Analysis of assets and liabilities of national & regional parties: FY 2018-19

There are a set of accounting standards set for commercial, industrial and business enterprises and these accounting standards are issued by the Institute of Chartered Accountants of India (ICAI). Political parties fall under the non-commercial, non-industrial or non-business entity. Thus, the standard accounting formats of the other entities are not applicable to political parties.

The Election Commission of India (ECI) requested the ICAI for recommendations to bring uniformity in the accounting and auditing practices of political parties. Thus, the “Guidance note on Accounting & Auditing of political parties” or the “Accounting guidelines” were formulated in February, 2012 by the ICAI on the request of the ECI, in order to improve accounting and auditing standards of political parties and improve transparency in their finances. These guidelines lay down principles of recognition, measurement and disclosure items of income, expenditure, assets and liabilities in the financial statements of political parties.

Association for Democratic Reforms (ADR), in its report dated 16th October, 2017, analysed the assets and liabilities declared by the seven National Parties (BJP, INC, NCP, BSP, CPI, CPM and AITC) between FY 2004-05 to 2015-16. In the report dated 9th March, 2018, ADR analysed the assets and liabilities declared by the 22 Regional Parties between FY 2011-12 to 2015-16. ADR also released a report on the Analysis of IT Returns: Assets and Liabilities of National Parties – FY 2016-17 & 2017-18 dated 31st July, 2019. The total assets declared by the 7 National Parties during FY 2016-17 amounted to Rs 3260.81 cr which increased by 6% to Rs 3456.65 cr during FY 2017-18. In case of Regional Parties, ADR’s analysis showed that the assets and liabilities declared by the 39 Regional Parties in FY 2016-17 amounted to Rs 1267.81 cr while 41 Regional Parties in FY 2017-18 declared Rs 1320.06 cr.

This report analyses the assets and liabilities declared by the 7 National Parties and 41 Regional Parties in FY 2018-19.

DECLARATION OF ASSETS BY THE NATIONAL AND REGIONAL PARTIES: FY 2018-19

The total assets declared by the 7 National and 41 Regional Parties during the FY 2018-19 amounted to Rs 5349.25 cr and Rs 2023.71 cr, respectively.

Among the 7 National Parties, the highest assets for the FY 2018-19 were declared by BJP amounting to Rs 2904.18 cr (54.29%) followed by INC which declared assets worth Rs 928.84 cr (17.36%) and BSP declared assets worth Rs 738 cr (13.80%).

In the FY 2018-19, among the Regional Parties, the highest assets were declared by SP worth Rs 572.21 cr (28.28%), followed by BJD worth Rs 232.27 cr and AIADMK worth Rs 206.75 cr.

DECLARATION OF LIABILITIES BY THE NATIONAL & REGIONAL PARTIES: FY 2018-19

The total liabilities declared by the 7 National and 41 Regional Political Parties for the FY 2018-19 amount to Rs 213.231 cr.

The liabilities declared by Political Parties fall under 2 major heads: Borrowings (from banks, overdraft facilities and sundry creditors) and other liabilities. Political Parties declared Rs 123.40 cr (57.87%) under Other Liabilities and Rs 89.831cr (42.13%) under Borrowings.

In the FY 2018-19, INC declared the highest total liabilities of Rs 78.415 cr (58.75%) followed by BJP that declared Rs 37.463 cr (28.06%).

The Regional Political Parties declared the total liabilities of Rs 79.751 cr in FY 2018-19. Regional Parties declared Rs 47.181 cr under Borrowings and Rs 32.57 cr under Other Liabilities.

In the FY 2018-19, TDP declared the highest total liabilities of Rs 18.10 cr (22.696%) followed by JDS that declared Rs 18.01 cr (22.583%).

CAPITAL/ RESERVE FUNDS DECLARED BY THE NATIONAL & REGIONAL PARTIES: FY 2018-19

The total Capital/Reserve Fund set aside by the National and Regional Parties during FY 2018-19 was Rs 5215.77 cr and Rs 1943.976 cr, respectively.

For the FY 2018-19, among National Parties, BJP declared the highest capital of Rs 2866.717 cr followed by Rs 850.426 cr of INC and Rs 735.77 cr of BSP.

The lowest capital was declared by CPI of Rs 24.87 cr followed by NCP of Rs 31.05 cr.

For the FY 2018-19, SP declared the highest capital of Rs 571.70 cr followed by Rs 223.85 cr of BJD and Rs 206.708 cr of AIADMK.

RECOMMENDATIONS OF ADR

1. Changing of auditors every three years:

The amended Companies Act, 2013, which came into force on 29th Aug, 2013, stated that no Company shall have an auditor for more than 5 years but this rule was not applied for political parties. Once a firm/person is responsible for auditing of accounts of parties for long duration, there is a possibility that finances of parties could be made as opaque as possible.

Indian laws do not permit foreign auditing firms to operate directly in India but might have a tie-up with domestic auditing firms. This becomes a worrisome factor if the domestic firm is auditing Indian parties’ accounts. By having no provision to change auditors frequently, foreign companies might have a bird’s eye view of the parties’ internal accounting.

The accounts of political parties should be “audited by a qualified and practicing Chartered Accountant from a panel of such accountants maintained for the purpose by the Comptroller and Auditor General.” This differs from the current practice where political parties choose their auditors entirely on their own.

2. As the income-expenditure statements of political parties are assessed rarely (even those of National Parties), authenticity of the accounts submitted remains doubtful. When the authenticity is not verified, the auditors who might be under-reporting the accounts, remain out of purview of punishment. With online submission of IT Returns, political parties do not submit details of income, expenditure and assets and liabilities as attachments. Thus, the IT department too does not have enough information on the finances of political parties. Annual scrutiny of documents submitted by political parties is recommended.

3. The 170th Law Commission report recommended the introduction of Section 78A in the Representation of the People Act, 1951 and proposed penalties for political parties defaulting in the maintenance of accounts. This needs to be introduced and implemented.

4. Section 276CC of the IT Act penalizes individuals who fail to submit their IT returns. Similar legal provisions should be applicable to political parties too. Supreme Court judgement in Common Cause vs. Union of India & ors. had stated that when parties default in filing their returns, prima facie they violate provision of the IT Act. For FY 2018-19, Audit Reports of major Regional Parties such as JKNC, NPP among others are unavailable on the website of the ECI. In case of National Parties, 4 parties namely NCP, BJP, INC and CPI delayed the submission of their audit reports by 5 to 42 days.