Context: The Minister of State for Finance has informed Lok Sabha that the Election Commission of India (ECI) is not in favour of state funding of elections.

Current Scenario of Political Funding

• Individual Persons: Section 29B of RPA allows political parties to receive donations from individual persons.
• Indirect State Funding: It includes methods except direct funding, like free access to media, free access to public places for rallies, free or subsidized transport facilities. It is allowed in India in a regulated manner.
• Electoral Trusts: A non-profit company created in India for orderly receipt of voluntary contributions from any person like an individual or a domestic company
• Corporate Funding-  Earlier corporates to donate up to 7.5 percent of the net average profits earned in the preceding three years. However, this limitation was the done away with 2017 Finance Act
• Changes were made in the Foreign Contribution Regulation Act (FCRA), 2010 via the 2018 Finance Bill to allow foreign companies registered in India to make political donations.

• Electoral Bonds: It is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of SBI. They can then donate the same to any eligible political party of his/her choice

Issues with Political Funding

• Use of Shell/Fake companies to route Black Money

• Limits imposed on Individual expenditure during elections but no such caps on expenditure by Political Parties

• Corporate donations cover more than the two-third of total funds collected by the political parties thus engendering an unholy Corporate-Politician nexus
• 75% of the donors to a political party are anonymous. The source of money could be crime, drug or ill-intentioned foreign money, which cannot be tracked.
• The money that is received in cash is not audited properly and therefore becomes a source of malfeasance.

A few government reports have looked at state funding of elections in the past are:

1. Indrajit Gupta Committee on State Funding of Elections (1998)

• It endorsed state funding of elections, seeing “full justification constitutional, legal as well as on ground of public  interest” in order to establish a fair playing field for parties with less money. 

• The Committee recommended two limitations to state funding. 
• Firstly, that state funds should be given only to national and state parties allotted a symbol and not to independent candidates. 
• Secondly, that in the short-term state funding should only be given in kind, in the form of certain facilities to the recognised political parties and their candidates.
• The Committee noted that at the time of the report the economic situation of the country only suited partial and not full state funding of elections

2. Law Commission Report on Reform of the Electoral Laws (1999)

• It concluded that total state funding of elections is “desirable” so long as political parties are prohibited from taking funds from other sources.
• Additionally, it strongly recommended that the appropriate regulatory framework be put in place with regard to political parties (provisions ensuring internal democracy, internal structures and maintenance of accounts, their auditing and submission to Election Commission) before state funding of elections is attempted

3. National Commission to Review the Working of the Constitution (2001)

• It did not endorse state funding of elections but concurred with the 1999 Law Commission report that the appropriate framework for regulation of political parties would need to be implemented before state funding is considered

4. Second Administrative Reforms Commission (2008)

• “Ethics in Governance”, a report of the Second ARC also recommended partial state funding of elections for the purpose of reducing “illegitimate and unnecessary funding” of elections expenses. 

Merits of State Funding of Elections

• It will become possible for new and cleaner candidates from outside the mainstream parties to join politics;
• It will ease the pressure on parties themselves to give tickets to criminals and other rogues primarily because they can manage their own funding
• Parties themselves will become more internally democratic, as candidates will not be over-dependent on party bosses for cash.

Issues of public funding of elections

• This will encourage spawning of new parties every now and then.
• Further, it will burden the exchequer.

ECI’s View on State Funding of Election

• It would not be able to prohibit or check candidates’ expenditure or expenditure by others over and above that which is provided for by the state.
• Instead it has suggested for reforms in funding of Political Parties- Proper receipt of funds, auditing of the expenditure of Political Parties and more transparency in funding process.

Alternatives Suggested:

• Former election commission chairman S.Y. Qureshi has suggested state funding of the political parties instead of state funding of elections.
• A National Election Fund can be created where people can donate anonymously. And at the end of the five years, the collected amount can be given to respective political parties based on performance. 70% of the European countries have this system.

Connecting the dots

• RTI of Political Parties
• Criminalisation of Politics and relation to Electoral funding