By – Rakshinda Raheman, SY BA LLB (Hons.)


Political funding is a necessity for political parties to play their role in a democratic process and complete transparency in the financing of political parties is the foundation of a well-functioning democracy. The absence of revelation of sources of party funds gives rise to corruption and brings about a situation of quid pro quo between rich donors and politicians. The fair playing field fades away when only one party has unbeatable access to excess campaign finance. In the name of ‘transparency’, India is headed in the opposite direction. Recent finance ‘reforms’ have done little to increase transparency and have instead legitimised non-transparency. The role and significance of political parties have been established since framing regulations in political party financing. The need for such regulations is felt due to recently changing conditions, in which parties have performed in the last few decades. Parties in contemporary democracies need funding to carry out their activities, which should be seen as crucial and inevitable costs of democracy. Political funding is not troublesome given that lively election campaigns engage citizens and initiate communication between parties and voters.

It builds up political parties and candidates and gives chances to compete on equal terms. However, money becomes a tool for some people to unduly influence the political process, aids unequal access to political party funding, and disrupts the playing field. Furthermore, partial political funding results in an inflow of black money and widespread vote-buying. This disrupting and disturbing effect on the election process demands immediate regulation by law. Indian society is hungry for greater accountability in public life. Thus, it would make good sense to channel that hunger into a constructive movement for transparency in the places where it is sorely needed. A core of ensuring transparency and accountability in political finance is the requirement for political parties and candidates to disclose information about how they raise and spend money. Such information can ease informed voter decisions as well as effective supervision of political finance. Complete disclosure of financial information can also serve as a dissuasive measure to reduce the impact of undue influence.


The evolution of India’s political finance regime has been slow and divided into three phases. Each phase outlines the continuation of reforms that have been developing for generations now. The phases are:

  1. The first phase began from 1947 to 1990 and saw a shift from traditional financing to corporate contributions when private companies gave money to parties in exchange for regular favours. This practice raised concerns about the link between black money and political funding for the first and foremost time in the 1960s. The Santhanam Committee report on Prevention of Corruption (1964) and the Wanchoo Direct Taxes Enquiry Committee (1971) threw light on the problem of black money making its way into the political system. In 1969, Indira Gandhi banned corporate donations to parties, and this vacuum created an underground way of funding political campaigns, which further led to the entry of black money. The first step towards this mechanism was initiated with the Kanwar Lal Gupta v. Amar Nath (1971) case wherein the Supreme Court ruled that the political party spending on behalf of a candidate should be included in calculating the candidate’s election’s expenses so that it can be analysed if the total expenditure limit has not been violated. This was nullified by the amendments that were introduced by the Parliament to the Representation of the People Act (RPA), 1951 in 1975.
  2. The second phase covered between 1990 and 2003 when several electoral reforms were introduced. This includes the recommendations included by the Dinesh Goswami Committee, such as state funding in the form of limited support in 1990. This was in addition to suggesting a ban on corporate donations to political parties. The Confederation of Indian Industry (CII) set up a Taskforce in 1993, which suggested that corporate contributions be made tax-deductible. It also recommended that there should be state funding of elections. The most important development during this time resulted from the 1996 Common Cause judgement. The Supreme Court sent a notice to political parties to file returns by February 20, 1996. “This forced political parties to declare their annual income in bringing some degree of transparency.”
  3. The period ranging from 2003 to 2017 constitutes the third phase in the evolution of India’s political finance system, characterised by greater efforts towards transparency. The Election and Other Related Laws (Amendment) Act, passed in 2003, made company and individual contributions to a political party 100% tax-deductible. Disclosure of all donations above Rs 20,000 to the ECI on an annual basis became mandatory. In 2008, the Central Information Commission (CIC) of India, in response to ADR’s appeal, ruled that the income tax returns of political parties be made publicly available, forcing parties to publish their income and expenditures dating back to 2004-05. According to a 2013 ruling, CIC declared, in response to ADR’s submission, that political parties are “public authorities” and come within the ambit of the Right to Information Act. CIC asked parties to make available details of voluntary financial contributions received by them. However, parties refused to comply with this order.
  4. Thereafter in 2014, Transparency Guidelines were issued by the ECI, under which parties had to spot all donors and amounts. However, these guidelines don’t yet have statutory backing. Most recently, in 2017, the ruling government took several initiatives in the name of political finance “reforms,” which increased the flow of funds to parties by digital/cheque payments but did little to increase transparency or disclosure of donor identities. These include the introduction of the anonymous Electoral Bonds, removal of limits on corporate donations to parties, the requirement to declare political contributions on their profit and loss statements, and the amendments to the Foreign Contribution Regulation Act (FCRA), 2010 which would facilitate indirect foreign funding.

Some important sources of funding of candidates in India include their political party, personal resources, donations from friends and family, and contributions from representatives of the private sector. While in the case of parties, funding comes from individuals and organisations. There is no state funding of parties yet. To guarantee the independence of parties from the undue influence of big donors, regulations ensure that they compete on equal footing and that they practice transparency in political financing. Thus, regulating party funding is a necessary step. Any policy in this regard should attempt to achieve a balance between encouraging moderate contributions and limiting unduly large contributions.

The UN Human Rights Committee in General Comment No-25 adopted in 1996 as part of international standards for elections: “Reasonable limitations on campaign expenditure may be justified where this is necessary to ensure that the free choice of voters isn’t undermined or the democratic process distorted by the disproportionate expenditure on behalf of any candidate or party. The results of genuine elections should be respected and implemented.” Transparency and accountability in political financing are integral to such a framework.

According to the 255th Law Commission of India Report for Electoral Reforms, the need for electoral finance reforms is derived from the following concerns:

  1. Financial superiority results in electoral advantage so richer candidates and parties have better chances of winning elections, as also articulated in the Kanwar Lal Gupta v. Amar Nath Chawla case.
  2. Individual or political parties with poor financial strength are prevented from contesting elections on an equal footing.
  3. Openness in political finance reporting reduces the prevalence of black money, bribery, and crony capitalism in electoral politics.
  4. Elected officials face dangerous financial pressures as a result of quid pro quo that transpire between big donors and parties/candidates, making it essential to reduce the space for policy capture.
  5. Huge contributions, though legal, can result in “institutional corruption” which may compromise the political morality norms of republican democracy.

Additionally, it is seen that transparency in political funding promotes electoral participation of women and other marginalised groups given their unequal access to funds; incentivizes compliance with political finance regulations, enforcement and oversight; access to information helps voters make an informed choice and maintain their trust in politics. Most importantly, adequate access to funding obligations is crucial for the overall well-being of an electoral and democratic system.


Non-Transparency is a moral as well as a development issue. It can deform the entire decision-making process on investment and any other commercial transactions in addition to the core social and political fabric of the society. In a country like India, non-transparency is like a malignant tumour of society. It is destroying the economic, democratic, and political system of India. Non-transparency reduces revenue and increases public spending. It contributes to larger fiscal deficits, making it difficult for the government to run a sound fiscal policy. Non-Transparency at some point will increase income inequality because it allows individuals in good positions to take advantage of government activity at the cost of the rest of the population. It controls the markets and the distribution of resources because it reduces the ability of the government to impose necessary regulatory control to correct the market failures.

India, being the largest democratic country in the world, has a constitution that provides that no taxation can be charged without the permission of the legislature. The money yielded by the taxation process is the wealth of the public, but the black money obtained from corruption is the oxygen for non-transparency. Non-transparency will increase injustice and disregard for rule of law and basic human rights will face a threat as key decisions will be based on the extent of bribes that are given to court officials rather than on the innocence or guilt of the person concerned. Police detention and investigations may be based on political victimisation or personal vendetta rather than on legal grounds. Commenting on the socio-political consequence of corruption, the Supreme Court observed that “Corruption in a civilised society is a disease like cancer. If not detected in time, it will surely turn the polity malignant leading to disastrous consequences.”

Financial reporting requirements are in keeping with the spirit of the UN Convention against Corruption. They help achieve transparency, allow voters to make informed decisions, and allow for effective oversight of compliance. Several recommendations have been made by the Law Commission of India in its 255th Report on Electoral Reforms as well as by ADR from time to time, which are supposed to be implemented as soon as possible. The willingness and capacity of parties and other stakeholders to legally use the money and follow the law, both in writing and in spirit, is most important to eradicate corruption by its roots. How a political party manages its access to and use of funds defines the foundation for the political finance regime of a democratic country.

Apart from the political will, strong institutional oversight is important. Organisations that enforce such financial regulations should be independent with the capability of transparent leadership appointments. These characteristics are crucial for better implementation and effective enforcement of financial regulations. With these kinds of regulations, non-transparency can be removed. As non-transparency is an intractable problem in India, it is like diabetes, which can only be controlled but not eliminated. It may not be possible to root out corruption completely at all levels, but it is possible to contain it within tolerable limits.

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