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Election Funding: Question on its source

  • Published
    17th Nov, 2023

Supreme Court’s consideration of electoral bonds has brought back the focus on State Funding of Elections.

What is State Funding of Elections?

State funding of elections means that the government provides funding to political parties or candidates to participate in elections

Electoral bonds to end large cash payments in election finance.

  • Scheme of electoral bonds:
    • A publicly owned commercial bank, with the largest network of branches is the only designated vendor.
    • Bonds remain valid for 15 days within which they can be encased through the bank account of the selected political party.
    • The purchaser-donor enjoys tax credits on the purchased bonds as in any other donation to charities.
  • Association of democratic records: The idea was to facilitate large donors, preferring anonymity whilst donating funds for elections, with an alternative to cash payments.

What is the cause of concerns over the electoral bonds?

  • Anonymity of the electoral bonds:The anonymity afforded by the bonds is primarily versus citizens.
  • Bond vendor is a government owned bank:SBI is a government-owned bank, which can be persuaded by the government into sharing data informally regarding the bond purchases and encashment by political parties.

Benefits of the State Funding of Elections

  • Candidates with questionable histories often succeed despite their reputations in large parts because they can afford to do so. State funding will put an end to this practice.
  • Since candidates won’t be overly dependent on the party for funding, parties will become more democratic internally.
  • State funding ensures that some influential people or groups don’t have undue influence over electoral processes.
  • A level playing field can enable the promotion of healthy competition by ensuring equality between large, well-known political parties and small parties and independent candidates.
  • It can break up the corporate-political connection those results from the need for funding to win elections. If political parties are not financially influenced by the huge corporate sector, citizen-centric decisions will be encouraged.
  • Equitable funding distribution among all candidates will ensure fairness in pre-election spending.
  • Public funding can increase transparency in the party and thereby help curb corruption.
  • When elections are held fairly, the chosen candidates maintain the principles of openness, responsibility, and honesty, among other things, bringing about good governance.
  • It is unreasonable to expect the majority of the population in a nation with a low per capita GDP to contribute money to political parties.

The argument against State Funding of elections:

  • The amount of money spent by the government on important goals like nutrition, education, and health is incredibly small. Funds being diverted to finance elections may hinder state welfare programs and the development of the weaker sections.
  • The gap between political leaders and average citizens would widen as a result of state sponsorship.
  • Elections funded by the state won’t stop parties from lobbying and receiving illicit additional cash from the business world. This will lessen the purpose of state funding for elections.
  • It will be challenging for the state to finance elections with a fiscal deficit of GDP.
  • Public funding may influence many people to enter politics solely to receive state subsidies rather than run for office and engage in development work.
  • In India, elections are held on a massive scale, and keeping track of expenses in the digital age is exceedingly difficult. Procedures for funding elections need to be drastically changed.
  • The time is not yet right to choose public funding of elections unless fundamental reforms like decriminalizing politics, comprehensive electoral finance reforms, robust transparency, audit, and strict legal framework for the enforcement of anti-corruption laws are appropriately implemented.

Views of various Commissions/committees on State Funding of Elections

The Indrajit Gupta Committee on State Election Funding (1998):

  • To create a level playing field for parties with limited resources, the Indrajit Gupta Committee recommended state funding of elections in 1998.
  • The Committee advised placing two restrictions on state funding.
  • Firstly, only national and state parties with a symbol should receive state funding. Independent candidates should not.
  • Secondly, only recognized political parties and their candidates should get short-term state funding in kind in the form of specific infrastructure.
  • The Committee noted that at the time of the report, the nation’s economic climate was only conducive to partial, not complete, public funding of elections.

Law Commission Report on Electoral Law Reform (1999):

  • According to the Law Commission of India’s 1999 report, state funding of elections is “desirable” as long as political parties are not allowed to accept money from other sources.
  • Additionally, it strongly recommended that the appropriate regulatory framework should be put in place.
  • The Commission agreed with the Indrajit Gupta Committee that, given the economic situation of the nation at the time, only partial public assistance was practicable.

The National Commission to Review the Working of the Constitution, 2001:

  • It did not endorse state funding of elections.
  • But it agreed with the 1999 Law Commission report that there is a need for an appropriate framework for the regulation of political parties.
  • It needs to be implemented before the state funding is taken into consideration.

Second Administrative Reforms Commission (2008):

  • The Second Administrative Reforms Commission’s “Ethics in Governance” report from 2008 advocated partial state funding of elections to cut down on “illegitimate and excessive funding” of election costs.

What are the suggestions for better governance of the political parties?

  • Strict Supervision of political parties:Poor Intra-party governance is concentrated in the Registered Unrecognized Political Parties (RUPP). Most are in breach of their undertaking to fight an election within five years and remain active thereafter.
  • Strengthen the Regulatory compliance:The benefit of income tax exemption should only be available after registered parties demonstrate a five-year record of compliance with the regulations.
  • Enforce inner-party democracy and avoiding conflict of interest: Making party members occupying party positions, ineligible for holding executive positions in government. This is necessary to create a complete segregation of functions within the ruling party and the government
  • Empower ECI to regulate political parties:The misuse of the fiscal privileges afforded to political parties can be minimized through targeted regulatory tweaks, within the existing construct of private financing and the inner functioning of parties improved through targeted regulation.


“Secrecy is darkness where corruption gets nurtured”. Funding to the political parties need to be transparent. Transparent funding will pave the way for level playing field for all the political parties.


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