Political funding in India is neither fair nor transparent
Table of Contents
Source: The Hindu
Relevance:
GS Paper – 2; Governance: Electoral reforms, political funding, role of ECI; Constitution: Right to Information, transparency, accountability
Important Key Concepts for Prelims and Mains:
For Prelims:
- Electoral Trusts Scheme, 2013; Electoral Bonds Scheme; Supreme Court verdict (2024); CBDT; Election Commission of India (ECI); Sections 80GGB & 80GGC (Income Tax Act); Traceable banking channels; Corporate political donations; Disclosure norms; Quid pro quo.
For Mains:
- Political finance reform; Transparency vs anonymity; Institutionalised corruption; Corporate dominance in elections; Level playing field; Accountability mechanisms; Article 19(1)(a) – Right to Information; Democratic integrity; Public funding of elections; Electoral governance.
Why in News?
- In February 2024, the Supreme Court struck down the Electoral Bonds Scheme (2018) for violating transparency and citizens’ Right to Information.
- Post-verdict, electoral trusts emerged as the primary lawful channel for corporate political funding in FY 2024–25.
- This shift has revived debates on unequal political funding, corporate dominance, quid pro quo, and democratic accountability.
Background: Political Funding in India
- Free and fair elections are a core feature of India’s constitutional democracy.
- However, persistent inequality in political funding has undermined the level-playing field among political parties.
- Despite multiple reform attempts, corporate money continues to dominate political finance, raising concerns of:
- Institutionalised corruption
- Policy capture
- Unequal political participation
Supreme Court Verdict on Electoral Bonds (2024)
- The Court invalidated the scheme citing:
- Violation of Article 19(1)(a) (Right to Information)
- Erosion of electoral transparency
- Key observation:
“The reason for political contributions by companies is as open as daylight… Contributions are purely business transactions made with intent of securing benefits in return.”
- The Court described quid pro quo as “institutionalised corruption.”
Post-Electoral Bonds Shift
- With electoral bonds annulled:
- Companies sought alternative lawful channels
- Electoral trusts became dominant in 2024–25
- Reasons for preference:
- Legal clarity
- Traceable banking channels
- Mandatory disclosures
- Tax incentives under Income Tax Act
What Are Electoral Trusts? (Historical Background)
- Introduced via Electoral Trusts Scheme, 2013 by Central Board of Direct Taxes (CBDT).
- Created to:
- Receive voluntary contributions from corporates and individuals
- Distribute funds to registered political parties
- Intended to replace opaque funding with institutionalised transparency.
- Initially secondary to electoral bonds, but reclaimed centrality post-2024 verdict.
Electoral Bond Scheme
- Introduced: 2018
- Issuing Authority: State Bank of India (SBI)
- Nature: Interest-free bearer bonds
- Denominations: ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, ₹1 crore
- Purchase Mode: Cheque or digital transfer only (no cash)
- KYC Requirement: Mandatory for purchasers
- Anonymity: Donor identity not disclosed to political parties or public
- Validity: 15 days from date of issue
- Eligibility of Parties: Must have secured ≥1% votes in last Lok Sabha/State Assembly election
- Unencashed Bonds: Credited to Prime Minister’s National Relief Fund (PMNRF)
- Legal Basis: Electoral Bond Scheme, 2018 + amendments to Representation of People Act, Income Tax Act, Companies Act
- Key Criticism: Opaque funding, corporate dominance, violation of voters’ right to know
- Declared Unconstitutional: February 2024 (Supreme Court)
- SC Ruling (2024): Violates Article 19(1)(a) — right to information
Legal Framework Governing Electoral Trusts
Non-Profit Nature
- Registered as non-profit entities
- Sole purpose: political funding
- Prohibited from profit-making or unrelated activities
Tax Provisions
- Donations qualify for exemptions under:
- Section 80GGB (Companies)
- Section 80GGC (Individuals)
Disclosure Norms
- Mandatory annual reporting to ECI, including:
- Names of donor companies
- Amounts received
- Distribution among political parties
Compliance & Oversight
- Donations only via traceable banking channels
- Oversight by:
- Election Commission of India
- Income Tax Department
Core Issue: Unequal Political Funding
- Unequal access to funds distorts:
- Electoral competition
- Campaign visibility
- Organisational reach
- No legal cap on political party expenditure (only candidates capped).
- India now among the most expensive electoral democracies globally, surpassing even the US.
Corporate Donations and Party-Wise Skew
Direct Corporate Donations (FY 2013–14 to 2023–24)
- Incumbent party (BJP):
- Received 84.65% of all declared corporate donations
- Donations 4× more than all other national parties combined
Electoral Trust Funding
- BJP received 71.67% of total electoral trust funds
- Indicates systemic financial asymmetry favouring ruling party
Electoral Trust Performance & Concentration
Trust-Level Concentration
- Among top 10 trusts:
- Prudent Electoral Trust alone received ₹33,330.54 crore (86.38%)
- 75% of its funds went to BJP
FY 2024–25 Data
- Prudent Electoral Trust:
- Received: ₹2,668.49 crore
- Distributed:
- ₹2,180.71 crore to BJP
- ₹216.34 crore to Congress
Inference
- Political funding is:
- Concentrated among few trusts
- Skewed towards incumbent party
Transparency Deficit in Electoral Trusts
What Is Disclosed
- Names of donor companies
- Total amount donated
- Recipient parties (via ECI filings)
What Is NOT Disclosed
- Which company donated to which party
- Rationale or criteria for fund allocation
Quid Pro Quo and Democratic Risks
- Corporates tend to donate to ruling parties at Centre or States.
- Creates reciprocal expectations:
- Policy favours
- Regulatory leniency
- Supreme Court termed this institutionalised corruption.
Public Funding of Elections: Historical Debate
- Constituent Assembly (1948):
- Elections viewed as state responsibility
- Preconditions suggested:
- Internal party democracy
- Transparency in party functioning
- Bringing parties under RTI
- Regulation or restriction of private donations
Lessons from the Past
- Corporate donations banned (1969–1985)
- Absence of lawful alternatives led to:
- Illegal cash funding
- “Briefcase politics”
- Shows that blanket bans without systemic reform worsen opacity.
Challenges & Way Forward
- Funding Disparity → Design comprehensive political finance framework
- Opaque Trust Operations → Public donor–donee mapping
- Unlimited Party Spending → Cap party expenditure
- Corporate Dominance → Diversify funding sources
- High Entry Barriers → Reduce financial barriers for new parties
- Weak Oversight → Strengthen ECI and judicial supervision
- Future Reform → Introduce calibrated public funding
Conclusion
- Electoral trusts have replaced electoral bonds as the primary channel of political finance.
- They offer greater legality and traceability, but not full transparency or equity.
- Without urgent reform, elections risk becoming contests of money rather than mandates of the people.
- India’s democracy demands not just transparent funding, but equal access to political competition.
CARE MCQ
Q. Consider the following statements regarding Electoral Trusts in India:
- Electoral trusts were introduced through a scheme notified by the Central Board of Direct Taxes (CBDT) in 2013.
- Electoral trusts must disclose donor identities and fund distribution details to the ECI.
- Donations routed through electoral trusts are anonymous to the public and the Election Commission.
Which of the statements given above is/are correct?
A. 1 and 2 only
B. 2 only
C. 1 and 3 only
D. 1, 2 and 3
Answer: A
Explanation:
- Statement 1 is correct.
Electoral Trusts in India were introduced under the Electoral Trusts Scheme, 2013, which was notified by the Central Board of Direct Taxes (CBDT). The scheme was aimed at channelising political donations through a regulated and transparent institutional mechanism. - Statement 2 is correct.
Electoral Trusts are mandated to disclose donor identities, amounts received, and the distribution of funds to political parties through annual filings to the Election Commission of India (ECI). This requirement is a key feature distinguishing electoral trusts from the now-invalidated Electoral Bond Scheme. - Statement 3 is incorrect.
Donations routed through electoral trusts are not anonymous. While trusts act as intermediaries, donor details are disclosed to the ECI and the Income Tax Department, ensuring traceability and regulatory oversight. Hence, anonymity to the Election Commission does not exist.
