Political Funding in India and Its Impact on Electoral Parity

India’s electoral process is formally democratic but increasingly financially asymmetric, raising concerns about the fairness of political competition.
Recent trends in corporate political donations reveal a high concentration of funds with the ruling party, intensifying debate on electoral finance reforms.

About Electoral Funding

Electoral funding refers to resources raised by political parties and candidates for campaign expenses, organisational activities, and voter outreach.
The Supreme Court in 2024 held that under Article 19(1)(a), a voter’s “Right to Know” the source of political funding is fundamental to ensuring informed electoral choice.
The Court held that electoral bonds enabled blanket anonymity, facilitated quid pro quo corruption, undermined informed electoral choice
This invalidation removed the dominant funding instrument that earlier accounted for nearly 90% of corporate donations.
The abolition of anonymous electoral bonds in 2024 has led to a surge in ‘Electoral Trust’ donations, with the ruling party receiving about 82% of total disbursements.

About Corporate Political Funding

Corporate political funding refers to monetary contributions by companies to political parties through lawful routes such as direct donations, electoral trusts, and earlier, electoral bonds, to finance election campaigns and organisational activities.
Such funding significantly influences electoral competitiveness, campaign reach, media visibility, and the institutional capacity of political parties.
In FY25, corporate and institutional donations were highly concentrated, with the ruling party securing over 80% of disclosed funds.

Electoral Funding Mechanisms in India

Individual Donations: Sections 29B and 29C of the Representation of the People Act, 1951, regulate individual contributions and mandate annual disclosure of donations exceeding ₹20,000.
- Section 13A of the Income Tax Act, 1961, exempts parties from tax if their accounts are audited and mandates the use of traceable banking channels for donations above ₹2,000.
Corporate Contributions: The Companies Act, 2013 permits corporate donations for companies with 7.5% net profit following the 2024 Supreme Court ruling,
Electoral Trusts: They are non-profit entities mandated to distribute 95% of annual receipts to parties and disclose aggregate inflows to the Election Commission.
State Funding: India provides indirect state funding through tax exemptions, subsidised land for party offices, and free airtime on Prasar Bharati platforms.
Foreign Funding: The Foreign Contribution Regulation Act (FCRA) amendment (2018) permits donations from Indian companies with a majority foreign shareholding.

Key Findings from the ADR Report on Election Expenditure

Expenditure Concentration: One national party accounted for nearly 45% of total election expenditure, spending close to ₹1,500 crore.

The second-largest spender accounted for less than one-fifth of total expenses, indicating a sharp financial imbalance.

National vs Regional Divide: National parties together accounted for nearly two-thirds of total declared election expenditure.
- Regional parties, despite contesting in multiple States, accounted for a disproportionately smaller share.
Fund Collection Disparity: Over 93% of total funds collected by political parties accrued to national parties.
- Regional parties collectively received less than 7% of total political funding, limiting their campaign capacity.

Democratic and Governance Concerns of Skewed Political Expenditure

Electoral Fairness: Large financial asymmetries distort electoral competition by amplifying narrative dominance, media reach, and organisational capacity of well-funded parties.
Political Equality: Uneven access to funds weakens the principle of level playing field, a core requirement of democratic elections.
Accountability Deficit: Weak enforcement of disclosure norms and delayed filings dilute the Election Commission’s regulatory authority.

Challenges in Electoral Funding

Fear of Retribution: Donors often avoid funding opposition parties due to fear of investigative harassment, resulting in heavy funding concentration with ruling parties.
Spending Asymmetry: Political parties have no legal spending ceiling, unlike candidates, driving an unchecked escalation in campaign expenditure.
Shadow Campaigning: Unregulated digital spending through AI content, influencers, and consultancies bypasses Election Commission expenditure monitoring mechanisms.
Big Money Influence: Funding is dominated by large corporations, deepening politico-corporate linkages in electoral politics.
Foreign Influence Risk: Permitting foreign-linked corporate donations raises risks of indirect external influence over domestic political outcomes.

Reforms and Innovative Mechanisms

IPL Model: A centralised pooling mechanism to create a National Election Fund and redistribute corporate donations through the Election Commission using vote share.
Public Funding: State funding of elections following recommendations of the 2^nd Administrative Reforms Commission and Dinesh Goswami Committee (1990).
Democracy Vouchers: Citizen-issued vouchers allowing voters to allocate public funds for candidates, shifting accountability from donors to the electorate.
RTI Inclusion: Bringing political parties under the Right to Information Act, classifying them as ‘public authorities’ to improve financial transparency.
Zero-Cash Rule: A complete ban on cash donations to ensure a full digital trail for all political funding.
Audit and Caps: Party-level spending ceilings and audits by the Comptroller and Auditor General (CAG), empanelled auditors to strengthen financial integrity.

Electoral funding reforms must ensure fairness and ethical competition, for as Ambedkar noted, democracy survives only when equality underpins it. Strengthened institutions and citizen-based funding can curb money power and preserve a truly people-centric democracy.

Reference: The Indian Express

PMF IAS Pathfinder for Mains – Question 483

Q. What are the major regulatory and enforcement gaps in India’s political finance framework? Suggest measures to strengthen oversight and compliance. (150 Words) (10 Marks)

Approach

Introduction: Write a brief introduction about India’s political finance.
Body: Write major regulatory and enforcement gaps in India’s political finance framework, and suggest measures to strengthen oversight and compliance.
Conclusion: Emphasis on Transparent and accountable electoral funding to strengthen democracy.