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Elections and Political Funding

Published: 21st Feb, 2019

The lack of transparency in political funding is a cause for concern and electoral bonds have made it worse.



The lack of transparency in political funding is a cause for concern and electoral bonds have made it worse.


Corporate funding of political parties

What used to happen?

  • The conventional system of political funding relied on donations. These donations, big or small, came from a range of sources from political workers, sympathizers, small business people and even large industrialists.
  • The conventional practice of funding the political system was to take donations in cash and undertake these expenditures in cash.
  • The sources were anonymous or pseudonymous. The quantum of money was never disclosed.
  • This system ensured flow of unclean money coming from unidentifiable sources.

The “electoral bond” scheme:

  • Government of India notified the Electoral Bond Scheme 2018 vide Gazette Notification No. 20 dated 02nd January 2018. As per provisions of the Scheme, Electoral Bonds may be purchased by a person, who is a citizen of India or incorporated or established in India.
  • A person being an individual can buy Electoral Bonds, either singly or jointly with other individuals. Only the Political Parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last General Election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the Electoral Bonds.
  • The bonds will be issued in multiples of Rs 1000, Rs 10,000, Rs 1 Lakh, Rs 10 Lakh and Rs 1 Crore and can be bought by the donor with a KYC compliant account.
  • They cannot be purchased by paying cash. The maximum amount that a political party can receive as donation in cash is capped at Rs 2000. Electoral bonds thus permit them to raise higher sums.
  • The Electoral Bonds shall be encashed by an eligible Political Party only through a Bank account with the Authorized Bank.
  • Electoral Bonds shall be valid for fifteen days from the date of issue and no payment shall be made to any payee Political Party if the Electoral Bond is deposited after expiry of the validity period. The Electoral Bond deposited by an eligible Political Party in its account shall be credited on the same day.
  • Every political party in its returns will have to disclose the amount of donations it has received through electoral bonds to the Election Commission.


Operational experience of the scheme:

  • The concerns ranging from transparency, voluntary disclosure and chances of victimization still prevails. The scheme has not been able to set aside the “fear” of being misused by the party in power.
  • Exact and clear description of “who gave what to whom” cannot be revealed under the act. Hence, it goes against the spirit of Right to Information act.

 How to make funding transparent:

  • Only those political parties should be eligible to receive funding which are engaged in political activity all through the year, whether there is an election or not.
  • The electoral bonds scheme needs replacement with a more transparent means of funding political parties, where both the donor and political recipient are identified clearly.
  • In the “direct state funding to candidates” mechanism, the candidate will be reimbursed according to their final share of the votes cast.

How state funding at candidate level will bring positive externalities:

  • It will become possible for new and cleaner candidates from outside the mainstream parties to join politics.
  • It will ease the pressure on parties themselves to give tickets to criminals and other rogues primarily because they can manage their own funding (thus, a step towards decriminalizing politics).
  • Parties themselves will become more internally democratic, as candidates will not be over-dependent on party bosses for cash (boost to inner party democracy)
  • State funding will have qualitative effect: better candidates and cleaner party funding.

A generic and “do-able”:

  • If the assumption is based on the fact that each Lok Sabha constituency needs Rs 5 crore of candidate funding, with the top three candidates sharing this amount in the ratio of their vote shares, 543 constituencies will cost Rs 2,715 crore. This is an entirely acceptable level of spending for clean politics once in five years.

Can the above approach be used without altering state exchequer’s cash flow?

  • There is an availability of Rs 5 crore to each Lok Sabha and Rajya Sabha candidate from Members of Parliament Local Area Development Scheme (MPLADS). The total cost of MPLADS funding for all MPs is nearly Rs 4,000 crore every year, and scrapping the scheme even for one year (preferable in the election year)in an MP’s five-year term will be enough to bankroll state funding of Lok Sabha candidates.

State funding of elections - Past recommendations:

  • Indrajit Gupta Committee on State Funding of Elections (1998): Endorsed state funding of elections, seeing "full justification constitutional, legal as well as on ground of public interest" in order to establish a fair playing field for parties with less money. The Committee recommended two limitations to state funding. Firstly, that state funds should be given only to national and state parties allotted a symbol and not to independent candidates. Secondly, that in the short-term state funding should only be given in kind, in the form of certain facilities to the recognized political parties and their candidates.
  • Law Commission Report on Reform of the Electoral Laws (1999): Total state funding of elections is “desirable” so long as political parties are prohibited from taking funds from other sources. Only partial state funding is possible given the economic conditions of the country. Additionally, it strongly recommended that the appropriate regulatory framework be put in place with regard to political parties (provisions ensuring internal democracy,  internal structures and maintenance of accounts, their auditing and submission to Election Commission) before state funding of elections is attempted.
  • Ethics in Governance, a report of the Second Administrative Reforms Commission (2008): Recommended partial state funding of elections for the purpose of reducing "illegitimate and unnecessary funding" of elections expenses.
  • National Commission to Review the Working of the Constitution, 2001: Did not endorse state funding of elections but concurred with the 1999 Law Commission report that the appropriate framework for regulation of political parties would need to be implemented before state funding is considered.

Learning Aid

Practice Question:

In a democracy, political power is supposed to flow from popular approval, as measured by results in elections. In practice, this system is often distorted by a number of factors, financial power being the most prominent of them. Political parties often shape policy not as per the desires of their voters but their funders. Critically analyze role, mandate and effectiveness of the Electoral bond scheme in this context.


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