Electoral Trusts

The Return of Electoral Trusts: Does Transparency Come at a Cost?

In 2024-25, three electoral trusts — Prudent Electoral Trust, Progressive Electoral Trust, and New Democratic Electoral Trust — accounted for an astounding 98% of all corporate political donations. This consolidation raises an unmistakable question: Are electoral trusts the guardians of transparency in political funding, or do they pave the way for unchecked influence by a few corporate giants?

The Policy Instrument: Electoral Trusts

Electoral trusts were introduced under the Electoral Trust Scheme, 2013, regulated by the Central Board of Direct Taxes (CBDT). Unlike the recently scrapped electoral bonds scheme, these trusts mandate full disclosure: donors must provide PAN (for residents) and passport details (for NRIs), and the trusts annually disclose lists of contributors and recipient political parties to the Election Commission of India (ECI).

The working mechanism of electoral trusts is intentionally designed for transparency:

• At least 95% of total contributions must be disbursed to registered political parties under Section 29A of the Representation of the People Act, 1951.
• The remaining 5% can only cover administrative expenses.
• Trusts must renew their eligibility every three financial years.

Despite these safeguards, only nine electoral trusts were operational in 2024-25. Among them, the top three dominated donations, perpetuating the age-old problem of corporate concentration in political funding.

The Case For Electoral Trusts

Advocates argue that electoral trusts represent a transparent alternative in a political system plagued by opacity. Unlike electoral bonds — struck down by the Supreme Court for violating Article 19(1)(a) (Right to Information) — electoral trusts disclose donor identities. This ensures accountability and reduces the risk of untraceable political contributions fueling malpractice.

Furthermore, India’s political spending during general elections routinely breaches the ₹50,000 crore mark, much of which remains obscure. Electoral trusts could systematically improve disclosure practices, reducing dependence on informal and opaque cash donations. For instance, the transparency requirement — where trusts must report contributions to the CBDT and ECI — makes them far more resistant to abuse compared to anonymous schemes.

Additionally, donors benefit from tax exemptions for contributions made via these trusts. This incentive nudges corporates and high-net-worth individuals toward legitimate funding channels instead of opting for underhanded methods that erode institutional integrity.

The Case Against Electoral Trusts

The critique is equally compelling. Transparency, while desirable, has not prevented the overwhelming concentration of power. A mere nine trusts processed all donations in 2024-25, heavily skewed toward the top three. Contributors such as Prudent Electoral Trust, often tied to conglomerates, wield disproportionate influence over policy outcomes through their donations. This undermines the principle of political pluralism.

Moreover, while donor identities are disclosed, there is no ceiling on corporate donations via these trusts. Unlike some frameworks followed internationally—such as the UK’s Political Parties, Elections, and Referendum Act, 2000, which caps corporate donations and scrutinizes foreign influence—India’s trusts operate without such regulatory rigour. This creates an implicit risk of political parties being beholden to specific companies or sectors.

The real problem, though, lies outside the trust mechanism: the quid pro quo culture entrenched in India’s political economy. Transparency in donation particulars doesn’t erase the potential for conflict of interest or policy capture. Donations via trusts can still be accompanied by indirect expectations for favourable consideration in taxation, industry regulations, or public procurement.

What Other Democracies Did

The UK offers a contrasting perspective. Under its Political Parties, Elections, and Referendum Act (PPERA), political funding restrictions include transparency as well as limits on corporate donations. Importantly, foreign entities are prohibited from influencing elections through donations. While transparency laws are strong, broader restrictions ensure that corporates cannot disproportionately shape political outcomes.

However, even with stronger controls, opacity creeps in through shell companies or third-party proxies, as evidenced by controversies like the "cash-for-access" scandal involving political donations linked to lobbying firms. This points to a universal truth: transparency mechanisms must be accompanied by robust accountability systems.

Where Things Stand

Electoral trusts present a clear trade-off: they improve transparency but fall short in preventing concentration and conflicts of interest. If the objective of political funding reform is to dilute high-stake corporate influence, India must move beyond disclosure-based models. The absence of spending caps or donation limits for trusts remains their Achilles’ heel — and risks recreating many of the deficiencies of the electoral bonds scheme, despite a veneer of transparency.

Will transparency suffice? Likely not. Much depends on whether parallel governance reforms can address corporate-political interdependence comprehensively. For now, the dominance of three trusts highlights lingering vulnerabilities that jeopardize equitable political funding.

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