July 20, 2024

Lukmaan IAS

A Blog for IAS Examination


THE CONTEXT: The recent Supreme Court hearing on the constitutionality of electoral bonds has focused attention on the funding of political parties. There are issues related to opacity and anonymity in political funding affecting the democratic framework of the country.


  • A study by the Centre for Media Studies (CMS), which called the 2019 Lok Sabha elections the “most expensive election ever, anywhere’’. It estimated the money spent for the election at around Rs 55-60,000 crore, out of which around 45% were spent by the BJP.
  • In the 2014 national elections, too, money played a key role. Candidates who ran for elections reported a median wealth of Rs 23.8 lakh, approximately 27 times the nominal per capita income of India in that year.


  • Political Funding implies the methods that political parties use to raise funds to finance their campaign and routine activities.
  • A political party needs money to pitch itself, its objectives, its intended actions to get votes for itself.
  • Section 29Bof the Representation of the People Act (RPA) entitles parties to accept voluntary contributions by any person or company, except a Government Company.
  • Section 29Cof the RPA mandates political parties to declare donations that exceed 20,000 rupees. Such a declaration is made by making a report and submitting the same to the EC. Failure to do so on time disentitles a party from tax relief under the Income Tax Act, 1961.


  • No limit on donation and expenditure: In India, there are no donation limit and an individual or an organisation can donate as much as they want to a political party. Moreover, the Finance Act, 2017 also removed any official contribution limits on companies. Similarly, there is no legal expenditure limit on expenditure by political parties. A party can spend as much as it wants for its national or state-level campaign as long as it does not spend that money towards the election of any specific candidate.
  • No disclosure requirements: Parties are not required to disclose the sum or the source of any single donation that is below Rs 20,000. Here, parties generally break large donations from a single donor into multiple small donations, and this practice exempts them from any disclosure requirement.
  • Issue in electoral bonds: Electoral bonds enable large donors to hide their donations if they use official banking channels. The bonds enable political parties and large donors to strike deals without any public scrutiny. Also, the ability of the party in power to access the information about donors of other parties through law enforcement agencies undermines the scheme of electoral bonds.
  • Corruption: There are many corrupt political practices that influence elections in the current system. Private entities and businesses use money to ensure less stringent regulation and to finance elections which eventually leads to favourable policies.


  • Financing framework according to nation: A campaign finance framework should respond to different political systems. For instance, the US elections revolve around individual candidates’ campaign machinery. On the other hand, in India, parties are central to electoral politics. Therefore, the primary focus of the campaign finance framework in India needs to be parties, not individual candidates.
  • Regulation of donations: There need to be donation limits on political funding. Donation limits are aimed at ensuring that a party is not captured by a few large donors, whether individuals, corporations, or civil society organisations. For instance, the US federal law imposes different contribution limits on different types of donors.
  • Expenditure limits: Expenditure limits safeguard politics from a financial arms race as it relieves parties from the pressure of competing for money. In the UK, for instance, a political party is not allowed to spend more than £30,000(approximately 30 Lakh rupees) per seat contested by that party.
  • Public financing: Broadly, there are two ways of implementing public funding:

1. The most commonly used method around the world is to set predetermined criteria. For instance, in Germany, parties receive public funds on the basis of their importance within the political system.

2. Another way in public funding is that of ‘democracy vouchers’, which is in place for local elections in Seattle, US. Under this system, the government distributes a certain number of vouchers worth of certain amounts to eligible voters. The voters can use these vouchers to donate to the candidate of their choice.

  • Disclosure requirements: One of the most prominent features of the regulation of private money in politics is disclosure requirements. Disclosure is a less intrusive form of regulation as it does not prevent parties or donors from receiving or making donations. However, disclosures discourage voters due to the fear of public scrutiny which deter donors from donating money.
  • Balancing transparency and anonymity: There is a need to strike an appropriate balance between the two legitimate concerns i.e transparency and anonymity. Many jurisdictions strike this balance by allowing anonymity for small donors, while requiring disclosures of large donations. For instance, in the UK, a political party needs to report the donations received from a single source amounting to a total of more than £7,500 (roughly Rs. 7,50,000) in a calendar year.


There seems to be a vicious cycle of corruption in political financing affecting transparency and quality of our democratic politics. It is crucial to identify the loopholes in the current mechanism of political funding to make it more transparent as per international standards.


Q.1 The Indian party system is passing through a phase of transition which looks to be full of contradictions and paradoxes.” Discuss. (2016)

Q.2 To enhance the quality of democracy in India, the Election Commission of India has proposed electoral reforms in 2016. What are the suggested reforms and how far are they significant to make democracy successful? (2017)


Q.1 Highlight the issues in the current system of political funding system in India. Suggest measures to ensure transparency in political funding.

Q.2 Though electoral bonds as a method of funding was introduced to cleanse the system of political funding and make it more transparent but concerns have been raised for its opacity and anonymity. Analyse.

SOURCE: https://indianexpress.com/article/explained/explained-politics/expert-explains-political-funding-india-electoral-bonds-9020575/#:~:text=A%20party%20can%20spend%20as,are%20made%20through%20electoral%20bonds.

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