Funding of Political Parties in India

By: Dhruv Singh

Every Political Party needs to raise money which is used for the regular functioning as well as funding the political campaigns of the party in the elections. This money raised is used for various activities such as organizing rallies, political adverts, vehicle expenses and imbuing party members. So it's safe to say that money plays a significant role in swaying voters during elections. This power of money has further been amplified by the advent of political advertisements on social media where increased money spending equates to increased user engagement. Political Parties receive funding in various ways including individual voluntary donations from normal citizens, corporate donations, electoral bonds as well as donations from party members. In this majority of the funds come from corporate donors.


Until very late, political parties would receive donations up to Rs. 20,000 in cash without revealing the source of the funds. This rule was widely misused and almost all parties reported receiving nearly 90% of all funds in denomination of less than Rs. 20,000. The process was opaque and enjoyed a free flow of black money to be used in the election campaign. For corporate donors, a company was only allowed to donate up to 7.5% of the average of its net profits in the last three financial years to the political parties. The company was also required to disclose the amount of contributions made in its profit and loss account, as well as disclose the name of the parties to which the contribution was made.


However this changed when the Finance Bill 2017 was introduced, the government reduced the limit of anonymous cash donations to Rs.2000, acting upon the recommendation of the Election Commission. All donations above this amount up to Rs. 20,000 were to be in the form of a demand draft, cheque, online transfer or Electoral Bonds and political parties had to reveal the source of funds. All donations above Rs. 20,000 being received by a party had to be notified to the Election Commission along with the source except in the case of electoral bonds. The bill also amended the restrictions on corporate donors and the 7.5% donation limit of the average profit of the past three years was removed effectively allowing a company to donate all its money. This along with the removal of the requirement for the company to be at least three years old to make political-donations meant, that even a newly established shell company could donate all its money to any party. The Bill further decreasing transparency removed the requirement of revealing the name of the party to which the donation was made as well as the total amount. The Finance Bill 2017 which was supposed to promote transparency of political funding by reducing the limit on individual anonymous donations not only failed in its so called objective but rather promoted opaqueness and corruption. The large anonymous cash donations could still be made by simply splitting a single large transaction into multiple smaller transactions each with a denomination of lower than Rs.2000 while it eased anonymous corporate donations which constitute around 90% of the total corporate funding. The bill that made so many changes was passed within 30 minutes without any discussion.


The bill also introduced electoral bonds  by amending the Reserve Bank of India Act 1934, Representation of Peoples Act 1951, Income Tax Act 1961 and Companies Act. These bonds had a specified face value of Rs. 1,000, Rs. 10,000, Rs. 1 lac, Rs. 10 lacs & Rs. 1 crore. The electoral bonds could be used by the individuals and corporations to donate money to the political parties. Only parties registered under section 29A of the Representation of the People Act,1951 and secured at least 1% of the votes polled in the most recent Lok Sabha or State election will be eligible to receive funds in this manner which means only the eight national parties of India could raise money this way. This move was touted to promote transparency in the political funding process however in reality it wasn’t executed in such a way. Any individual, Company or firm is eligible to buy an electoral bond but that bond does not mention any name and belongs to the bearer. The party receiving the funds in the form of the bond is also not required to disclose the name of the person from whom they received it, even the banks issuing the bonds have been instructed to keep the name of the purchaser confidential. The serial number on the bond is the only way to trace the origin of the funds which can only be accessed by the government through the Reserve Bank as the funds. This gives an advantage to the ruling party as both the donor and receiver banks are under the RBI which is further subject to Central Government's will to know . Thus the name of the person who donated funds through the bearer bond could only be accessed by the government and not by the press, opposition or the people.


In 2018, Foreign Contribution Regulation Act (FCRA) was passed allowing foreign companies to make donations to Indian Political Parties. When a normal bill is passed it takes effect from the day the President gives his assent turning the bill into a law. However, this bill was passed 42 years retrospectively i.e. it will be valid from 1976. This act was passed because over the years all major political parties had been taking donations from various foreign corporations despite it being against the law. Notably when in 2014 the Delhi High court found both the Congress and the BJP guilty of receiving foreign funds. It had also ordered the Election Commission and the Government of India to take action against them. No action against either party was taken then when Congress was in power nor under the new government led by the BJP. It was a collusion by both the parties and this bill was passed to legalize all the illegitimate foreign funds they had accumulated over the years.


After the first tranche of bonds were issued it came to light that both the RBI and the Election Commission had voiced their concerns to the government regarding the bonds that this would not stop the flow of black money into the party funds and that the bonds did not go far enough to ensure the identity of the donor. However, the government shot down these concerns by portraying it as a safeguard of the privacy of the donor and said it had a right to make laws in this regard. It also came to light that the bonds which were supposed to protect the privacy of the donor had a hidden alphanumeric code on them only visible in UV light which could be traced back to the person to whom the bond was issued, linking the donor to the political party.


The issue of electoral bonds was raised in Supreme Court and it had asked the names of all the donors in a sealed envelope. While the issue was being discussed, the law ministry said that the rule regarding parties with 1% vote share can be declared unconstitutional, however it was ignored.

The Election Commission in a statement to the Supreme Court said, "Electoral Bonds contrary to the government claims, wreck transparency in political funding. Electoral Bonds coupled with the removal of the cap on foreign funding invites foreign corporate powers to impact Indian politics."

In the passage of the electoral bonds the RBI, the Election Commission and the suggestions of the Law Ministry were shot down.

The political funding process of India is still no more transparent than before.

Current ruling BJP received nearly 90% of all funds donated through electoral bonds.