Election funding : Important Topics for UPSC Exams

Election funding : Important Topics for UPSC Exams

In his 2017 Budget speech, while emphasising the absence of transparency in funding, Finance Minister Arun Jaitley noted that even 70 years after Independence we don’t have a transparent method of funding political parties which is important to ensure free and fair elections. According to a report by Association for Democratic Reforms nearly 70% of political funding came from unknown sources during 11 years of study.

How Election funding is done in India?

Corporate donations are the main source of election funding in India which are flooded with black money.

Public Disclosure Mechanism in India

  • It is very limited in India.

  • In 2008, under Right to Information (RTI) Act, the Central Information Commission (CIC) allowed disclosure of income tax returns of political parties. Although it is well known that actual expenditure is much higher than what is disclosed.

Transparency in Electoral Funding Vs Electoral Bonds

  • Anybody can buy the Electoral Bond and can donate it anonymously, and party will have to encash it within 14 days.

  • All donations to the party will be accounted in balance sheets but the donor name won’t be exposed. This is to ensure that donor could face serious consequences from the political opponents. But through this move Voter, Election Commission of India, Income Tax department would remain in dark.

  • Electoral Bonds will allow corporate houses to make anonymous donations via banking channels. And thus, Electoral Bond has not addressed the issue of corporate funding of election. Anonymous donations by corporate houses would further limit the oversight and accountability.

Other steps which may affect Transparency in the system

  1. Maximum limit of 7.5% of the profits a company can donate to a political party has been removed, this may lead to funding of Political Parties by the shell Companies.

  2. Foreign Contribution (Regulation) Act (FCRA) was amended. This may lead to outwash of Foreign money to the funding of Political parties.

  3. Political Parties are not covered under RTI. This hides their source of funding.

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All the above-mentioned steps go against the recommendations of various committees for Political Reforms.

Concerns due to Increased corporate funding and High Cost of elections

  • This removes the level playing field for small parties and elections become less competitive for the parties with modest financial backgrounds.

  • Increased corporate funding instills fear in the sense that after getting power Political parties may take decisions in favour of the funding groups.

What should be the way forward towards transparent Funding

  • Partial State funding of elections as Indrajeet Gupta Committee recommended way back in 1998 can be a solution.

  • Experiences of the countries having partial and complete state funding should be used to derive some formula for state-based funding of political parties in India.

  • Strong disclosure norms, strict statutory limits on election expenses and ceiling on corporate donations to political parties can further strengthen the Electoral System in India.

  • The decision to limit cash contribution up to 2000 rupees is right step in right direction, but not declaring the source hampers the transparency. So, the govt should properly address the apprehension related to this issue.


Q.Which of the following Committee recommended the Partial State Funding of Election?

A. Sachhar Committee

B. Balwant Rai Mehta Committee

C. Indrajeet Gupta Committee

D.Naresh Chandra Committee


Q. What are the steps to ensure transparency in the Election Funding. What are the issues involved with Corporate Funding and High Cost of Elections?

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