Election Funding in India IAS Target

Election Funding in India

30 Jul 2020

Category : National Issue

Topic: Election Funding in India

Political Party funding is a structure of methods that a political party uses to raise money for campaigns and routine activities. The funding of political parties is an arm of general campaign finance.

Political parties are funded by contributions from multiple sources.

  • One of the largest arms of funding collection is via party members and individual supporters through membership fees, dues, subscriptions, or small donations. This method is often referred to as grassroots funding or support.
  • Solicitation of larger donations from wealthy individuals, often referred to as plutocratic funding, is also a common means by which political parties secure funds.
  • Parties may also be funded by organizations that share their political views – such as unions or political action committees – or organizations that seek to benefit from the policies of the party
  • In certain locales, taxpayer money may be given to the party by the federal government. This is accomplished through grants called state aid, government, or public funding.
  • Additionally, political fundraising can occur via illegal means (e.g. influence peddling, graft, extortion, kickbacks, embezzlement).

In India Political funding

The conventional system of political funding relied on donations. These donations, big or small, came from a range of sources from political workers, sympathizers, small business people and even large industrialists. The conventional practice of funding the political system was to take donations in cash and undertake these expenditures in cash. The sources were anonymous or pseudonymous. The quantum of money was never disclosed. This system ensured flow of unclean money coming from unidentifiable sources. it is well known that widespread black money use in election funding in India.
The massive demonetization exercise undertaken by the Indian government has caused widespread disruption of cash transactions. Much of the focus right now is, quite rightly, on mitigating the short-term pain being suffered by the innocent. It is also probable that only a small proportion of black wealth will be destroyed as most of it is held in other forms such as benami property and undeclared bullion or foreign assets. The big impact could be on future flows. The disruption of cash transactions will hit all illegal activities and even some legal ones that seek to stay out of the tax net or the public eye. This disruption must be used to secure the longer-term policy and institutional changes that constrain sufficiently the re-emergence of these malpractices. One such area is the financing of elections by candidates and political parties.
In order to “cleanse the system of political funding in the country” and in keeping with the government’s desire to move to a cashless economy, GOI expanded on some of the details of the electoral bonds scheme. The scheme, announced during the 2017 Budget, aims to account the donations made to all major political parties.

What is Electoral Bonds?

An electoral bond is designed to be a bearer instrument like a Promissory Note — in effect, it will be similar to a bank note that is payable to the bearer on demand and free of interest. It can be purchased by any citizen of India or a body incorporated in India.

The “Electoral Bond” scheme:

Government of India notified the Electoral Bond Scheme 2018. As per provisions of the Scheme:
  • Electoral Bonds may be purchased by a person, who is a citizen of India or incorporated or established in India.
  • A person being an individual can buy Electoral Bonds, either singly or jointly with other individuals.
  • Only the Political Parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last General Election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the Electoral Bonds.
  • The bonds will be issued in multiples of Rs 1000, Rs 10,000, Rs 1 Lakh, Rs 10 Lakh and Rs 1 Crore and can be bought by the donor with a KYC compliant account.
  • They cannot be purchased by paying cash. The maximum amount that a political party can receive as donation in cash is capped at Rs 2000. Electoral bonds thus permit them to raise higher sums.
  • The Electoral Bonds shall be encashed by an eligible Political Party only through a Bank account with the Authorized Bank.
  • Electoral Bonds shall be valid for fifteen days from the date of issue and no payment shall be made to any payee Political Party if the Electoral Bond is deposited after expiry of the validity period. The Electoral Bond deposited by an eligible Political Party in its account shall be credited on the same day.
  • Every political party in its returns will have to disclose the amount of donations it has received through electoral bonds to the Election Commission.
  • The bonds will be available for purchase for a period of 10 days each in the beginning of every quarter, i.e. in January, April, July and October as specified by the Central Government. An additional period of 30 days shall be specified by the Central Government in the year of Lok Sabha elections.
  • The electoral bonds will not bear the name of the donor. In essence, the donor and the party details will be available with the bank, but the political party might not be aware of who the donor is. The intention is to ensure that all the donations made to a party will be accounted for in the balance sheets without exposing the donor details to the public.


  • Identity of the donor is preserved
  • Electoral Bonds ensure the privacy on the political Inclination of the donors.
  • Transparency
  • The Purchase will be possible only through limited number of notified banks and that too through cheque and digital payments only. Cash will not be encouraged. Identify of the Purchaser will thus be available with the selling Bank.
  • Visibility to Election commission of India
  • Donations through Electoral Bonds will only be credited in the party bank account disclosed with ECI.

Danger to democracy

  • By far the most pernicious feature of electoral bonds is their potential to load the dice heavily in favour of the ruling party.
  • Only bank ‘A’ knows the identity of the donor, while bank ‘B’ knows only the identity of the recipient.
  • But both the banks report to the RBI which, in turn, is subject to the Central government’s will to know, though it remains to be seen if the former’s autonomy can withstand the latter.
  • So, only the ruling party — and no one else — can ascertain which companies donated to the Opposition parties. It is then free to use the organs of the state to gently dissuade (or retaliate against) these misguided donors.
  • What this means is that once the scheme for electoral bonds is notified, the Opposition parties may struggle to raise adequate funds to put up a fight. The implications for democratic politics are obvious.
  • The government’s stated rationale for introducing electoral bonds was that they would protect donors from harassment by enabling anonymous contributions. But this argument falls flat as only the government is in a position to harass, or alternatively, protect, donors from harassment by non-state harassers.
  • Going forward, there is little doubt that democracy will be the biggest casualty if electoral bonds see the light of day. Former Chief Election Commissioner S.Y. Quraishi has suggested an alternative worth exploring: a National Electoral Fund to which all donors can contribute. The funds would be allocated to political parties in proportion to the votes they get. Not only would this protect the identity of donors, it would also weed out black money from political funding. But without pressure from the citizenry, it is unlikely to interest a political class hell-bent on insulating itself from public accountability.
  • multiple of 2000 cash still can be use by political parties to raise funds to bypass digital payments
  • The move could be misused, given the lack of disclosure requirements for individuals purchasing electoral bonds.
  • Electoral bonds make electoral funding even more opaque. It will bring more and more black money into the political system.
  • With electoral bonds there can be a legal channel for companies to round-trip their tax haven cash to a political party. If this could be arranged, then a businessman could lobby for a change in policy, and legally funnel a part of the profits accruing from this policy change to the politician or party that brought it about.
  • Electoral bonds eliminate the 7.5% cap on company donations which means even loss-making companies can make unlimited donations.
  • Companies no longer need to declare the names of the parties to which they have donated so shareholders won’t know where their money has gone.

Other Reforms

  • Now a day’s time of growing digitalization of Payments, Cash contribution of the political parties can be completely phased out.
  • National Election Fund- Former chief Election Commissioner, TS Krishnamurthy suggested that the EC Should consider setting up of a national election Fund to check the use of Illegal money.
  • Bringing of all the political parties under the ambit of RTI as public authorities.
  • Steps for conducting one election for the country for all state legislative assemblies and Parliament
  • State funding
  • Preventing of criminalization in politics and eliminate black money flowing in election
  • Bringing all political parties and their funding under RTI
  • Property and assets of all politician and their family members in public domain

Electoral bond is good scheme but still not a panacea to eliminate all black money in election. this scheme also create new issues like transparency, govt monitoring, no level playing field, new avenue to white from black money etc. So govt need to execute this scheme with periodic revising so that loop holes could not become heaven for the political parties. so govt need to work with all stack-holder and come out the document which have consensus of all group and parties with the intention of collaboration and co-ordination.