What is Political Funding / Election Finance?
Historical Background
Key Points
7 points- 1.
Sources of Funds: Membership fees, donations from individuals, corporations, and trusts, sale of coupons, and limited government grants (though state funding of elections is not fully implemented in India).
- 2.
Regulation under RPA, 1951: Mandates political parties to submit annual audit reports and details of donations exceeding a specified threshold (currently Rs. 20,000) to the Election Commission of India (ECI).
- 3.
Companies Act, 2013: Historically, companies could donate up to 7.5% of their average net profit of the preceding three financial years. The Finance Act 2017 removed this limit, but the Supreme Court's 2024 judgment on electoral bonds effectively restored it by striking down the amendments.
- 4.
Income Tax Act, 1961: Provides for tax exemptions on donations made to registered political parties under certain conditions, and for political parties' income from donations.
- 5.
Electoral Trusts: Introduced in 2013, these are non-profit organizations that receive donations from companies and individuals and then disburse these funds to political parties, aiming for greater transparency than direct corporate donations.
- 6.
Expenditure Limits: The ECI sets limits on election expenditure for individual candidates in Lok Sabha and Assembly elections, but there are no statutory limits on expenditure by political parties.
- 7.
Challenges: Lack of transparency, use of black money, potential for quid pro quo corruption, unequal playing field due to disproportionate funding, and the influence of corporate money on policy decisions.
Visual Insights
Political Funding in India: Sources, Regulations & Challenges
This mind map illustrates the multifaceted landscape of political funding in India, covering its various sources, the regulatory framework, persistent challenges, and proposed reforms.
Political Funding in India
- ●Sources of Funds
- ●Regulatory Framework
- ●Key Challenges
- ●Proposed Reforms
Evolution of Political Funding Regulations in India
This table compares the key aspects of political funding regulations across different periods: before the Electoral Bonds scheme, during its operation, and after its scrapping by the Supreme Court.
| Aspect | Pre-2018 (Pre-Electoral Bonds) | 2018-2024 (Electoral Bonds Era) | Post-2024 (Post-Electoral Bonds) |
|---|---|---|---|
| Donor Anonymity | Allowed for donations below Rs 20,000; above Rs 20,000, donor identity disclosed to ECI. | Complete anonymity for donors purchasing electoral bonds from the public; identity known only to SBI. | Anonymity removed for all donations via electoral bonds due to SC verdict; disclosure of all donors/recipients mandated. For other direct corporate donations, the 7.5% cap is likely to be reinstated or new rules framed. |
| Corporate Donation Limit | Capped at 7.5% of average net profit over last three financial years (Companies Act, 2013). | Cap removed for donations made through electoral bonds (via Finance Act, 2017 amendments to Companies Act). | The 7.5% cap is likely to be reinstated for direct corporate donations, as the legal basis for its removal (via Electoral Bonds) is gone. New legislation or judicial clarification may be needed. |
| Disclosure Requirement | Parties mandated to disclose donations above Rs 20,000 to ECI, including donor details. | Parties disclosed total electoral bond receipts to ECI, but donor identities were not publicly disclosed. Donors' identities were not disclosed to parties either. | SBI mandated to disclose all electoral bond donor and recipient details to ECI, which ECI then published publicly. Future direct donations (non-bond) will revert to pre-2018 disclosure norms unless new laws are enacted. |
| Banking Channel Focus | Encouraged, but cash donations below Rs 20,000 were common. | Mandated for electoral bonds, promoting formal banking channels for large donations. | Focus on banking channels continues, with renewed emphasis on transparency for all forms of donations. |
| Supreme Court Stance | No direct ruling on the overall framework, but various committees recommended reforms. | Scheme challenged in SC for violating Right to Information and promoting opacity. | Struck down the scheme as unconstitutional (Article 19(1)(a)), emphasizing the public's right to know about political funding. |
| Impact on Transparency | Partial transparency for large donations, significant cash component. | Reduced transparency due to donor anonymity, despite banking channel use. | Significantly increased transparency for past electoral bond donations; future funding mechanisms under scrutiny for similar transparency. |
Recent Developments
4 developmentsThe Supreme Court's decision to strike down the Electoral Bond Scheme in February 2024 has reignited debates on comprehensive electoral finance reforms.
Increased public scrutiny on the sources and utilization of funds by political parties following the disclosure of electoral bond data.
Calls for state funding of elections and other measures to reduce the reliance of political parties on private and corporate donations.
Ongoing discussions about strengthening the regulatory oversight of the ECI over political party finances.