Inside story: How political parties raise money

A new study says 75 percent of the income of the six national political parties from 2004-05 to 2011-12 came from ‘unknown sources’. From corporate greasing to cash-for-votes, from hawala transactions to the ‘bag’ men, our writer takes an intimate look at the cash flow of money in politics.

A spectacular theft enlivened Rajnath Singh's otherwise-unremarkable first term as Bharatiya Janata Party president. A vast sum, around Rs 2 to 2.5 crore, disappeared from the safe in the party's Delhi headquarters at 11, Ashok Road in December, 2008. No police complaint was filed. When asked why, party spokespersons said the burglary was being investigated internally. And therein rests the matter, to this day.

Sources at the BJP office say the bulk of the money (Rs 2 crore) had been deposited by an industrialist – ironically, one closely associated with the Congress – on account of favours rendered to his company in BJP-ruled Chhattisgarh. The theft was detected and a hue and cry raised by a somewhat naive, if honest, party official. He was told to hold his peace, but too late.
Questions were asked at the party's daily media briefing, more in the nature of good-natured needling than actual fact-finding. With a nod and a wink, BJP spokespersons were allowed to brush the episode aside. The only tangible consequence, BJP sources say, was a spiffy new commercial establishment in Gurgaon, owned by a party employee who quit immediately after the incident.

Cash transactions are the lifeblood of a political party and have always been. A recent study by the Association for Democratic Reforms says 75 percent of the income of the six national political parties from 2004-05 to 2011-12 – Rs 4,895.96 crore – came from “unknown sources”. The Congress received 90 percent of its income in cash donations, and the BJP around 67 percent.

About half of this came during the elections – a period of about four months, from the date of the announcement of each election to the date of completion of elections.

When asked about this new study, political fund managers in Delhi had this to say: In terms of donations, the cash-to-cheque ratio is indeed about 9:1, since the bulk of the money spent on political activities is never reported. It is given and spent in cash. And while expenses during elections are enormous, most are borne by the candidates themselves. In fact, one of the political world's most noted fund-raisers says, “Parties are poor but politicians are rich.”

Ballpark estimates (from money managers, past and present) of money spent on a municipal councillor's election (in the metros) are Rs 30 to 50 lakh. For an assembly election in Delhi, the figure is Rs 1 to 5 crore, and for an MP it is Rs 10 to Rs 25 crore. The figures vary from state to state; election expenses in Arunachal Pradesh and Andhra Pradesh are generally rated the highest in per capita terms (the cow belt states are relatively cheap). By this reckoning, the amount of black money that will come into play in the next eight months – during which 10 state elections and the Lok Sabha polls are to be held – will be staggering.
Helicopters and private planes for the neta brigade have become de rigueur during elections and even otherwise. In 2009, the BJP’s expenditure on aircraft for its many campaigners is estimated at Rs 350 crore. Even this figure is conservative, given that industrialists often send their own aircraft or lease planes for political leaders. State planes meant for the governor and chief minister are also pressed into service as private transport.

Occasionally, in the event of a money bill or a no-confidence motion, parties may find it necessary to pay cash-for-votes in Parliament or assemblies. The July 2008 cash-for-votes scam is a recent instance of bribe-giving actually coming to light but arguably, the most famous was the trial of strength faced by the P V Narasimha Rao government in June, 1992, which survived partly thanks to bribing of Jharkhand Mukti Morcha MPs. The Supreme Court was called upon to decide whether the MPs could be proceeded against but held that they were protected by Parliamentary privilege.

Media management has also become a large expense for national parties. At one time in the early 2000s, recalls a money manager, one BJP minister had 160 bona fide journalists on his payroll, a practice that was subsequently discouraged and discontinued by the party. “Paid news has been institutionalised. It is no longer a question of one bad apple among journalists resorting to blackmail or undertaking PR for money.... now, it is done at an organisational level,” a money manager observes.

Nowadays, parties and politicians also spend a fortune on surveys (both the genuine and the made-to-order variety) and digital marketing agencies. Kapil Sibal is said to have proposed a Rs 100-crore social media budget for the Congress as early as January 2013, during the party's chintan shivir in Jaipur. Narendra Modi, they say, has overshot that budget already. Rajnath Singh uses a company based out of Ahmedabad for managing his online presence.

Where does all this money usually come from?

Obviously, from the business community, which has disposable income and a need for patronage from the political establishment. The term ‘business’ is employed loosely here as it covers both legitimate and illicit forms of profit-making (like off-the-books transactions in land, liquor and mining). The pattern and volume of funding has changed over the years, as have methods of disbursal.

Historically, the Congress was the one that had access to big money, starting with the Birla and Bajaj groups. Pre-Independence, no quid pro quo was involved as funds were Indian business’s contribution to the freedom struggle. Post-Independence, as the licence raj flourished, the party's funding base expanded to embrace virtually every big and small industrial house.

The left and far right, which were not in power either at the Centre or the states, had to look to other sources. The right relied on small traders, the ‘nagar seths’ and on the practice of ‘guru dakshina’ – anonymous cash donations during a function held two-three times a year at the local RSS office. Going by recently declassified CIA documents available on the Internet, the communists relied on China and the erstwhile Soviet Union. Socialists had trade unions while farmer-leaders looked to the sugar mills.

Which is not to say that the Congress disdained small money. Collecting ‘chanda’ – donations from the public – was considered honourable. Delhi-wallahs of a certain vintage recall Radha Raman, the city's chief executive councillor in the early 1970s, spreading his dhurrie in Chandni Chowk’s Dariba Kalan and refusing to get up until he had received a predetermined amount in donations. The money went straight from the dhurrie to the then-AICC treasurer, Uma Shankar Dixit.

The Congress needed money since Sanjay Gandhi was famously open-handed. No party worker left his presence empty-handed, the final question of the meeting always being whether he had funds for his ticket and meals for his journey home. Money came in packets from industrialists and was disbursed for various party activities almost immediately; he never touched it.

The Congress monopoly over big money ended in the 1970s. The abolition of privy purses annoyed India's erstwhile royals, who migrated from the Swatantra Party to the Jan Sangh and brought with them their close links with big business. But by and large, the right and the socialists would remain ‘chana-murmura’ parties until after the Emergency, during which they were supported by Ramnath Goenka and his ilk. Goenka remained a prominent interface between non-Congress parties and big business.

For the Jan Sangh, Nanaji Deshmukh emerged as a key fundraiser. He once credited publisher RV Pandit with introducing him to Mumbai's corporate world, particularly the Parsi business houses. By the time he withdrew from politics in 1978, these links had solidified and were carried over to the BJP.

State governments have always been a big source of money. The late VP Singh relied on regional leaders like Devi Lal, Biju Patnaik and Ramakrishna Hegde to fund his 1989 campaign against Rajiv Gandhi. The very same Hegde who, during the 1983 Karnataka assembly polls, was so short of money that an associate took a personal loan of Rs 2 lakh from Canara Bank and gave it to him.

Former Rajasthan CM Bhairon Singh Shekhawat was a noted fund mobiliser for the BJP, as most Rajasthani business families came from his state. That CMs are always under pressure to raise money is well known in political circles. One Congress chief ministerial aide sighs, “If [AICC treasure] Vora-ji calls me, it means raising more money. The demands are backbreaking”.

Party sources say one former Karnataka CM's chief complaint against the BJP central leadership was that it removed him ostensibly on account of corruption. How, he is said to have asked, did they expect him to meet the heavy demands of the BJP treasury? Was he expected to manufacture hundreds of crores out of thin air?

The sudden escalation in the BJP's funding came with the late Pramod Mahajan. Business houses like Reliance, created and nurtured by the Congress, opened their coffers to him. The party also had an excellent relationship with the Hindujas and the Surya group. The BJP soon discovered the joys of easy money, long after the Congress had begun to take it for granted.

Addiction to private jets, high-end automobiles and five-star hotels inflated the BJP’s budget. Like those of the Congress, sons and daughters of BJP politicians began to find employment in industrial houses. This helped cement its bonds with the corporate world.

What’s new these elections?

For those who wonder at the political patronage extended to the land, liquor and mining ‘dons’, some of whom also have flourishing political careers, the answer's simple: they are the biggest source of black money in politics.

In the liquor trade, a vendor estimates, excise is paid on one of every four bottles leaving the distillery. “If Punjab were to levy duty on one of every two bottles, it would earn an additional Rs 12,000 crore annually,” he observes. Similarly, in mining, royalty is paid on a fraction of the volumes actually mined.

Most recently, with more vigorous excise enforcement, land has definitely edged out liquor as the chief source of dirty money. Land allotment (as in UP) and change of land use (CLU, as in Haryana) are principle methods of money mobilisation. The maximum CLU files are cleared before elections. The conversion of low cost agricultural land to high cost commercial land is well worth a substantial outlay in bribe money.

Of course, the bureaucracy must be given a share as they are the ones who execute the paperwork. In fact, says a money manager, the kind of funds the bureaucracy makes from land and infrastructure contracts dwarfs the politicians' coffers: “Didn't you read about the chief engineer in UP's irrigation department who bought a building on Prithviraj Road for a couple of hundred crore?”

How are these vast sums of money transported?

Political parties usually use hawala operations to minimise the physical movement of money. There are rare instances when a politician may choose to move the money personally. On March 22, 2011, prior to the West Bengal assembly elections, Trinamool Congress MP KD Singh was intercepted with Rs 57 lakh in cash at Delhi airport. To the indignation of the CPM, he was then allowed to proceed with the money to Guwahati in a private aircraft.

A few months later, Rs 10 lakh were found in a bag on the Bhopal Express, under a berth occupied by East Delhi MP Sandeep Dikshit. He later clarified that he had left the bag, which belonged to a friend, under the berth by accident.

Money movement has become much harder. In the 1970s and 80s, it was routinely carried by trusted political aides in a car or bus. The late former Prime Minister Chandrashekhar had a regular transporter who would deliver money to the remotest spots through his bus service. In the late 1990s, commercial aircraft began transporting cash in bulk. Private luxury vehicles are still carriers of choice during elections.

But the risk of detection in these times of enhanced security, particularly during elections, is much greater. Hawala operators treble their rates in poll season when money typically moves from metros to small towns. After all, the happy days when the polling agent raised ‘chanda’ to finance chai and snacks for booth managers and volunteers are long gone. Everything must be paid for – transport, food, labour, tents, crowds, publicity material, and most important of all, liquor.

With all this money moving around, leakage – or ‘Bofors’, as it is more popularly known – is not uncommon. A BJP chief ministerial aide recalls being asked to deliver Rs 4 crore, received from a businessman, to a senior BJP leader so that he could deposit it with the party office. Later inquiry revealed that only half the amount eventually reached the party office; netaji had pocketed the rest.

In contrast, another ‘bag’ man (one who handles money for a politician) recalls how an innocent HD Deve Gowda was once given Rs 5 lakh for election-related expenses by the Janata Dal, only to return Rs 1.37 lakh saying he had been unable to utilize it all!

As stated earlier, the candidates themselves must source the bulk of election expenses. Apart from legitimate expenses, the candidate spends money on media, special interest groups, split vote strategies and voters. Naturally, anyone hoping for a political career needs to raise a corpus. He may have a single patron or several. Corporate houses make both wholesale and retail payouts to the party and to individual candidates.

Expenses can mount unexpectedly. One Lok Sabha candidate from Delhi had to pay an alleged Rs 10 crore to a rival to ‘sit’ (withdraw his candidature). A witness recalls the money changing hands behind a cinema hall. Another candidate from Madhya Pradesh is believed to have spent Rs 4 crore on buying up an entire tribal party, which subsequently sat out the election.

The auctioning of Rajya Sabha seats is by now too well known a phenomenon to bear repeating. BJP sources say that when the party ran desperately short of money in 2003 – at a time when the NDA was in power – it auctioned off a Rajya Sabha seat to an industrialist. Former Congress general secretary Birender Singh famously observed this year that Rs 100 crore was the going rate. If so, a certain industrialist from the south got himself a bargain – he is said to have paid Rs 50 crore. Another recently elected BJP MP is said to have paid Rs 25 crore – but then, he had influential friends in the party.

How is the money stashed and managed?

Parties tend to park their white money in legitimate investments and put the black in the money market, which offers a monthly return of 2 percent. They do not keep too much at hand, since it is always on call from designated industrial houses. One of the best-known legends in this regard has to do with a prominent businessman who called on then-PM Rajiv Gandhi and ingratiated himself by saying the late Indira Gandhi had entrusted substantial party funds to him for safekeeping.

For small payouts of a few lakhs for, say, organising a party function, a ‘slip’ system is followed. The party leader issues a slip and/or calls the designated money manager, who then hands over the cash from a safe in the party office or the home of an aide. There may be many tiers of aides who hold cash. Counting machines have now made it easier to keep track. But every time a noted money manager passes away, there is intense speculation about the fate of the money he presumably held.

For individuals, stashing money is becoming a challenge. In the halcyon days before 9/11, it was simple. Money went abroad through hawala or was paid overseas by foreign entities into an account in a tax haven. It was rapidly moved 15 to 20 times and would finally end up in a fly-by-night bank owned by the individual concerned. A banking license in a tax haven could be bought for US$ 5,000 to 10,000. Once the transaction was over, the bank was allowed to fold up.

Today, private banks overseas are only too willing to help launder hawala money through fictitious trading companies, say money managers. (Though their hard-working CAs who actually handle the cash and park it abroad disagree and say it’s become much harder.) “Key man insurance” has emerged as a popular trend in the laundering process. The money can then be brought back through the P-Note or Mauritius channels.   Domestic investments are usually in land but also in infrastructure and media companies and virtually always benami.

In sheer monetary terms, elections are big business. Small wonder that political parties want exemption from the RTI. While most money dealings are off the record, no politician wants to take the risk of a random query opening a can – or a tijori – full of worms.

Bhavdeep Kang has been a journalist for 27 years. She has worked with The Times of India, The Sunday Observer, The Indian Express, The Pioneer, The Telegraph, India Today and Outlook. Today, she writes on politics, agriculture and food policy. Follow her at

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