Political Funding in India: Between Opacity and Accountability

• The Election Commission of India (ECI) released the Annual Report on contributions received by Electoral Trusts.
• The report highlighted that incumbent political parties received a larger share of political funding.

Political Funding Mechanisms in India

• Political funding in India is primarily regulated by the Representation of the People Act, 1951.
• Political funding is also governed by the Income Tax Act, 1961.
• Corporate political donations are regulated under the Companies Act, 2013.

Modes of Political Funding

• Individual Donations: Political parties are allowed to accept voluntary contributions from individuals.
• Political parties are prohibited from accepting donations from government companies.
• Donations above ₹20,000 must be reported to the Election Commission of India (ECI).
• Donations above ₹2,000 must be made through traceable methods such as cheques or digital payments.
• Electoral Trusts act as intermediaries to collect donations from individuals or companies and distribute them to political parties.

Key Issues in Political Funding

• Lack of Transparency and Anonymity: Between 2004–05 and 2022–23, six national parties collected ₹19,083.08 crore from unknown sources, as reported by the Association for Democratic Reforms (ADR).
• Unequal Playing Field: There is no legal limit on election expenditure by political parties, although limits exist for individual candidates.
  • This absence of limits favors parties with greater financial resources, creating barriers for smaller or newer parties.
• Corporate Influence and Cronyism: Political funding in India relies heavily on corporate donations, which may influence public policy.
  • Such funding patterns can lead to policies serving private interests rather than public welfare.
  • The Supreme Court in the Electoral Bonds case (2024) described this quid pro quo as institutionalised corruption, meaning corruption embedded within legal frameworks.

Way Forward

• Promote Public Funding: State funding of elections can reduce disparities in financial resources among political parties.
  • The Indrajit Gupta Committee (1998) recommended partial state funding of elections.
• Establish a National Election Fund: Individuals and companies should donate to a common national fund.
  • The fund should allocate resources to political parties in a fair and transparent manner.
• Limit on Campaign Expenditure: A legal cap on campaign spending by political parties should be introduced.
  • Such limits would enable parties to contest elections without excessive financial pressure.