Introduction
The funding of political parties is an important facet of democratic governance since it influences the political landscape and how election systems work. It includes the many sources of financial assistance that political parties use to carry out their activities, from campaigning and outreach to day-to-day operations. Political parties receive income from a variety of sources, including private donations from citizens and organisations, governmental funding from state treasuries, membership fees, and fundraising activities. The processes and laws controlling these contributions varied greatly between nations, reflecting differing political cultures and legal systems.
What is Political Funding?
It is a method by which parties raise their funds for their campaigns or any other activity. Political parties can raise funds through individual, and corporate donations, state subsidies, and fundraising events. Political parties raise funds through various methods to support their campaigns and other activities, one significant method being electoral bonds. Electoral bonds are money instruments introduced in 2017 and were implemented in 2018 by then finance minister Arun Jaitley in the union budget as a means of making political donations more transparent. These are interest-free bearer bonds that can be purchased by any company or individual from the branches of the State Bank of India.
SBI offers bonds in the following denominations: “Rs 1,000, Rs. 10,000, Rs. 1,00,000, Rs. 10 lakhs, and Rs. 1 crore.” It could be bought individually or jointly. Businesses and political funding have always worked hand in hand.
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To receive donations, political parties must be registered under section 29 A of the Representation of the People Act, 1951, and have received at least 1% of the votes in the previous Lok Sabha or legislative assembly election.
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The bonds should be encashed within 15 days or else they will go directly to the prime minister's relief fund.
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Electoral bonds can only be purchased through cheques or digitally and not by cash as it would create more chances of having black money.
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For accountability and transparency, the political parties have to disclose their bank accounts to the Election Commission of India. The companies have secured their anonymity.
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There is no limit/ restrictions on bond purchase quantity.
The “Association for Democratic Reforms (ADR)” is an Indian non-governmental organisation founded in 1999 in New Delhi. It is a prominent civil society organisation dedicated to promoting transparency and accountability in the Indian political system.
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“A total of 28,030 electoral bonds worth Rs. 16,518 crores have been sold from March 2018 to January 2024”.
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The papers released by SBI show that the BJP has been the top beneficiary of the electoral bonds with the funding of Rs. 6060 crores. BJP alone has a share of 47.5 percent of the total bonds.
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AITC (All India Trinamool Congress) is second and then Congress.
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Electoral bonds are violative of Article 19 (a) of the constitution. DY Chandrchud said that the “information about the funding of political parties is essential for the effective exercise of the choice of voting”. The Supreme Court stated that it violated the right to information of citizens, which creates its effect on free speech and expression. Citizens have a right to know who is donating funds, how much, and to which party.
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The donor's privacy shouldn’t serve as a quid pro quo as political parties could use extortion to get more funding from the companies.
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Unlimited corporation donations violate free and fair elections which hinders our democracy. Before 2017 the companies could contribute up to 7.5 percent of their annual net profit over the past three years but when it became unlimited it opened opportunities for shell companies. Or maybe any rich country could donate and influence our country’s election
Positive impact of the ruling.
The Supreme Court's decision declared the electoral bonds scheme unconstitutional as it was a threat to our democracy. Many big powers could influence the election without even the knowledge of who they are. We would never be able to determine who funds the political parties. The verdict delivered by the Supreme Court, particularly Justice Sanjiv Khanna's concurring opinion, serves as a significant endorsement for the Election Commission of India (ECI) in its quest to enhance transparency in electoral funding. As the custodian of free and fair elections, the ECI has long been advocating for measures to elucidate the sources and utilisation of election finances. However, the Electoral Bonds Scheme (EBS), since its inception, veiled this process in secrecy, undermining not only transparency but also impinging upon the fundamental right of voters to access crucial information.
Constitution of India
It prohibits political parties from accepting contributions from foreign sources. However, the amendments in 2016 and 2018 stated that the Indian subsidiaries of foreign companies are not considered foreign contributors. It ensures national security by monitoring foreign funding, prevents money laundering, and safeguards against terrorist financing. FCRA promotes transparency and accountability in financial transactions, enhances public trust, and prevents undue influence on political activities by prohibiting foreign funding for political parties and candidates.
Section 182 allows companies to contribute up to 7.5 per cent of their average net profits during the last three financial years to political parties. But in this case, the companies have to disclose the total amount contributed with the name of parties to which contributions were made in their profit and loss accounts.
Political Funding in EU Member States
It is a blend of both private and public funding but is subject to some restrictions. The public money only goes into the administrative costs, not in campaigning. With private donors, they can put the money into campaigning. The influence of the larger donor will have the most influence in policy decision-making. In the UK also some are disclosed and some are not disclosed. The regulations restrict foreign donations, safeguarding the UK’s political system from external interference and ensuring that domestic political decisions reflect the will of the UK electorate. The UK’s Electoral Commission oversees political funding and ensures compliance with regulations. This regulatory oversight helps maintain the integrity of political financing and addresses any violations or irregularities promptly.
Parties receive funds from (RPPF) a represented political parties fund that allocates funds and the multiparty democracy fund (MPDF) which accepts funds from private donations for distribution. However, this system might favour some unequal distribution which makes it harder for the new parties to survive political funding laws help create a level playing field by providing equal opportunities for all political actors to compete in elections, regardless of their financial resources. This promotes fairness and diversity in political representation.
Japan's political party funding is a combination of public funds and private donations. Public funding provides a base level of income for parties, while private donations come from corporations, unions, and individuals. Transparency is a key aspect, with parties receiving public money required to disclose their finances. Japanese regulations restrict foreign contributions to political parties and candidates, protecting the political system from external interference and ensuring that domestic political decisions reflect the will of the Japanese people.
The Supreme Court's decision, to strike down the Electoral Bonds Scheme, provides a much-needed boost to the ECI's efforts. It reinforces the importance of transparency in the electoral process and highlights the inadequacies of the EBS in achieving this fundamental objective. The scheme's opacity not only obscured the origins of political funding but also compromised the integrity of the electoral process itself. In doing so, it eroded the trust of the electorate and undermined the principles of democracy.
Furthermore, the Court's ruling presents an opportunity for the government to reevaluate its approach to electoral funding. Rather than relying on schemes or executive directives, the government should consider enacting specific legislation aimed at promoting transparency in this crucial aspect of democratic governance. Such legislation could outline clear guidelines for the disclosure of political contributions, mandate public scrutiny of election finances, and establish mechanisms for accountability.
By embracing the Court's verdict and taking proactive steps to reform electoral funding, the government can demonstrate its commitment to upholding democratic principles and restoring public trust in the electoral process. Transparency in political financing not only strengthens the democratic fabric but also fosters a more informed and engaged electorate. Therefore, it is incumbent upon the government to heed the Supreme Court's call for reform and embark on a path towards a more transparent and accountable electoral system.