouring grains into a system that fails to deliver.”
To conclude, the question to ask is—what is the point in keeping such a wasteful system going? The trouble is that its become too much of a holy cow for the government to do anything about.

The column originally appeared on The Daily Reckoning on May 12, 2015

Dear Modi sarkar, what about domestic black money?

narendra_modi
The Lok Sabha passed the Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015 or the foreign black money Bill, yesterday. The ministry of finance 2012 white paper on black money defines black money as: “any income on which the taxes imposed by government or public authorities have not been paid.” The wealth that has been accumulated in this way “may consist of income generated from legitimate activities or activities which are illegitimate per se, like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking, terrorism, and corruption,” the white paper goes on to suggest.
Of course this wealth that has been accumulated through tax evasion has “neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession.”
Some portion of this black money over the years has managed to escape the Indian shores and has been invested abroad. An estimate made by Washington-based research and advocacy group Global Financial Integrity in a report titled Illicit Financial Flows from Developing Countries: 2003-2012, suggests that around $439.6 billion of black money left the Indian shores, between 2003 and 2012. Through the foreign black money Bill the government is attempting to get this money back.
Also, given the penal provisions of the Bill, an attempt is being made to ensure that in the days to come, citizens pay tax on their income, instead of accumulating it as black money and then transferring it abroad.
As the finance minister Arun Jaitley put it yesterday: “All those who keep money outside — time is running out for them as the world is moving to an automatic information exchange and soon, when that is available, they will be penalised for their action.”
And what are these penalties like? The Bill states that undisclosed foreign income as well as assets will be taxed at the rate of 30%, without allowing for any exemptions or deductions which are allowed under the Income-Tax Act, 1961. This will be accompanied by a penalty equal to three times the amount of tax. Hence, the tax and penalty on undisclosed overseas income as well as assets can amount to as much as 120% (30% + 90%). Further, the amount of tax to be paid on foreign assets will be computed on the basis of its current market price and not the price at which it was bought.
Nevertheless, there is a way out of this. After the Bill becomes an Act, the government will offer a short compliance window, which will allow those with undisclosed foreign assets and income to declare them, pay a tax of 30% and a penalty of 30%.
The Bill also has a provision which allows the government to charge a penalty of Rs 10 lakh for the inaccurate disclosure of foreign assets, along with a rigorous imprisonment of six months to seven years, the first time around. Second and subsequent offences are punishable with fines of Rs 25 lakh to Rs 1 crore and a rigorous imprisonment three to 10 years.
On the face of it, the Bill seems like an honest attempt to crack down on black money that has already left the country and that might leave the country in the days to come. But there are several questions that crop up here.
Why is a short compliance window being offered? It makes the taxpayers who have been honestly declaring their foreign income as well as assets till date, look a tad stupid. Just because someone is willing to pay a fine of 30% and declare his foreign assets, does that make his less guilty? Or is this another tax amnesty scheme in disguise being offered by the government?
Further, why is there a distinction being made between domestic and foreign black money? The definition of black money in the ministry of finance white paper does not make any distinction between black money in the country and black money that has left the shores. Ultimately, almost all black money originates in the country, when people earn an income and do not pay a tax on it. So why is this artificial distinction being made? Why couldn’t the government have come up with a law which covered both domestic as well as foreign black money? Its now been in office for close to one year.
The answer perhaps lies in the way political funding works in this country. An analysis carried out by the National Election Watch and Association of Democratic Reforms reveals that during the period 2004-2005 and 2011-12, the total income of the national political parties was Rs. 4,899.46 crores. The Congress party declared the highest income of Rs 2,365.02 crores. It was followed by the Bhartiya Janata Party which declared an income of Rs 1,304.22 crores.
Between 2004-05 and 2011-12, there were two Lok Sabha elections(in 2004 and 2009) and multiple state assembly elections. It doesn’t take rocket science to come to the conclusion that the amount of donations declared by the political parties were clearly not enough to fight so many elections.
Within 90 days of completion of the General Elections, political parties are required to submit their election expenditure to the Election Commission of India. The National Election Watch and Association of Democratic Reforms has analysed this expenditure for the last Lok Sabha election and it makes for a very interesting reading. This expenditure statement contains the “details of the total amount received as funds in the form of cash, cheques and demand drafts and the total amount spent under various heads.”
The total amount of funds collected by national political parties for the 2014 Lok Sabha election was at Rs 1158.59 crores. This was 35.5% higher than the funds collected for the 2009 Lok Sabha elections. The total declared expenditure of the national political parties was Rs 1308.75 crore, up by 49.4% from 2009.
Now compare this to an estimate made by the Centre for Media Studies in March 2014. It estimated that around Rs 30,000 crore would be spent during the 16th Lok Sabha elections which happened in April and May 2014. Of this amount, the government would spend around Rs 7,000-8,000 crore to conduct the elections. The remaining amount of around Rs 22,000-23,000 crore would be spent by the candidates fighting the elections.
Of course, national political parties are not the only parties fighting elections. Nevertheless, the difference between the officially declared expenditure and the ‘real’ expenditure to fight elections, is huge. Where does this money come from? The domestic black money essentially finances political parties and in the process elections in India. And given this, no government(and political party) can really go after it. Meanwhile, they will keep talking about foreign black money.

Moral of the story—You don’t kill the goose that lays golden eggs.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on DailyO on May 12, 2015