Electoral Funding


09:17 AM

1 min read

Prelims:  Indian Polity and Governance – Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues, etc.

Mains:  Salient Features of the Representation of People’s Act,  Appointment to various Constitutional Posts, Powers, Functions and Responsibilities of various Constitutional Bodies.

What is the importance of electoral funding in a parliamentary democracy?

Electoral funding refers to the funds raised and expended by political parties and candidates during election campaigns. In India, electoral funding has been a contentious issue for a long time, with concerns about transparency, accountability, and the influence of money in politics. Here are some of the key reasons why electoral funding is necessary in India:

  • Conducting Elections: Elections in India are the largest democratic exercise in the world. With a population of over 1.3 billion, the country requires a significant amount of funds to conduct elections in a free and fair manner. 
  • Cost of Campaigning: Election campaigns in India have become increasingly expensive over the years, with political parties and candidates spending large amounts of money on advertising, rallies, and other activities.
  • Democratic Participation: Adequate electoral funding can encourage greater democratic participation by allowing more individuals to run for office and compete in elections. This can lead to a more diverse range of candidates and ideas, which can enrich the democratic process.


What are the salient features of the electoral funding ecosystem in India?

In India, electoral funding refers to the financial contributions made by individuals, organizations, or political parties to support the election campaign of a particular candidate or political party. Here are some of the mechanisms of electoral funding in India:

  • Section 29C of Representation of People’s Act, 1951: A political party shall, in each financial year, prepare a report on the contribution in excess of twenty thousand rupees received by such a political party from any person in that financial year.
  • Individual Donations: Limit of Rs. 2,000 per person has been set for cash donations, while donations above this limit must be made through other permissible modes of payment, such as cheques or digital transactions.
  • Corporate Donations: Companies, both Indian and foreign, are allowed to make donations to political parties in India. They are required to disclose the details of the contributions made to the parties in their annual report to the Ministry of Corporate Affairs.
  • Electoral Trusts: Electoral trusts are set up by various organizations to provide a transparent mechanism for political funding. These trusts are required to disclose the details of the contributions received and the donations made to political parties.
  • Electoral Bonds: Electoral bonds, introduced in 2018, can be purchased by individuals or companies from designated banks and donated to political parties. These bonds can be redeemed only by political parties and are anonymous in nature.


What are the challenges pertaining to electoral funding practices in India?

Electoral funding in India has long been a topic of concern for many due to the possibility of corrupt practices and the influence of money on the democratic process. Some major challenges pertaining to electoral funding in India are

  • Anonymity of donations through Electoral Bonds: The introduction of electoral bonds in 2018 has made it easier for companies, wealthy individuals, and foreign entities to make anonymous donations to political parties. 
  • Ceiling on cash donations lowered: In the 2017 budget, the limit for anonymous cash donations by any individual to a political party has been lowered from ₹20,000 to ₹2,000. It has led to more anonymous donations.
  • Cap on corporate contributions lifted: Removing the limit on corporate contributions up to 7.5 percent of the net profit of a company’s past three financial years has increased the politico-corporate nexus and hence, the role of ‘Big Money’ can influence elections in favour of corporates.
  • Foreign funding allowed: In the 2018 budget, the receiving of foreign funds by political parties has been allowed. Hence, the amendment to the Foreign Contribution (Regulation) Act 2010 has raised concerns about the potential influence of foreign entities on Indian politics.
  • Influence of black money: Another major challenge in electoral funding in India is the influence of black money. Many political parties receive donations in the form of cash, which makes it difficult to trace the source of the funds.
  • Role of corporate donations: Funding through corporate donations has been criticized for its potential to lead to quid pro quo arrangements. Many companies make donations to political parties with the expectation of receiving favorable policies in return.
  • High election costs: The cost of running for office in India is high, which can put smaller parties at a disadvantage. The cost of campaigning can be a significant barrier to entry for new or smaller political parties, limiting the diversity of political representation.


What are some global examples regarding electoral funding that India can learn from?

Electoral funding is a complex and contentious issue in many countries, and global best practices can vary depending on the specific context. However, here are some measures that have been followed by various countries for electoral funding:

  • United States: Tillman Act of 1907 made it illegal for corporations and national banks to make financial contributions to candidates running for public office. 
  • United Kingdom: Political Parties Elections and Referendums Act, 2000 has banned donations from companies without prior approval of shareholders. 
  • France: France has introduced state funding, subsidies, strict disclosure legislations, robust reporting of the donations to political parties by the media, and a ban on corporate donations and business houses.
  • Germany: Reliance on state funding alienated the masses from the political parties who felt no need to connect with the majority of the population. In 1994, a Constitutional Court held that over-reliance on state funding is not an effective tool. 


What are the reforms suggested regarding electoral funding in India?

Here are some possible steps that could be taken to reform electoral funding in India:

  • State Funding of Elections: In developed nations such as France, elections are financed through public funds. The idea of state funding of elections has been proposed by the 2nd Administrative Reforms Commission(ARC), Dinesh Goswami Committee (1990) and other entities.
  • Transparency in Electoral Bonds: Effectiveness of the electoral bonds and transparency can be achieved by disclosing the identity of donors, imposing restrictions on the quantum of funds that can be donated, and requiring political parties to disclose their sources of funding.
  • National Election Fund: Former Chief Election Commissioner T.S. Krishnamurthy has recommended exploring the possibility of a National Election Fund with the donation based on an agreed principle, such as the number of votes received. 
  • Political parties under RTI: Incorporating political parties within the purview of the Right to Information (RTI) Act would address the problems of utilizing black money and promoting crony capitalism, among others.
  • Other Measures: Small donations, public subsidies, and membership fees, along with strict disclosure and reporting requirements, must be encouraged to decrease the role of "big money" in influencing elections.





Previous Year Questions(PYQs)



Q1) To enhance the quality of democracy in India the Election Commission of India has proposed electoral reforms in 2016. What are the suggested reforms and how far are they significant to make democracy successful? (2017)

Frequently Asked Questions(FAQs)


Q1) Who is a star campaigner?

A star campaigner is a celebrity vote seeker in an election for a party. There is no law or rule which governs the criteria for a star campaigner. A recognized national and state political party has to submit a list of a maximum of 40, and other parties (registered but not recognized) can have 20 star campaigners. 


Q2) What is the validity/maturity of Electoral Bonds?

The Electoral Bonds shall be valid for fifteen calendar days from the date of their issue. For example, an electoral bond issued on 1st March 2023 will be valid until 15th March 2023.