India’s Election Funding System

#GS2 Polity and Governance

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  • In a democracy, political power is in theory alleged to be due to popular or people’s approval, as measured by leads to elections. However, in practice, this technique is usually distorted by a variety of things, financial power being the foremost prominent of them.
  • This results in the scenario, where the Political parties often shape policy not as per the desires of their voters but their funders.
  • Moreover, the govt has brought many legal changes in the Foreign Contribution (Regulation) Act (FCRA), 1976, Companies Act, 2013, which can increase the influence of anonymous corporate funding within the elections.
  • Further, the shortage of transparency in political funding may be a cause for concern and electoral bonds have made it worse. Unfortunately, these changes in India’s election funding system create more loopholes that allow moneyed interest groups to clandestinely influence political parties.

Issues In India’s Election Funding System

  1. Electoral Bonds: In 2017, the introduction of electoral bonds brought a replacement sort of anonymity to thousands of crores of donations.
  2. Under the electoral bond scheme, only the ruling party via the depository financial institution of India (SBI) features a full account of all donations being made via electoral bonds.
  3. Parliament, the committee and therefore the Opposition parties don't have this information, nor do the general public .
  4. In effect, electoral bonds give political power to companies, wealthy individual donors, and foreign entities, thus diluting the universal franchise of 1 voter-one vote.
  5. Amendments in FCRA, 1976: In 2014, the Delhi supreme court held that two national political parties were guilty of illegally accepting donations from two companies registered in India but whose controlling shareholder was a far off company.
  6. In 2016 and 2018, the govt amended the FCRA through the annual Finance Bills, to retrospectively legalise the violations.
  7. As per the amendment, earlier, foreign companies or companies where the controlling stake was held by a far off company couldn’t contribute; now they will.
  8. According to the committee of India, this might allow unchecked foreign funding of political parties in India, which could lead on to Indian policies being influenced by foreign companies.
  9. Amendments in Companies Act, 2013: The Finance Bill of 2017 amended Section 182 of the businesses Act of 2013 to get rid of the need for declaring disaggregated donations to political parties.
  10. Earlier, only profit-making domestic companies could contribute to political parties; now loss-making companies can too.
  11. Further, the limit of seven .5% for corporate donations to political parties has been removed.
  12. With this amendment corporations are liberal to donate any amount of cash and aren't susceptible to declare the recipient of their donations.
  13. Nullifying RTI Effect: the proper to Information (RTI) Act of 2005 enables easier access to information held by public authorities.
  14. However, the above changes could in effect nullify the impact of transparency provisions albeit political parties come under the proper Information (RTI) umbrella.
In charts: Anonymous funding dominates Indian politics (and electoral bonds  have made it worse)

Way Forward

  • Transparency in Electoral Bonds: albeit the Supreme Court upheld the constitutionality of electoral bonds, it could order full and real-time disclosure, to the particular advantage of transparency and accountability.
  • Moral Leadership: Companies and political parties could exercise moral leadership and voluntarily disclose the identity of recipients and donors because the Jharkhand Mukti Morcha recently did.
  • State Funding of Elections: In many advanced countries, elections are funded publicly. This ensures principles of parity and there's not too great a resource gap between the ruling party and therefore the opposition.
  • 2nd ARC, Dinesh Goswami committee, and a number of others have also recommended state funding of elections.
  • Further, until the elections don't get publicly funded, there are often caps or limits on financial contributions to political parties.
  • Transition Towards Civic Culture: India has been working well as a democracy for nearly 75 years. Now so as to form the govt more accountable, the voters should become self-aware and reject candidates and parties that violate the principle of free and fair elections.


  • Every vote isn't equally valuable if companies can influence policies through hidden donations. 
  • The winner of this arrangement is that the ruling party, whether at the Centre or during a State, and therefore the loser is that the average voter.

Source: Economic times

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