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What is Political Funding?


In light of the current political circumstances and concerns regarding donations, the conclusion of the Supreme Court hearings on the challenge to electoral bonds prompts a critical examination of the potential impact this challenge’s resolution may have on democracy and the rule of law in India.


GS II: Polity and Governance

Dimensions of the Article:

  1. Political Funding
  2. Importance of Disclosure in Political Funding
  3. Reforms Needed in Political Funding

Political Funding

  • Political funding encompasses financial contributions provided to political parties or candidates, supporting their activities, campaigns, and overall functioning.
Statutory Provisions in India:
  • Representation of the People Act, 1951 (RPA Act):
    • Outlines rules regarding elections, including provisions on election expenses, contributions, and account maintenance.
  • Income Tax Act, 1961:
    • Governs tax treatment of political parties and donors, with compliance requirements and potential tax benefits for contributors.
  • Companies Act, 2013:
    • Regulates corporate donations to political parties, specifying contribution limits and mandating disclosure in financial statements.
Methods of Raising Political Funding:
  • Section 29B of RPA:
    • Allows political parties to receive individual donations with taxpayers eligible for a 100% deduction.
  • State Funding:
    • Direct Funding: Prohibited; government funds provided directly to political parties.
    • Indirect Funding: Permitted in a regulated manner, including media access, public places for rallies, and subsidized transport.
  • Corporate Funding:
    • Governed by section 182 of the Companies Act, 2013.
Electoral Bonds Scheme:
  • Introduced in 2017, implemented in 2018, allowing anonymous donations to registered political parties.
Electoral Trusts Scheme, 2013:
  • Notified by the Central Board of Direct Taxes (CBDT).
  • Electoral Trusts distribute contributions from companies and individuals to political parties.

Importance of Disclosure in Political Funding

Amendments to Representation of the People Act 1951:

  • The introduction of electoral bonds in India has brought complete anonymity for political donors.

Contrast with International Practices:

  • Internationally, full disclosure of political donations is a prevailing requirement.
  • In the United States, regulations mandate transparency in political funding dating back to 1910.
  • The European Union, in 2014, enacted regulations on funding European political parties, emphasizing limits, disclosure mandates, and immediate reporting for large contributions.

Global Convergence on Fundamental Requirements:

  • Worldwide, legal regulations converge on two fundamental requirements:
    • Comprehensive disclosure of donors above specific minimal amounts.
    • Imposition of limits or caps on donations.
  • These measures aim to ensure transparency, prevent corruption, and maintain public confidence in the political system and democracy.

Foundation of Representative Democracy:

  • Political parties serve as the foundation of representative democracy.
  • Public disclosure of political funding is imperative for upholding citizens’ trust in parties and politicians.

Role in Safeguarding Democracy:

  • Transparent financial accounts play a crucial role in safeguarding the rule of law and combating corruption within electoral and political processes.
  • This transparency ensures accountability, reinforcing democratic principles based on openness and fairness.

Preventing Undue Influence:

  • Without disclosure, money can become a tool for unduly influencing the political process.
  • Disclosure helps prevent the co-optation of politics by business interests and widespread vote buying.

Ensuring Equitable Playing Field:

  • Disclosure is essential for maintaining an equitable playing field, preventing one party from having indomitable access to excess campaign finance.
  • It ensures that all parties have equal opportunities, reinforcing democratic ideals.

Reforms Needed in Political Funding

  • Importance of Electoral Justice:
    • Electoral justice is crucial for upholding democracy, ensuring that all aspects of the electoral process align with the law and protect the enjoyment of electoral rights.
  • Challenges with Electoral Bonds:
    • Electoral bonds, allowing for undisclosed donor details, pose a threat to democratic transparency and the integrity of free and fair elections.
  • Comprehensive Approach for Reform:
    • Reforms need to go beyond legality and focus on preserving the democratic essence of transparency in the electoral process.
Key Components of Reform:
  • Donor Identification:
    • Identify donors above a specified nominal limit.
  • Immediate Reporting:
    • Mandate immediate reporting of significant donations to the election commission.
  • Publicizing Political Party Accounts:
    • Ensure transparency by publicizing political party accounts.
  • Independent Auditing:
    • Implement independent auditing of party accounts to ensure financial integrity.
  • Establishing Limits:
    • Set limits on funding and expenditure to prevent disproportionate influence.
State Funding of Elections:
  • State funding involves the government providing financial support to political parties and candidates, derived from public resources.
  • Aims to reduce reliance on private donations, minimizing potential influence from vested interests in political campaigns.
Holistic Approach:
  • Reforms should not only address legal aspects but also focus on preserving democratic values, ensuring fair elections, and minimizing the impact of money on the political process.

-Source: The Hindu

February 2024