India, being the largest democracy in the world, it is necessary to strengthen the mechanism of elections because elections and political parties are a fundamental feature of Parliamentary Democracy. As Elections cost money, Political Funding is also an important feature of Parliamentary Democracy.

Now, let us just look at some of those methods,

Corporate Funding :

Corporate Funding refers to the funding by the Corporate bodies in India. Most of the funding (90%, in 2013-14) being fund by the big companies. Donation by corporate bodies is governed by the Companies Act, 2013.



Section 182 of the Act provides that:

Company needs to be at least three years old since the date of its existence to be able to donate to a political party. Companies can donate a maximum of 7.5% of the average net profits they made during three immediately preceding financial years. Such contribution must be disclosed in the profits and loss accounts of the companies. No contribution shall be made without obtaining the approval of the board of directors by passing a resolution. If a company contravenes the provisions of this section, it may be held liable to a pay fine which may extend up to five times the amount contributed in default and every officer guilty of such contravention may be imprisoned for a term which may extend to six months and with fine which may extend up to five times the amount contributed in default.

Many companies used this method to channel their Black Money into donations, which is termed as Money-laundering. Not only that, no company invests in a political party without personal agenda, so generally, the more the funding, more the control over that political party, which definitely undermines the core values of democracy.

By the virtue of Section 29C of the RPA, political parties are not required to disclose the name of the person or company making donations to them if such donation does not exceed Rs.20,000/-. This enables political parties to break up the donations from various questionable sources into parts not exceeding Rs.20,000/- and therefore escape from the obligation of disclosing the names.

Electoral Trust :

Electoral Trust is a Section 25 Company or a non-profit company created in India for orderly receipt of the voluntary contributions from any person and for distributing the same to the respective political parties, registered under Section 29A of the Representation of People Act, 1951.

The objective of the Electoral Trust is not to earn any profit or pass any direct or indirect benefit to its members or contributors. The sole objective is to distribute the contributions received by it to the political party concerned. This is a mechanism for bringing transparency and sanity in the political party funding.

By routing the political contributions through an electoral trust, companies can escape from the dislikes of any political party to which it has not donated.

An electoral trust is required to distribute at least 95% of the total contributions received during the financial year along with the surplus brought forward from earlier financial year to the eligible political parties before 31st March of the said financial year. Electoral Trust cannot use the contributions to the benefit of its own members or contributors directly or indirectly.

Statutory Checks and Balances :

Section 29B of the Representation of People Act, 1951, provides that subject to the provisions of the Companies Act, every political party may accept any amount of contribution voluntarily offered to it by any person or company other than a Government company. Here the word “person” does not include Government company, local authority or artificial juridical person wholly or partially funded by the Government. Further, no political party shall be eligible to accept any contribution from any foreign source defined under the Foreign Contribution (Regulation) Act, 2010. The Citizen’s charter issued by the Ministry of Home Affairs has clarified that foreign contribution cannot be accepted by a candidate for election, member of any legislature, political party or office bearer thereof.

Despite of these checks and balances, the funding to the political parties is plagued with corruption. So following two methods have been coming in the headlines.

Public Funding :

This means that government gives funds to political parties or candidates for contesting elections. Its main purpose is to make it unnecessary for contestants to take money from powerful moneyed interests so that they can remain clean.

Some major reports on state funding include those given by the Indrajit Gupta Committee on State Funding of Elections (1998), Law Commission Report on Reform of the Electoral Laws (1999), National Commission to Review the Working of the Constitution (2001) and the Second Administrative Reforms Commission (2008).

Except for the 2001 report, all other recommended partial state funding only, given the economic situation of the country. The 1998 report said that state funds should be given only to registered national and state parties and that it should be given in kind only. The 1999 report concurred with this but also recommended first putting a strong regulatory framework in place including internal elections, accounting procedures etc. The 2001 report said that first a regulatory framework needs to be established before thinking about state funding.

Pros –

Political parties and candidates need money for their electoral campaigns, to keep contacts with their constituencies, to prepare policy decisions and to pay professional staff. Therefore, public funding is a natural and necessary cost of democracy. Public funding can limit the influence of interested money and thereby help curb corruption. Public funding can increase transparency in party and candidate finance and thereby help curb corruption. If parties and candidates are financed with only private funds, economical inequalities in the society might translate into political inequalities in government.

Cons –

They also warn that state funding would encourage every second outfit to get into the political arena merely to avail of state funds. Given that state expenditure on key social sectors such as primary healthcare is “pitifully small”, the very idea of the Government giving away money to political parties to contest polls, is revolting. Therefore, opponents ask the government to channelize public resources towards and not diverted from such essential services.

Why it is difficult to go for public funding?

The funds that a political party advances to its party candidates in an election vary from one candidate to another, and there is much variation across political parties in this regard. In the 2014 Lok Sabha elections, 263 members of the House claimed that they received a total of ₹75.59 crore from their parties, which averages out to roughly ₹28 lakh each. However, it is believed that an MLA spends on an average about ₹5 crore to get elected. The legal limit of ₹28 lakh is far off this mark.

Assuming that there are five contending candidates in a constituency, and even if each one of them does not spend as much, but just half of their elected counterpart, an amount of about ₹15 crore will be spent in each constituency, which with about 4,215 MLAs in India works out to an about ₹13,000 crore per annum.

While the legal limit that a Lok Sabha candidate can spend is ₹70 lakh, a victorious candidate on an average does not spend less than ₹10 crore for the purpose. Suppose we assume again an average of five candidates per constituency, and halving the amount to losers, about ₹30 crore will be spent in each Lok Sabha constituency, and given 543 members of the Lok Sabha, about ₹3,300 crore per annum.

Then there are elections to the Upper Houses, both at the Centre and in some States, and the local governing bodies. Hence, it is argued that public funding places unnecessary burden on the exchequer.

Here comes the second idea :

Electoral Bond :

The union government announced the launch of electoral bonds in FY2017 Budget. These bond are expected to curb money-laundering through political funding. Electoral bonds will be issued by a notified bank for specified denominations, which is interest free. Those who want to donate to a political party, can buy these bonds by making payments digitally or through cheque. Then they are free to gift the bond to any registered political party. The bonds will likely be bearer bonds and the identity of the donor will not be known to the receiver. The party can convert these bonds back into money via their bank accounts within 15 days. The bank account used must be the one notified to the Election Commission and the bonds may have to be redeemed within a prescribed time period. Electoral bonds are essentially like bearer cheques, the issuing bank will remain the custodian of the donor’s funds until the political party redeems the bond.

Pros –

Electoral bonds present a leak-proof alternative to anonymous cash

donations that used to dominate political funding (cash donations beyond

Rs.2,000 were barred in the 2017 Budget). Electoral bonds will be available only from one bank (SBI) and buyers will

have to meet KYC requirements, ensuring that political parties cannot accept

unaccounted money through this route. They can be used only to donate to registered political parties, thus curbing

the flotation of counterfeit parties with the sole purpose of laundering

wealth. Their structuring as interest-free bonds with a limited shelf life of 15 days

will also ensure that they aren’t used as an anonymous currency alternative

to store wealth.

Cons –

Electoral bonds may curb the rampant funnelling of unaccounted money into

Indian politics, but this may be achieved at the cost of lower transparency to

the voter. Electoral bonds allows donations through this route only to parties that won

1 per cent of the votes in the preceding election, this may pose a formidable

entry barrier to new contenders in the political arena. Under earlier tax laws, political parties were required to compulsorily

disclose to the Election Commission the identity, PAN and other details of all

donors who contributed over Rs.20,000 to their coffers. But Finance Bill 2017 restricted cash donations and specifically exempted

electoral bonds from this requirement. It also did away with the statutory limit on corporate donations to parties

(7.5% of three years’ net profits) and waived the need to disclose the identity

of the receiving party.

Though there are some serious transparency and other issues associated with both the recent concepts but still it is a way forward. That day is near, when the funding method can be almost transparent and strengthen our democratic institutions.

Source:

1. PIB, Article written by the Union Finance Minister, Shri Arun Jaitley

2. Arthapedia

3. Business Line

4. InsightsOnIndia