Political Funding In India

The flow of political funding directly influences democracy’s functioning, determining who can compete effectively and whose interests are most represented.

Constitutional Assembly Debate (1948)

• State Affair: Founding fathers emphasised that elections are a State Affair, not a private concern.
• Political Fairness: Unequal funding undermines democratic fairness.
• Plutocracy Risk: When access to money is uneven, well-funded actors gain disproportionate influence, skewing electoral competition and policymaking.

The Reality Check- Corporate Dominance

• Corporate Donations (2013-14 to 2023-24): The incumbent party received 4 times more direct corporate donations than all other national parties combined (84.65% of total corporate funds).
• Opposition Share: Remaining parties shared only 15% of corporate contributions.
• Implication: No level playing field exists in electoral financing; one party enjoys a massive financial advantage, potentially influencing politics and elections.

The Mechanism- Electoral Trusts

• Purpose: Established in 2013 to create a formal channel for corporate donations.
• Compliance: Required to report contributions to the Election Commission and donate 95% of received funds to registered political parties. Contributors must provide PAN (residents) or passport number (NRIs).
• Example: The Prudent Electoral Trust directed 75% of its funds to the incumbent party (BJP) over the last decade.
• Legal Basis: Section 17CA of the Income Tax Act, 1961 allows Indian citizens, companies, firms, HUFs, or associations to donate.

Transparency Loophole of Electoral Trusts

• Hidden Donor-Recipient Link: Public cannot see which company donated to which party, allowing political pressure and potential quid pro quo.
• Quid Pro Quo: Latin for “something for something”, referring to implicit returns provided to donors.

Supreme Court Judgments

• Institutionalised Corruption: The Electoral Bonds judgment recognised that corporate donations aim at securing favourable treatment, constituting quid pro quo and a system of institutionalised corruption. 

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Way Forward

• State Funding of Elections: The Indrajit Gupta Committee (1998) supported state funding in principle and recommended limited in-kind public support only for recognised parties, citing fiscal constraints.
• Pre-requisite Reforms:
  • Internal Democracy: Parties must conduct internal elections.
  • RTI Coverage: Parties should be subject to the Right to Information Act.
  • Audits: Strict financial scrutiny by independent auditors.
  • Diversification: Reduce reliance on corporates, encourage small citizen donations.

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