Brief Context
Context Ahead of successive electoral cycles, concerns have intensified regarding transparency in India’s political funding framework, with unequal access to private donations distorting electoral competition. Political Funding in India Individual Donations: Section 29B of the Representation of the People Act (RPA) 1951, permits political parties to accept donations from individual persons. The Election Commission of Indias Transparency Guidelines require the disclosure of donations over ₹20,000
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Syllabus: GS2/ Polity and Governance
Context
- Ahead of successive electoral cycles, concerns have intensified regarding transparency in India’s political funding framework, with unequal access to private donations distorting electoral competition.
Political Funding in India
- Individual Donations: Section 29B of the Representation of the People Act (RPA) 1951, permits political parties to accept donations from individual persons.
- The Election Commission of India’s Transparency Guidelines require the disclosure of donations over ₹20,000 under the Act.
- State/Public Funding: State funding of elections in India involves the government providing financial support to political parties and candidates.
- Direct Funding: Monetary assistance directly to parties/candidates for campaign expenses.
- Indirect Funding: Includes subsidized media access, tax benefits, free public spaces for campaigns, and support for utilities, transport, and security.
- Corporate Funding: Governed under Section 182 of the Companies Act, 2013. Corporate donations were banned in India from 1969 until 1985. Key conditions for Donation are as;
- Companies must be at least three years old.
- Donations are capped at 7.5% of the average net profits made during the three immediately preceding financial years.
- Contributions must be disclosed in the company’s profit and loss account.
Challenges in the Existing Funding Framework
- Concentration of political finance: Political funding is heavily skewed in favour of a few dominant parties, leading to an uneven distribution of financial resources and weakening electoral competition.
- Weak transparency: Disclosure requirements are inadequately enforced, and key information on donor–party linkages remains outside the public domain, limiting meaningful citizen scrutiny.
- Lack of internal party accountability: Most political parties function without enforceable norms of internal democracy, transparent decision-making, or rigorous financial auditing.
- Unlimited party spending on more ambitious, sophisticated and professional campaigns has resulted in increasing costs of elections.
Electoral Trust Scheme
- Electoral Trust Scheme: The electoral trust scheme was introduced by the government in 2013.
- Electoral trusts are one of the funding channels for political parties.
- They became a preferred source of political donation for companies in 2024-25 after the SC scrapped the electoral bonds scheme in 2024.
- Both schemes are meant to facilitate donations to political parties by corporations and individuals.
- Eligibility: Any company registered under the Companies Act can form an electoral trust.
- Any citizen of India, a company registered in India, or a firm or Hindu Undivided Family or association of persons living in India, can donate to an electoral trust.
- Three trusts, Prudent Electoral Trust, Progressive Electoral Trust and New Democratic Electoral Trust, accounted for 98 percent of all contributions in 2024-25.
How do These Trusts Function?
- Renewal Requirement: Electoral trusts must apply for renewal every three financial years to continue operating.
- Eligible Beneficiaries: Donations can be made only to political parties registered under Section 29A of the Representation of the People Act, 1951.
- Mandatory Disbursement Rule: At least 95% of total contributions received in a financial year must be donated to eligible political parties.
- The remaining 5% may be used only for administrative expenses.
- Disclosure of Donor Identity: PAN is mandatory for resident Indian contributors.
- Passport number is required for NRIs at the time of contribution.
- Accounting & Oversight: Trusts must maintain audited accounts, disclosing donors, recipients, and disbursements to the CBDT and the Election Commission of India (ECI).
Recommendations on State Funding
- Constituent Assembly debate: The earliest discussions on the cost of elections were held in the Constituent Assembly in 1948.
- They argued in favour of the need for the state/public treasury to bear election expenditure in a regulated, least expensive and organised manner.
- Indrajit Gupta Committee (1998): Supported state funding to level the playing field for all parties.
- Law Commission of India (1999): Advocated for total state funding, conditional on parties not accepting other funds.
- Second Administrative Reforms Commission (2008): Recommended partial state funding to reduce undue financial influence.
Reforms needed in political funding in India
- A comprehensive political finance law should aim to ensure equity, transparency, and accountability across parties.
- Electoral trusts should be mandated to publicly disclose donor–party linkages, enabling informed citizen oversight.
- Political parties should be brought under the Right to Information Act to enhance financial and organisational transparency.
Source: IE