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10th November 2023 (9 Topics)

Regulating political funding


The recent Supreme Court hearing on the constitutionality of electoral bonds has focused attention on an issue that goes to the heart of Indian democracy — the funding of political parties.

Need for Funding of Political parties

  • Political funding is of paramount importance for elections in India, as it plays a crucial role in sustaining the democratic process and facilitating the functioning of political parties.
  • In India, political parties receive funding through donations, voluntary contributions, Public funding during the time of elections etc. In India the party runs the campaign in elections thus more than individual it is imperative to look into the aspects of its funding.
  • Elections campaign incur expenses for publicity, print and electronic media and most recently the social media. Further individual or organizations contribute to political party as it’s through the political party and their candidates that people choose to govern on behalf of them.

How the donations are made, what issues are involved?

  • A fruitful party funding framework requires attention to at least four key aspects — regulation of donations, expenditure limits, public financing, and disclosure requirements.
  • Political funding in Indiais a major concern under need for electoral reforms in India. The financing of the world's most extensive electoral process remains a perplexing issue, as the involvement of businesses in supporting both disclosed and undisclosed expenditures during elections remains a contested issue.
  • There are known and unknown sources of political funding. Known Sources constitute- sale of assets, fees, disclosure of any amount above 20000 from single source, publications etc. However a major chunk of contributions comes from unknown sources which consists of Electoral bonds, contributions from meetings, donations of less than ?20,000 to any political party in a single tranche etc.
  • Contributions or donations solely in the form of a bank cheque or digital payments to a registered (under Section 29A of the Representation of the People Act, 1951) political party, including electoral trust, in India are eligible for deduction in taxable income under Section 80GGC of the I-T Act, 1969.
  • However the percentage of income from unknown sources for major national parties is 95%. This also co-relates the logic of understanding the role of money in politics and how some decisions can be influenced by way of informal channel of donations. Such scenario would not be fruitful for sustaining the true spirit of democracy.
  • The recent case of donations through electoral bonds is a pressing issue due to no limit of amount which can be donated if it comes through banking channel, also a non-disclosure clause along with party in power ability to know the donors through its enforcement agencies poses a significant challenge.

India’s challenges

  • Donation Limits: India lacks legal limits on individual and corporate donations to political parties. The Finance Act of 2017 removed contribution restrictions on companies.
  • Expenditure Limits: Political parties face no legal expenditure limits for national or state-level campaigns. Spending restrictions apply only to specific candidate elections.
  • Donation Disclosure Requirements: Donations above Rs 20,000 must be disclosed by political parties, except when made through electoral bonds. No obligation to disclose details of donations below Rs 20,000. Political parties exploit legal loopholes by breaking large donations into smaller amounts to avoid disclosure.
  • Undermining Electoral Bond Objectives: The scheme of electoral bonds aimed to prevent victimization of donors. The ability of the ruling party to access information about donors from other parties undermines this objective.
  • Concerns about Public Scrutiny: Lack of transparency raises concerns about the influence of money in politics. Public scrutiny is essential for ensuring fair and ethical electoral processes. This also advances the reasoning of larger donors getting more benefit from political patronag.
  • Money and Muscle Power: with unaccounted funding coupled with lack of scrutiny, confers unlimited powers on political parties to influence voter behavior. Limitless expenses for political parties also undermines the spirit of democratic functioning. E.g Horse tradings, use of muscle power, bahubali culture etc.

Political funding across the world- comparative analysis and what can be learn?

Donation Limits and Regulation:

  • Donation limits aim to prevent undue influence by a few large donors on a political party.
  • In the United States, federal law imposes varying contribution limits based on donor types.
  • The UK relies on expenditure limits, restricting a party from spending more than £30,000 per contested seat.
  • Expansive interpretations of the First Amendment by the US Supreme Court hinder attempts to impose expenditure limits.

Public Funding Models:

  • Public funding is implemented through predetermined criteria or innovative methods like "democracy vouchers."
  • In Germany, parties receive funds based on their political significance, considering past votes, membership fees, and private donations.
  • Democracy vouchers in Seattle allow voters to allocate publicly funded vouchers to their chosen candidates before casting votes.

Chilean "Reserved Contributions" System:

  • Chile employs a system of "reserved contributions" where donors transfer funds to the Electoral Service, maintaining donor anonymity.
  • Complete anonymity aims to prevent parties from knowing the specific amounts donated by individual contributors.
  • This system aims to curb quid pro quo arrangements by making it challenging for parties to discern donor-specific sums.

Way forward

  • Indian electioneering is no longer restricted to parties and candidates. Over the last decade, we have seen a staggering rise in the involvement of political consultancies, campaign groups and civil society organisations in online and offline political campaigns.
  • The existing system calls for reforms to address loopholes, enhance transparency, and uphold the integrity of the electoral process. Balancing the need for political funding with the necessity of accountability remains a challenge.
  • This should make us rethink the assumptions of 20th-century Indian politics, which form the basis of our political funding framework.

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