Political Funding in India

Political Funding in India: Current Status

  • In India, political parties receive funds from various sources, including membership fees, donations from individuals and corporations and contributions from party supporters. However, transparency regarding the sources of funding has been a longstanding issue, with concerns about undisclosed donations and potential influence from vested interests.

Main Issues

  • One of the main issues with political funding in India is the lack of transparency. Currently, political parties are not required to disclose the sources of their funding, which leads to a lack of accountability and opens the door for corruption. This opacity in the funding process raises questions about the influence of corporate interests and the potential for quid pro quo arrangements.
  • Another issue is the role of black money in political funding. It is widely believed that a significant portion of political funding in India comes from unaccounted sources, such as illicit funds or illegal activities. This not only undermines the integrity of the political system but also perpetuates a culture of corruption.
  • Additionally, the current system allows for unlimited and anonymous donations to political parties. This lack of regulation and oversight makes it difficult to track the flow of funds and raises concerns about the undue influence of wealthy individuals or organizations on the political process.

Importance of Transparency in Political Funding

Transparency in political funding is crucial for a healthy democracy. It ensures that the political process remains fair, accountable, and free from undue influence. Here are a few reasons why transparency in political funding is important:

  • Accountability: When political parties are required to disclose their sources of funding, it becomes easier to hold them accountable for their actions. Citizens have the right to know who is funding political parties and whether there are any conflicts of interest.
  • Level Playing Field: Transparency in political funding helps create a level playing field for all candidates and parties. It prevents wealthy individuals or organizations from exerting disproportionate influence over the political process, thus ensuring that the voices of all citizens are heard.
  • Public Trust: Transparency in political funding helps build public trust in the political system. When citizens have access to information about the funding sources of political parties, they are more likely to have confidence in the integrity of the political process.


To address the issues surrounding political funding in India, several solutions have been proposed:

  • Electoral Reforms: Implementing comprehensive electoral reforms can help bring more transparency to political funding. This could include stricter regulations on campaign financing, mandatory disclosure of funding sources, and limits on individual and corporate donations.
  • Public financing of elections : Many countries utilize public financing for political parties, often based on predetermined criteria like past election performance and private donations. Germany’s system, for example, allocates funds based on party significance within the political landscape. Additionally, political party foundations receive specific state funding for their policy work. In Seattle, US, a recent experiment called “democracy vouchers” allows eligible voters to receive vouchers from the government, which they can then use to financially support candidates of their choice. While this system promotes individual voter involvement, concerns have been raised about its potential to bolster extremist candidates. Overall, public funding schemes, unless paired with strict regulations on private funding, may only supplement party finances without effectively addressing the issue of private money influence.
  • Digital Payments and Donor Transparency: Encouraging political parties to adopt digital payment methods can help track the flow of funds and minimize the use of black money. Additionally, promoting donor transparency by requiring political parties to disclose all donations above a certain threshold can enhance accountability.
  • Strengthening Oversight Mechanisms: Establishing independent oversight bodies to monitor and regulate political funding can help ensure compliance with transparency norms. These bodies should have the authority to investigate and penalize any violations of funding regulations.
  • Regulation of donations : Some individuals or organisations, for instance, foreign citizens or companies, may be banned from making donations. There can also be donation limits, aimed at ensuring that a party is not captured by a few large donors — whether individuals, corporations, or civil society organisations. US federal law imposes different contribution limits on different types of donors. Some other countries, such as the UK, do not impose contribution limits, but instead, rely on expenditure limits.
  • Limits on expenditure : Expenditure limits safeguard politics from a financial arms race. They relieve parties from the pressure of competing for money even before they start to compete for votes. Therefore, some jurisdictions impose an expenditure limit on political parties. For example, in the UK, political parties are not allowed to spend more than £30,000 (about Rs 30 lakh) per seat. In the US, the Supreme Court’s expansive interpretation of the First Amendment (freedom of expression) has come in the way of legislative attempts at imposing expenditure limits.
  • The Chilean experiment : Under the Chilean system of “reserved contributions”, donors could transfer to the Chilean Electoral Service the money they wished to donate to parties, and the Electoral Service would then forward the sum to the party without revealing the donor’s identity. If the complete anonymity system worked perfectly, the political party would not be able to ascertain the sum donated by any specific donor — and would find it extremely difficult to strike quid pro quo arrangements. However, it would be in the interest of donors (who want government patronage) and parties (who need money) to informally coordinate in advance to ascertain the sums donated by those donors. Indeed, as various scandals revealed in 2014-15, Chilean politicians and donors had coordinated with each other to effectively erode the system of complete anonymity.
  • Disclosure requirements : This aspect of the regulation of private money in politics formed the crux of the Electoral Bonds case. Disclosure requirements do not outrightly prevent parties or donors from receiving or making donations. Instead, disclosures nudge voters against electing politicians who have used or are likely to use their public office for quid pro quo arrangements. As such, disclosures may discourage parties from using public office to benefit their donors. However, mandatory disclosure of donations to parties is not always desirable. At times, donor anonymity serves a useful purpose of protecting donors. For instance, donors may face the fear of retribution or extortion by the parties in power. The threat of retaliation may, in turn, deter donors from donating money to parties of their liking. Many jurisdictions have struggled with striking an appropriate balance between the two legitimate concerns — transparency and anonymity. This issue was addressed by the Supreme Court in its judgment.

Balancing transparency, anonymity

  • Many jurisdictions strike this balance by allowing anonymity for small donors, while requiring disclosures of large donations. In the UK, a party needs to report donations received from a single source amounting to a total of more than £7,500 in a calendar year. The analogous limit in Germany is €10,000. The argument in favour of this approach is: small donors are likely to be the least influential in the government and most vulnerable to partisan victimisation, while large donors are more likely to strike quid pro quo arrangements with parties.
  • In India, there are no donation limits on individuals. There is also no legal expenditure limit on parties; a party can spend as much as it wants for its campaign as long as this expenditure is not for the election of any specific candidate. The Electoral Bonds Scheme enabled large donors to hide their donations if they used official banking channels.
  • Also, Indian electioneering is no longer restricted to parties and candidates. Over the last decade, there has been a staggering rise in the involvement of political consultancies, campaign groups, and civil society organisations in online and offline political campaigns. In the US, the relatively lax regulation of third-party expenditure has pushed a large amount of political money to shadow campaigns that influence political outcomes, but often fall outside of the traditional objects of regulation of campaign finance. This should prompt a rethink of the older assumptions about Indian politics, which form the basis of India’s political funding framework.


  • In conclusion, political funding in India is a complex issue that requires urgent attention. The lack of transparency, the influence of black money, and the unlimited and anonymous donations pose significant challenges to the integrity of the political system. By prioritizing transparency, implementing electoral reforms, and strengthening oversight mechanisms, India can take steps towards a more accountable and democratic political funding process.

Leave a comment

error: DMCA Protected Copying the content by other websites are prohibited and will invite legal action. © iassquad.in