Political Funding: How are Political Parties funded in India?

24 Nov 2022  Read 424 Views

Elections form a major part of the parliamentary democracy system in India, which cost money like hundreds of crores. Political parties run offices throughout the country, and the staff salaries, travelling expenses, etc., are all regular expenditures of political parties, including election campaigns, tours, publicity and whatnot. Not even a single time has India missed its elections, and timely elections for the Parliament and State assemblies have been held. Therefore, the government do need funds. The conventional practice of funding the political system is through cash, and the sources are anonymous or pseudonymous.

According to Association for Democratic Reforms (ADR), Bharatiya Janata Party (BJP) receives more donations than any other political party. i.e., the highest donor party. By 2025, the BJP is expected to receive donations of Rs 720,407 crore a year from corporate donors. This article discusses political funding in India, the meaning of electoral bonds, how they are funded, criticisms, and many more.

What is political funding?

Political Party Funding (PPF) is a method a political party uses to raise money for campaigns and routine activities. The money is raised by way of donations (Cash or cheque). Despite being the largest democracy in the world, India still fails to have a transparent political funding mechanism. Did you know?

  • One major initiative was taken by the Atal Bihari Vajpayee-led NDA Government when the Income Tax Act was amended to include a provision with respect to donations made to political parties, which were to be treated as expenditure & giving the donor a tax benefit.

  • Apart from the donor, if the political party disclosed its donations in a specified manner, then it would also not be liable to pay tax, i.e., filing its IT returns with the income tax authorities and Election Commission.

  • This was done with the hope that it would increase donations by cheque, not cash, which can then be traced. Few donors supported this, and few didn’t support it.

  • This law was again amended during the term of the UPA government to provide for “pass through” electoral trusts where donors will keep their money with the electoral trusts, which in turn would distribute the same to several political parties.

  • Both these reformations led to a few donors donating via cheque. Before moving ahead, let’s go through what’s an electoral bond.

What are electoral bonds?

Electoral bonds are an alternative to cash donations, purchased anonymously by donors and are valid for 15 days from the issue date. These are donations to political parties registered under S. 29A of the Representation of the People Act, 1951 and have secured not less than 1% of the votes polled in the last general election to the Lok Sabha or Vidhan Sabha.

  • This purchase must be disclosed in the donor's account. These bonds can be bought from a specified bank only by a banking instrument, and the political party can then encash them.

  • Not only the donor, but the political party in its IT returns will also have to reveal the amount of donations it has received via electoral bonds to the Election Commission.

  • They are sold four times a year (January, April, July and October) in multiples of Rs.1,000, Rs.10,000, Rs.1 lakh, Rs.10 lakh, and Rs.1 crore.

  • In a gazette notification, it was stated that an additional period of fifteen days shall be given by the Union government in the year of general elections when held to the legislative assembly of states and Union territories with the legislature.

  • SBI is the solely authorised bank to sell & redeem the bonds. Customers of other banks can also purchase bonds through different payment channels.

Funding of political parties in India

Ultimately, to continue the reform process by NDA & UPA govt, in 2017, after imposing a ban on the circulation of Rs 500 and Rs 1,000 currency notes, PM Modi addressed the national executive meeting of the BJP in Delhi, stating that an urgent need is felt to make the funding process more transparent and that his party was in favour of electoral reforms.

After this, the government introduced these major changes to political funding in India.

  1. Political parties can receive foreign funds.

  2. Corporate funding- Any company can donate any amount of money to any political party.

  3. Any individual, group of people or company can donate money anonymously to any party through electoral bonds.

  4. A non-profit company created in India for receiving voluntary contributions from anyone like a person or a domestic company is electoral trust. (Sec. 29A of Representation of People’s Act.

But many observed that these three changes made the funding process opaque instead of transparent. Presently to fight all the odds, the government agreed with the Election Commission of India (ECI) to reduce the limit for anonymous cash donations from Rs 20,000 to Rs 2,000.

Why is election funding a problem?

1. Criticism of Electoral Bonds

Why are the critics saying that the electoral bonds have made the funding process opaque? See, after the introduction of Electoral Bonds, citizens no longer had access to information about who finances political parties. Even Central Information Commission (CIC) stated that the electoral bonds process should be more transparent and the names of those buying them should be declared.

  • Despite this, all political parties have refused to accept the transparency that comes with the RTI. The financing limits need to be properly established.

  • For example, there was a limit on how much money a firm may donate to a political party from its revenues, with no top limit as of now.

  • According to information from the EC & the IT Department and reports from political parties, 90% of funds go to just one party. So, EC criticized Modi’s electoral bond scheme.

2. Criticism of foreign fundings

The Election Commission (EC) has criticised Narendra Modi's decision to allow foreign funding of Indian political parties. The electoral bond project and removal of caps upon corporate funding would have “serious consequences on the transparency.

EC didn’t favour the Centre’s decision to amend the Foreign Contribution Regulation Act, 2010 which ensured that funds received by political parties since 1976 cannot be investigated. So, this could permit “unchecked foreign funding of political parties in India” and “Indian policies being influenced by foreign companies”.

3. Criticism of corporate funding

The 2017 Finance Bill had also been in favour of the government as it amended Section 182 of the Companies Act of 2013 (governs corporate funding), under which even loss-making companies can also contribute to political parties & limit of 7.5% for corporate donations to political parties has been removed. Now corporations are free to donate any amount & are not liable to declare the donation recipients.

Conclusion

Election Bonds are one of the major topics in electoral financing. Many public interest litigations have been filed in the Supreme Court on electoral bonds wherein Judiciary has been insisting on making the Electoral Bonds entirely public so that voters may see the source of political funding in India as many other leading democracies worldwide, like the United States and EU countries, have access to similar data.

About the Author: Kakoli Nath | 110 Post(s)

Kakoli Nath is a legal Content Curator at Finology Legal who pursued BBA.LL.B (5 years integrated course) & she is a patent analyst. She has pursued advanced certification in Forensics Psychology and Criminal Profiling from IFS, Pune.

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