Author: Ms. Namita Jain, Head of Department – Law, JECRC University
POLITICAL FUNDING: ISSUES AND CHALLENGES
The issue of political funding in India has been a major source of corruption. After the Supreme Court’s judgment of 2002, there was a drastic change in the outlook and practice of receiving funds by political parties, however, there is a long way to go for India to be able to reach transparency in the system of funding political parties.
This research aims to cover the current scenario of political funding in India and the position after the introduction of electoral bonds. Discussing the current case by ADR in the Supreme Court, the researcher has analyzed the need for change and the negative impact of the introduction of electoral bonds and anonymity of donors in the funding of political parties.
The researcher has hence discussed the issues and challenges under the current practice and suggested methods and amendments ensuring transparency in the system and anti-corruption practices used by the parties and donors.
Keywords: Political parties, political funding, Association for Democratic Response, People’s Union for Civil Liberties, anonymous donors, elections, election campaigns
Electioneering is a costly issue in each democratic nation which is an increasingly indispensable job in India. Cash strategic maneuvers in our electoral system prompt all round debasement and contribute most to the age of black money leading to a corrupted economy. In an election campaign, a large amount of money is spent by the candidate standing in elections. Lately, the election expenditure has expanded past any limits because of the idea of each political group to spend more than their opponents in the brawl. Such an exorbitant amount was not spent for election campaigns in 1952 as they have moved toward becoming today. Political pioneers and laborers thought of it as dishonest to work with a longing for any reward. Be that as it may, the situation currently has changed. Indian political elections are ending up progressively costlier and the hole between the costs brought about and lawfully allowed is expanding throughout the years. The spectators are viewing the framework that requires unimaginably tremendous expenditure accumulated through the questionable methods by political parties and their applicants.
The appropriation of arranging the economy with a lot of control and guidelines in India gave huge chances to corruption in politics and brought about an exploitative nexus between the appointive electoral politics and the business part of the nation. This is by all accounts happening even today with increasingly unfortunate results of a flood of black money with the political parties regardless of the changing economy actuated to the political arrangement of the nation.
The government has set out on another activity to stop corruption in the political funding which is the worst thing about the Indian constituent framework. Almost 70% to 80% of the assets to the political group is never detailed and they are gathered from obscure sources. The legislature has chosen to get a more prominent and transparent system in the funding of political parties. These incorporate capping funding by an anonymous benefactor/donor to Rs. 2000 from the prior limit of Rs. 20,000 and proposing electoral bonds. This interest for limiting the cash donations by the ananonymous donor was likewise made by the Election Commission as of late. This has not totally addressed the issue but is the commencement of positive development.
The elections in India are considered to be the largest democratic exercise which is during out to be expensive every election. In order to advertise, transport and campaign, political parties have been spending a large amount of money. The corporate donations are turning out to be the largest source of income for these parties which infuses black money in the economy. In 2008, the Central Information Commission permitted the Right to Information to be applicable on the income tax returns of the political parties; although the political parties do not practice under the same.
Understanding of political funding:
In a democracy, political power in principle, expected to express well-known endorsement, as estimated by results in elections. Practically speaking, this framework is frequently mutilated by various elements, budgetary power being the most unmistakable of them. Political parties regularly shape schemes not according to the wants of their voters but rather interests of their funders.
To lessen the impact of cash on electoral politics, nations make progress toward frameworks where political financing is straightforward with the goal that voters can see who is bankrolling their legislators and vote in like manner. Shockingly, India’s election financing framework has glaring loopholes, permitting people with money to stealthily impact political parties.
- Unknown sources of funds-
Under Indian law, the contributors of sums under Rs 20,000 permitted to be kept covered up legally, in the 2017 Union Budget plan, the leading government introduced an electoral bond that even permitted expansive scale anonymous donations. Therefore, the greater part of all the pay of national parties in India is gotten from obscure and unknown sources.
As per a report of January 23 by the Association for Democratic Reforms, for six national parties, barring the Communist Party of India (Marxist), 53% of funding was from obscure sources in 2017-18. Non- anonymous donors contributed 36% of the income of the party. The rest 11% originated from other referred to sources, for example, closeout of advantages or participation charges.
- Effect of Electoral Bonds-
While 51% of all questions reserves were donations beneath Rs 20,000 (which can be unknown according to the law), as much as 31% were made utilizing the new instrument of electoral bonds.
An electoral bond is a promissory note like a certified receipt. It tends to be bought from State Bank of India branches in products of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore. Uncommonly for an instrument that licenses such expansive sums, electoral bonds can be anonymous. People and organizations can make donations to a political party without having their identities uncovered to the Indian voter.
The electoral bonds permit huge scale donations which are anonymous to parties, supposedly, it is a critical step back in setting up a transparent arrangement of political funding. Former Chief Election Commissioner Navin Chawla has also called attention staring electoral bonds have really developed as a “greater method of camouflage” when it went to the utilization of black money in legislative issues.
Electoral bonds have been accessible since January 2018. Their effect was prompt, pushing up the offer of funds for national parties for 2017-’18. However, the Chief Election Commissioner A.K Joti stated that introduction of electoral bonds would not reduce the problems in cases of political funding and its transparency.
A case study discussing issues in Political Funding:
A Public Interest Litigation (PIL) was filed by Association of Democratic Reforms (ADR) and Common Cause to challenge the amendments made in the Finance Act of 2016 and 2017 which led to funding into politics in an unrestricted and anonymous manner. The PIL’s main objective was to prohibit the cash donations which are made to political parties by Indian as well as foreign corporations.
On reviewing the Union Budget for 2017-18, there were issues with regard to political funding by making new recommendations in order to reduce the donation of cash to political parties. The cash donation was restricted to Rs 2000 per individual and electoral bonds were also introduced.
The new recommendations touched off a great deal of interest and high expectations, yet were brimming with escape clauses and inconsistencies. To begin with, while the correction to radically slice the cash donations to one-tenth was an appreciated move, despite everything it left enough space for ideological groups to abuse the altered arrangement, even at the expense of multiplying the number of donors. Further, while many hailed electoral bond as a progressive measure to infuse democratic processes with white money as it went to attain a cheque and computerized installments guaranteeing the identity of donors, its most glaring disappointment was obscurity. In spite of the fact that the plan is still better since the identity of donors is confidential, it scarcely progresses the reason for transparency. Hence, this amendment leads to obscurity and anonymity and does not enable a transparent scheme of funding to political parties.
The claim of the petitioners’ under the case was the funding to political parties in an uncontrolled manner, after the Finance Act 2017, being relied on the fact that almost 89% of the total donations were made by corporate funding, in the years of 2012 to 2016. It is broadly understood that private business charges an expansive bit of donating to parties and on events private business bankroll whole election campaigns in India. Given the way that states in India hold gigantic command over the economy and administrative approaches, they can’t stand to disappoint the political bosses. This leads to extensive corruption and donation by corporate in India and foreign entities enable over the table deals as opposed to under the table dealing with respect to black money.
Although such issues are faced in different countries like the United States as well, such donations are made in a legal manner and every such transaction is transparent. In India, however, illicit or illegal methods are used to attain such actions. Hence, the concept of electoral bond with the provision of remaining anonymous is creating such corporate donations to be unrestrictive in nature, which is being claimed by the petitioners under this PIL.
The Finance Bill of 2016 also allows donations to be made to political parties under the Foreign Contribution (Regulation) Act, 2010, leading to the increase in private money donation and influence of entities from abroad. This petition hereby gives an opportunity for the Supreme Court to look into the laws of election and the reforms concerned with them.
In every one of these years, political parties have set up solid protection from constituent changes, despite naming councils and commissions now and again. There is a long history of deferral, subterfuge, weakening by progressive governments at the Center, and there is an astounding unanimity among political parties to slow down any conceivable dynamic changes to acquire more noteworthy transparency and responsibility in the donations. As of late, political parties contradicted the Central Information Commission’s order to bring political parties including their donations under the ambit of the Right to Information Act.
On 10th April’19, the Election Commission has mentioned in the Supreme Court that it is not against the mode of donations for political funding but the anonymous donations made to political parties. The stand by the Central Government, however, is that the identity of the donor should not be disclosed.
This contradicts the 2017 stand of the Election Commission in the Supreme Court whereby they mentioned Electoral bonds as a ‘retrograde step’ in an affidavit filed by the Election Commission. The counsel for the Election Commission submitted only public donations through electoral bonds was objected.
Supreme Court Guidelines on Electoral Reforms
Supreme Court had raised the issue of Irresponsible guarantees made by the political parties in their election manifestos. The Court guided the Election Commission to call the political parties and talk about an exit plan. The rules that there should be mindful guarantees in the declaration were incorporated into the Model Code of Conduct.
In 2002, Supreme Court had said that the candidate while documenting his nomination papers needs to record a testimony giving the information of his monetary resources and furthermore with respect to the criminal records which are pending against him. A large portion of the changes has gotten through the Supreme Court which is an indication of legal activism.
The Delhi High Court decided that leading political parties including BJP and Congress were guilty as they were accepting foreign funding which violated the Foreign Contribution (Regulation) Act, 2010 and thereby directed the Election Commission of India and the Home Ministry to take an action within six months of the order. An appeal was filed in the Supreme Court, which was allowed but the Supreme Court refused to stay the order the High Court.
Hence, the judiciary has the power to decide on matters and thereby enable a system of funding of political parties which are transparent and against corruption.
The use of foreign funds in elections as is a disputable issue over the world. In France, their former president Nicolas Sarkozy is under investigation over claims that Libyan despot Muammar Gaddafi donated funds for his 2007 election campaign. The contention over Russia affecting Donald Trump’s presidential campaign in the US is as yet not finished. This arrangement may open the conduits for outside effect on key approaches in politics, and possibly influence the nation’s strategic advantages.
Luckily, Indian elections have so far stayed free of any known remote impact, yet there is no denying that cash, particularly unaccounted money spilling out of groups of people and people with business premiums, has regularly assumed a vile job in the election campaigns. Further, as per specialists and the resistance groups, the limit on corporate donations and inclusion of electoral bonds has additionally reinforced corporate impact in political leadership. In the years of 2012 and 2016, corporate donations shaped a stunning 89 percent of the absolute assets.
The 2017 Finance Act lifted the limit on corporate donations from 7.5 percent of the net benefit of an organization’s previous three financial years and removed the commitment to report such donations in the organization’s benefit account. Also, such donations don’t require the endorsement of an organization’s top managerial staff. This arrangement is a helpful escape clause for corrupt components to course dark cash through counterfeit organizations.
New petition filed by ADR in April 2018:
Association for Democratic Response’s request challenged the corrections and amendments made with review impact in the Foreign Contribution Regulation Act, 2010 through the Finance Act, 2016 and Finance Act, 2018, which was passed as a Money Bill. These changes were viewed as an endeavor to upset the judgment given by the Delhi High Court in March 2014 holding the two noteworthy political parties, Bhartiya Janta Party(hereby known as “BJP”) and Indian National Congress(hereby known as “INC”), blameworthy of tolerating foreign donations. The Delhi High Court requested the Central Government and Election Commission of India to make a move against BJP and INC inside six months. These alterations to the Foreign Contribution Regulation law have opened ways to boundless political gifts in the form of donations from remote organizations and furthermore legitimizing money related contributions received from foreign sources. The appeal was required because of the uncompromising nature of the Central Government in conforming to the Delhi HC request of March 2014 and rather attempting to get BJP and INC free by correcting the Foreign Contribution Regulation Act, 2010 in that of 2016 and accordingly the Foreign Contribution Regulation Act, 1976 in March 2018.
Issues with regard to electoral bond
The electoral bond has an actual existence of 15 days amid which it may be given to an enlisted political party which has surveyed 1 percent of the vote in the state, or, national decision. The party needs to open an account in an assigned SBI branch. The party does not need to unveil who it has gotten the bond from in its record. Neither does the donor have a duty to state to which party it has given. Hence, it enables the donor not only to hide the information as to donation to be made to a particular political party but also not to disclose his own identity.
The arrangement of electoral bonds encourages corporate funding to the political parties and opens the path for legitimizing pay off and corruption. Organizations will have the motivator to give gigantic donations to the party to acquire their support. Officially, through the Finance Bill, a change was made to the Company Law. The limit on organizations offering funds to political parties of 7.5 percent of net benefits earned in the past three years has been expelled. Further, the alteration had discarded the prerequisite which accommodates revelation of the name of the political party to which the organization makes the commitment. So now, organizations can give boundless funds to a party without exposing their identities.
The Finance Minister had asserted, at the time the electoral bonds were presented, that this will acquire more transparency. This claim, however, has not been accurate. On the off chance that transparency is the point, the identity on the entity donating the funds and that of the beneficiary party ought to be freely known.
The leading government has figured out how to legitimize bribery, by donations made through bonds by anonymous donors. Prior to this, an organization which won an agreement would have needed to pay an amount unlawfully and unofficially as far as the government was concerned. The electoral bond plan makes every single such bribery legitimate.
The hazy security framework can be abused for illegal tax avoidance and black money tasks using such organizations as protection. Another aspect of the electoral bond is that it conspires to open the route for foreign organizations to support political parties in India without it getting to be public. In the Finance Bill of 2016, the administration had revised the Foreign Contribution Regulation Act (FCRA) to treat donations by Indian subsidiaries of such companies as a donation from Indian sources. With this change of the FCRA, foreign corporate financing to political parties was authorized.
The issue with regard to electoral bonds was first identified when a total of over 200 crores of bonds were issued, where 95% of these bonds were given to BJP which confirms the ruling party’s involvement in the process of corporate funding by introducing electoral bonds.
This move of decreasing the donation limit to Rs 2000 will raise the paperwork for the political groups to guarantee that the assets are from the obscure sources. Further, the political groups may change over the gigantic amounts they get into single donations of Rs 1990 which prompts more paperwork. In this way, it doesn’t take care of the issue altogether.
The state financing of elections is hard to screen in light of the fact that for the Vidhan Sabha elections, the cutoff is 28 Lakhs yet the political groups spend in crores. The 28 Lakh given by the state will run financed with the black money utilized by the political groups.
The legislature has proposed ‘electoral bonds’ where the donor’s identity won’t be known to the beneficiary. This can be counterproductive in light of the fact that the identity of the contributor won’t be hidden from the legislature and the government will be aware of the data. So it resembles the administration command over the political groups.
Absence of Transparency in relation to electoral bonds, therefore, means that the name of the benefactor won’t be uncovered either to the gathering or to the general population. Along these lines, the issue to supplant anonymous donations and achieve transparency and responsibility towards voters will continue as before. It just advances the way of life of haziness that infests India’s present political account routine. Major issues due to lack of transparency in the electoral bonds include:
- Generation of black money: Opacity will prompt increasingly more black money into the political framework.
- Political corporate nexus: Government removal on the limit of donations to political parties by enterprises in March 2017 and the present principle of keeping up secrecy of the donor additionally expands the corporate and legislators nexus to progress in the direction of the satisfaction of their own narrow-minded points. It will hamper popular government and making it less liable to the individual voter and increasingly receptive to profound pocket particular vested parties.
- The reaction in execution: Given that the State Bank of India is claimed by the Union government, this raises the idea that information on donors could be made accessible to the political parties to be utilized to its advantage. So the electoral bonds plan may not work by any stretch of the imagination. Most private contributors lean toward obscurity because of a paranoid fear of retaliation from political parties. They would proceed with a donation of money under the Rs 2,000 chunk and by means of appointive trusts where anonymity is maintained
The existing methods for political funding are not transparent thereby leading to corruption and a ‘kickback’ for the government. Electoral bonds and anonymous donations, including donations from foreign companies lead to corporate control and an increase in black money in the economy of India. Thus, transparency for the public is opaque.
Guaranteeing financial transparency in the undertakings of the political parties just as of candidates is, in this way, of most extreme significance. The issue of cleaning the political finance system is worldwide which every democracy is battling with it. Be that as it may, India is a long way behind worldwide benchmarks, flawed as they might be.
In order to improve the current funding scenario in Indian politics by accounting every penny donated to the political parties through the method of digital transactions. Also, the system of electoral bonds should be removed and the provisions leading to corporate funding and funding from foreign sources should be amended.
As discussed by the Indrajit Gupta Committee of 1999, funding of political parties should be done by the States in the form of State funding. State funding in the elections seems to be a solution to the current problems to the political funding scheme as it will lead to democracy of political parties internally. The committee recommends the need to create a legal framework in order to regulate and revise the funding of elections by political parties. It has also recommended that the state funding to the political parties should be made on the basis of the performance of such party.
Incorporating a National Electoral Fund whereby the information with regard to the donors shall not be disclosed and such donations will be made like that to the country and not a political party can be a viable alternative. This Fund then may distribute the money to political parties on the basis of the votes they obtain and their performance. A tax benefit can be provided on those people who donate to the Fund.
Thus, in order to achieve transparency in political funding, firstly, the State needs to take requisite steps to keep large amounts of money outside the scope of politics in order to control private financing; secondly, to create a public financing and disclosing the identity of donors leading to transparency; thirdly, to create laws with regard to state funding of political campaigns.
Speech of Union Finance Minister Arun Jaitley announcing the 2017-2018 Union Budget, 1 February 2017
Source: Association for Democratic Reforms
 Association for Democratic Response & Anr v Union of India & ors., W.P. No. 880/2017
 Association for Democratic Response & Anr V Union of India & Ors., (2014) 209 DLT 607
 LilyThomas v Union of India & Ors., (2013) 7 SCC 653
 People’s Union for Civil Liberties & Anr. v Union of India & Anr., (2013) 10 SCC 1.
 Union of India v Association for Democratic Response & Anr, AIR 2002 SC 2112
 Supra No. 2
 ADR Writ petition in Supreme Court, April 2018 (Source: adrindia.org)
Milan Vaishnav, ‘Finance Bill Makes Funding for Political Parties More Opaque Than Ever’, Hindustan Times, 29 March 2017