Transparency in Political Funding in India

Free and fair elections are of prime importance for the healthy functioning of democracy. In recent times we see that money power has come to play a major role in Indian  elections which is harmful for the democratic fabric of our country. Corruption caused because of unchecked inflow of political funds during elections reduces accountability and introduces an asymmetry in policymaking. Democracy today faces a credibility crisis because of the various ill practices adopted by political parties like bribing voters, distributing alcohol and gifts to lure the voters, criminalization of politics, etc.

Apart from these ill-practices, another major cause of concern is the rising cost of Indian elections with every passing year. According to the reports, the 2019 general election in India emerged to be the most expensive.   A Centre for Media Studies report on poll expenditure estimated that Rs 700 per vote was spent in the 2019 elections and on average, nearly Rs 100 crore has been spent per seat in 2019 elections. Thus it is evident that political parties require a huge amount of monetary resources to contest elections. The unchecked inflow of such monetary resources into the political system leads to corruption which in turn reduces the faith of people in democracy.

To ensure transparency and accountability, the government introduced the Electoral Bonds Scheme as a part of the Finance Bill 2017. Electoral bonds are bearer instruments in the name of Promissory Notes issued by Banks. They are interest-free instruments that can be purchased from specified branches of the State Bank Of India by any citizen or body incorporated in India within a fixed period. Electoral bonds are not the perfect model of political funding and have certain serious flaws.

Association for Democratic Reforms (ADR), a non-governmental organization working in the area of political reforms had approached the apex court and had sought a stay on the scheme because the anonymity of the donor in the case of electoral bonds flouts the objective of transparency that the scheme promised to achieve. However, their application was later dismissed by the court.

Need for ensuring Transparency in Elections

Free and Fair competition between political parties is a cornerstone of democracy. In recent years it is seen that money has adversely harmed the election process in India. Vote-buying, bribing, an influx of black money in politics, increasing criminalization of the political landscape, the growing influence of big corporate houses in matters of policymaking, and increasing influence of foreign powers in the domestic politics of the country are just a few examples of the ill effects that money has on the elections. So the need of the hour is to take serious steps in direction of restoring transparency and accountability in the political funding system.

The two biggest dangers of money power in the Indian context are, firstly the growing nexus between political parties and corporate houses wherein the big corporation funnel in large sums of money in support of a particular political party during the election period and the party repays it by using its discretionary power to frame policies that benefit those big corporations often compromising the interest of millions of people who have voted for it and brought it in power. The second biggest danger is the increasing criminalization of politics.

According to the trends, political parties prefer to give tickets to candidates who can finance themselves and reduce the financial burden of the party which often results in the selection of candidates who are either very rich or those who have criminal records against them. This narrows down the scope for the selection of grassroots leaders with less monetary resources and thus adversely affects the democratic fabric of the country.

Electoral Bonds Scheme: A progressive or a regressive step?

The Electoral Bonds are interest-free bearer instruments (like Promissory Notes) that are available for purchase from the State Bank of India within a designated window of 10 days in every quarter of the financial year. These bonds are issued in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.

The proponents of electoral bonds argue that these bonds will help in bringing accountability and transparency to the electoral funding process. They argue that the electoral bonds help to keep the identity of the donors anonymous thereby shielding them from the political victimization by rival political parties. They claim this initiative of the government will bring transparency as it will decrease the transactions that are made in cash (as a provision of the Finance Bill 2017 has made it compulsory that all transactions made in cash above Rs 2000 have to be disclosed) and encourage transaction through demand drafts and cheques and electronic means.

However, the Electoral Bonds scheme has some fundamental problems in it which may have serious repercussions on the transparency aspect of political finance. The anonymity promised to the donors in the electoral bonds scheme is not in sync to bring transparency. Keeping the identity of the donors anonymous makes the political funding more opaque and keeps the voters in dark as they have no idea about who is giving how much fund to which political party. The system further becomes opaque as the companies or corporations no longer need to show donations made to political parties in their profit and loss accounts according to the provisions of the Finance Bill 2017.

Moreover, the current system of political funding ( electoral bonds ) tends to favour the political party that is in power as is seen in the case of the Bhartiya Janta Party (BJP). In the year 2018 BJP  received Rs. 210 crore from the electoral bond scheme which was 95%of the total bonds issued.  It is also argued that the identity of the donor does not remain truly anonymous as the incumbent government can use enforcement agencies to bring out information on purchases of bonds from banking channels.

The 7.5% cap on the net profit earned by a company in the last three years that can be donated to political parties has also been removed now which means that the companies can donate as much as they want as there is no upper limit on the amount of donations. This will led to a sharp increase in corporate donations and the emergence of shell companies i.e. companies that remain inactive and are just used as a means of making transactions.

Additionally, earlier all donations made in cash above Rs.20,000 had to be reported to the election commission and the income tax department but the Finance Bill 2017 has changed the upper limit and now made it compulsory to report all cash donations above Rs.2000.This is not an effective solution as now donors can for example donate multiple times Rs.1999 and all such transactions will go unreported.

Way Forward

Adopting a Transparent method of political funding is very important for keeping the edifice of democracy in our country alive. Money in the present times has come to dominate politics and if adequate measures are not taken the politics will move in the direction of plutocracy where the state or society will largely be governed by the wealthy, where the people in power will no longer serve the voters but serve the interest of wealthy corporate houses. This is evident from the fact that  India has been ranked at the 9th position in the index of crony-capitalism as per the study by The Economist. The report also says that the non-crony wealth amounts to only about 8.3 percent of the GDP.

These figures speak volumes about the deep-rooted nexus between politicians and big corporates. Crony capitalism refers to an economy in which success in business depends on the relationship between businessmen and government officials and the result of this relationship is excessive corruption and exploitation. After analysing these figures it can be concluded that there should be a complete ban on corporate funding as the big corporates funding political parties is the root cause behind most of the corruption that takes place in our country.

Moreover, there should be a ban on anonymous donations of all kinds whether from individuals or corporations and all parties must disclose in detail the amount that they raise and spend during the election campaign to the Election Commission. However, we have to keep in mind that these reforms can only be implemented successfully if independent institutions like Judiciary and the Election Commission act as watchdogs and ensure that all political parties comply with the rules and take strict action against the defaulters.


The views expressed in this article are the author's own.

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