Introduction
India is the largest democracy in the world, where elections are also called “the Largest Event in the World,” making it imperative for the nation to have a fair and transparent electoral funding system. Financial sources to fund elections and the contesting political parties have long been discussed among policymakers and political activists. One such policy was the Electoral Bond Scheme of 2018, recently declared unconstitutional by the Supreme Court (SC). In its landmark judgment of Association for Democratic Reforms & Anr. v. Union of India & Ors. passed in February 2024, the SC struck down the Electoral Bonds Scheme as unconstitutional over its lack of transparency, restoring the pre-electoral bonds funding system. It is high time the country explores alternatives to fund election campaigns and political parties while minimizing the prevalence of black money.
One such viable substitute is the state funding of elections, where the resource requirements of political parties are sourced from the state exchequer. This manuscript attempts to address the defects and inadequacies of the Electoral Bonds Scheme through the possible means of state funding citing various committee reports and a comparative international analysis. For an organised articulation, this manuscript is divided into three parts: first, understanding the defects of the now scrapped Electoral Bond Scheme; second, the present framework of political funding; and third, exploring the viability of state funding an electoral funding mechanism.
Shortcomings in the Electoral Bonds Scheme
The Department of Economic Affairs in the Ministry of Finance launched the scheme as the Electoral Bond Scheme 2018 in a Gazette notification in 2018, facilitating unlimited anonymous donations from individuals and corporations to domestic eligible political parties. In its 4:1 majority judgment declaring the Electoral Bonds Scheme unconstitutional, the five-judge bench raised serious concerns over the scheme leaving scope for unchecked political funding. The citizens’ right to information (RTI) has been enshrined under Article 19 of the Indian Constitution since 2005. Although defended with the argument of donors’ privacy, the electoral bond scheme violated this fundamental right as it shielded the identities of the bond purchasers, leaving the scope for the petitioners to challenge its constitutional validity. The SC advocated for giving importance to transparency in the election process and political funding over the donors’ privacy. It expressed the need for voters to know the financial backing of the political parties contesting in elections. According to the apex court’s ruling,
“[RTI] includes information which would be necessary to further participatory democracy in other forms and is not restricted to information about the functioning of public officials. The right to information has an instrumental exegesis, which recognizes the value of the right in facilitating the realization of democratic goals.”
Eliminating corporate contribution caps to political parties was a primary point of contention for those opposing electoral bonds as they believed that such privilege may lead to unlimited donations, benefiting only some specific parties. This was supported by the analysis of bond donations, which revealed that a single political party received over 75% of the funds from the anonymous bonds, leaving only 25% for the rest of the parties.
The Current Status of Political Funding
To help the Electoral Bonds Scheme function, the government amended certain laws. The Finance Act, 2016 amended Section 2(1)(j)(vi) of the FCRA, allowing foreign companies having a majority share in Indian companies to donate to political parties, creating issues of distortion of national sovereignty, legitimacy, and regulatory arbitrage. Section 11 of the Finance Act, 2017 amended Section 13A of the Income Tax Act exempting political parties from keeping a detailed bond contribution record. Section 137 introduced a proviso to Section 29C of RoPA allowing anonymity, threatening principles of transparency and accountability in governance, leaving scope for unwarranted corruption, erosion of public trust, and policy bias. Big donors can see this stipulation of anonymity as an opportunity to influence state policies in their favour. Section 154 amended Section 182 of the Companies Act, 2013, removing the upper limit of corporate donations to political parties, diminishing the principle of equal representation through the disproportionate sway of big donors. The indirect aggregation of political power with a few major donors would minimise viewpoint plurality, enabling the wealthiest corporations with the loudest voices and stifling the dissenting.
The SC decided that the anonymity infringed on citizens’ right to information and failed to purge corruption in political funding, thus overturning these changes and restoring the legal funding framework before the contentious bonds. Regulations requiring the disclosure of gifts over Rs 20,000 are reinstated. The RoPA mandates that parties declare donor information and payment amounts for contributions over Rs 20,000 to the Election Commission annually, containing the donors’ names, addresses, and PANs. Additionally, corporate donations are now again limited by the corporation’s statute to 7.5% of the average net income for the previous three years.
State Funding as an Alternative
State funding, here, refers to using state resources to financially support political parties contesting elections, primarily to provide a level playing field to all political parties through fair and equitable means. Current state funding provisions include tax exemption for political parties under section 13A of the Income Tax Act and free airtime for the registered national parties and state parties during general elections and state legislature on public broadcasters, respectively.
The Indrajit Gupta Committee on State Funding of Elections presented its report in December 1998, endorsing political funding through state resources, arguing that healthy competition in the political arena “makes the government of the day answerable and accountable to the citizenry and provides them with ideological alternatives.” It also draws parallels between the political parties in opposition and government-funded NGOs as the political parties help tremendously in creating awareness about the shortcomings of the ruling parties. By levelling the playing field and allowing political parties to fight based on agendas and policies rather than financial resources, state funding seeks to lessen the power of money in politics. By removing financial hurdles for prospective candidates unlikely to possess substantial assets or finance, state support encourages more people to get involved in politics and enjoy equality of opportunity. Moreover, by preventing particular parties or candidates from unfairly benefiting from their financial resources alone, state funding can promote fair competition.
Decreased dependency on private funding leverages more autonomy for elected individuals, saving them more time to concentrate on serving the interests of the general public as opposed to large contributors’ objectives, who see it as a quid pro quo arrangement. Hence, political parties that get public support are better able to maintain their financial stability and concentrate on developing policies and long-term objectives rather than focusing on obtaining money for the upcoming election season. State-funded politics was also suggested in the 154th Paris session of the Declaration on Criteria for Free and Fair Elections where 112 parliaments, including India’s, unanimously agreed upon:
“States should take the necessary legislative steps and other measures, in accordance with their constitutional processes, to guarantee the rights and institutional framework for periodic and genuine, free and fair elections, in accordance with their obligations under international law.”
Coming back to the Indian context, instances of aggregating or distributing money by political parties with the mere purpose of power attainment have been addressed by the SC in C. Narayanaswamy Vs. C.K. Jaffer Sharief (1994) and Gadakh Yashwantrao Kankarrao vs E.V. Alias Balasaheb Vikhe Patil (1993) to curb political corruption. Maintaining a state account of the income and expenses of political parties shall further deter political corruption.
Other committees and reports supporting state-funded national politics are: (i) Jagannath Rao Committee, 1971, suggesting the financial burden of the political party or the candidate be “progressively shifted to the state;” (ii) Dinesh Goswami Committee, 1990, suggesting “state assistance in kind;” (iii) the 15th Law Commission, 1998, (iv) the VM Tarkunde Committee of Citizens for Democracy supported “assistance from public exchequer.” This practice of state funding has been widely practised in some or the other way across the world, including states like Austria, Norway, Sweden, France, Japan, the US, Italy, Denmark, and many more.
There are, however, some disadvantages to state funding of political parties. It can be argued that since political parties are voluntary organisations primarily focused on attaining power, the state should not bear the financial burden of supporting them instead of focusing on welfare activities. The issue of party mushrooming should also be duly addressed as it is highly likely for smaller, irrelevant political parties to emerge in light of state funding. It shall thus become imperative for the state to come up with party identification and differentiation framework to only support parties with genuine welfare interests. Furthermore, state funding could make political parties dependent on the government, thereby reducing their autonomy. This dependency might compromise the independence of political parties due to state intervention through monetary aid. Moreover, government funding would augment the parties’ financial resources, potentially increasing election costs. To prevent the proliferation of non-serious political parties, the Election Commission should implement measures to identify and fund only those with significant ground support. However, this could result in a bias towards already established parties, undermining equality of opportunity. Every policy has its benefits and drawbacks, and the government must make informed decisions by carefully weighing both sides.
Conclusion
Addressing the important concerns of fairness and transparency in India’s political financing, state sponsorship provides a workable substitute for the presently unconstitutional Electoral Bonds Scheme. State financing can eliminate the need for private donations, level the playing field, and lessen the power of corruption and black money by giving political parties equal financial backing.
However, questions like- India has more than 60 political parties, will they all receive state funding? How will the funding framework be different for state and national parties? How will the state trace party mushrooming? And, how will independent candidates be included in the regulation? – need to be addressed to optimise the gains of this policy suggestion. Advocated by multiple state and private committees and reinforced by the SC’s emphasis on transparency, state funding in India can improve democracy by guaranteeing that political rivalry relies on ideas and policies rather than fortune. Fostering a healthier democracy, state funding will align India’s electoral funding structure with international best practices.
(This post has been authored by Inika Dular, a second-year law student at Rajiv Gandhi National University of Law, Patiala)
CITE AS: Inika Dular, ‘Towards Transparent Elections: The Case for State-Funded Indian Politics’ (The Contemporary Law Forum, 23 July 2024) <https://tclf.in/2024/07/23/towards-transparent-elections-the-case-for-state-funded-indian-politics/>date of access.