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Who Should Pay For Elections?

The Debate Continues

                                                                                                            Anumeha*

In India, there is no direct state funding though the political parties enjoy certain indirect benefits. These are in the form of free electoral rolls, air time on state-owned media, land allocations in state capitals for the office of recognised political parties among others. Additionally, there is tax exemption on the income of political parties and for the donors on their contributions to the parties and electoral trusts. These are however subject to certain restrictions, namely, they shall not receive donation from foreign source (Section 29B of RPA, 1951), government companies and other companies as defined under Section 293A of Companies Act,1956). Section 182 of the new Companies Act, 2013 provides for prohibitions and restrictions regarding political contributions.

It is to be noted that the Representation of People Act (RPA) stipulates that for a party to claim tax exemption, it has to submit a report declaring details of donors who contributed above 20,000. On t ` he other hand, there is no legal provision where political parties are debarred from disclosing details of donations below this amount. For this very reason, the Donation Analysis Reports of political parties reveal that the total income from named donors is much less than that from undisclosed contributions less than `20,000. As a result, two thirds of the funds cannot be traced and are from “unknown” sources1.

The amended Foreign Contribution Regulation Act (FCRA), 2010, (passed in the Parliament in the Budget Session, 2016) has cleared the way for foreign-origin companies to give “donations to political parties” by ensuring that “donations made by such [foreign shareholding] companies to entities including political parties will not attract provisions of the FCRA, 20102” . Concerns are being raised about the ramifications of 2 these amendments, effected through the Finance Bill, 2016 and how it may compromise national interest.

Between 2004 and 2010, there were at least 25 instances of Indian National Congress (INC) and Bharatiya Janata Party (BJP) having received funds from the Indian subsidiaries of foreign companies. In March 2014, the Delhi High Court (on a writ petition filed by Association for Democratic Reforms [ADR]), held the two national parties prima facie guilty of violating the FCRA, 1976, for their receipt of donation from UKbased Vedanta Resources Subsidiaries'3. The two parties challenged the decision in the Supreme Court, 3 but subsequently withdrew their respective appeals (November 2016), on the plea that the amendments introduced earlier in the year in the FCRA had retrospective effect and hence their appeals had become infructuous.4

Though the amendments to FCRA were apparently made to get the two parties off the hook, these currently stand on a sticky wicket. Prof. Jagdeep Chhokar of ADR has pointed out that “since FCRA, 2010 did not exist in 2009 when the donations in question were made and accepted, the law in existence at the time of performance of the illegal action would apply and that was, and remains, FCRA, 1976”5. The retrospective 5 amendment applies to the FCRA, 2010. The option with the government is that it can yet again try to amend the 2010 Act by inserting an amendment clause, which takes effect from 1976. That would however be legally vulnerable. 6

Reports of Committees and Commissions- Developments through the Years

State funding essentially implies that the state shall provide funds to political parties to contest elections, and in return, there are restrictions on their accepting funds from public sources. Over the past decades, several government appointed panels and committees have tried to address the issues of transparency in campaign finance and disclosure norms of political parties. Various other stakeholders such as policy makers, Election Commission, corporate sector and the civil society have also debated and offered prescriptions on the subject. The essay below attempts to revisit such key reports, arguments and propositions for accountability in political funding.

Jagannath Rao Committee (1971)

The Joint Committee of Parliament on Amendment to Election Laws was set up in 1971 under the Chairmanship of Shri Jagannath Rao. It observed in its report that the problem of election expenses could be solved only if it is accepted in principle that all such expenditure ought to be a legitimate charge on the public funds and efforts should be made to progressively shift the burden of such legitimate election expenses (borne by the candidate and the political parties) to the state.

Tarkunde Committee (1974-1977)

As early as 1974 and 1977, the Citizens for Democracy, a voluntary organization under the patronage of late Shri Jayaprakash Narayan set up two committees under the chairmanship of Shri V.M. Tarkunde to consider the question of electoral reforms and mounting election expenses. They recommended the provision of assistance from the public exchequer to meet a considerable part of the candidate's election expenses.

Dinesh Goswami Committee on Electoral Reforms (1990)

It recommended the grant of state assistance in kind (in four identified areas) to candidates of recognized political parties. The committee was also of the view that there need not be any ban on private expenditure in respect of other items proposed for state assistance. It was left to the Election Commission to work out the manner/mode of such assistance and its implementation.

Indrajit Gupta Committee (1998)

The committee endorsed state funding of elections, seeing “full justification, constitutional, legal as well as on ground of public interest” for grant of state subvention to political parties. This would allow even the parties with modest financial resources to compete on a level playing field and with a fair chance of success at the hustings.

The committee however, accepted the uniqueness and peculiarity of the Indian conditions as compared to countries which allow partial or complete funding of elections.


The committee proposed a few conditions for state funding. Firstly, that such funds should be given only to national and state parties and not to independent candidates. There was another rider in terms of poll performance of political parties for which there could be a minimum cut off.

Secondly, 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 though ideally advisable, the (then) economic situation of the country was not conducive to full state funding and that parties should contend with partial state funding to begin with.

Thirdly, in order to be eligible for state funding, political parties and their candidates should have submitted their income tax returns up to the previous assessment year and that political parties should accept all donations above 10,000 in the form of cheques or drafts and disclose the names of the donors.

Fourthly, the committee suggested that an Election Fund be created for meeting the expenses on state funding. The initial annual contribution of the central government towards the corpus could be 600 ` crore @ 10 per elector for the total electorate of the then 60 crore population.

The committee had said that it was for the government and Parliament to decide whether there should be any ban on donations by companies and corporate bodies for political purposes, as there was no unanimity among the committee members. There was also no consensus on the inclusion of election expenses of political parties and other associations and individuals in the accounts of election expenses of candidates.

Law Commission of India, 170th Report (1999)

The Law Commission favoured introduction of total state funding, but on the condition that political parties are barred from raising funds from any other source. It also held that only partial state funding was possible given the economic conditions of the country (during that time). Additionally, it strongly recommended creation of an appropriate regulatory framework with regard to political parties (provisions like ensuring internal democracy, internal structures and maintenance of accounts, their auditing and submission to Election Commission) before state funding of elections is attempted.7

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

The National Commission to Review the Working of the Constitution (NCRWC) did not endorse state funding of elections but concurred with the 1999 Law Commission report that an appropriate framework for regulation of political parties be put in place, before it could be even considered.

Venkatachaliah Committee (2002)

In the view of the committee, any system of state funding of elections bears a close nexus to the regulation of working of political parties by law and to the creation of a foolproof mechanism with a view to implementing the financial limits strictly. Therefore, proposals for state funding should be deferred till these regulatory mechanisms for political parties are firmly in position.8

Second Administrative Reforms Commission (2007)

The report felt that though there was a compelling need for introduction of state funding of elections in order to eradicate political corruption, it should be partial and that too in kind only. This would reduce the scope of illegitimate and unnecessary election expenditure.9


CII Task Force on Electoral Reforms (2012)

The Confederation of Indian Industry (CII)'s task force on electoral reforms recommended legitimising political funding and sought imposition of a “democracy cess” of 0.2 per cent on all income tax payers, including corporates, for funding political activity and elections. It also recommended that the cess be paid directly by the tax payer through cheque into the account of any political party of her choice. The part of cess not paid to any political party should be remitted to the government as a part of income tax payment. It will accrue to an “electoral/political pool fund” which the Election Commission could utilise to support legitimate political activity. The CII had also written to the government suggesting that Section 182(3) of the Companies Law that required full disclosure, including naming parties that have been given money to, must be altered. The apprehension of the private industry was that full disclosure could lead to a backlash from parties that are 'less generously funded'.

Associated Chambers of Commerce of India (2014)

The Associated Chambers of Commerce of India (ASSOCHAM) in 2014 had suggested creation of a government fund of 5000 crore over five years for part funding of candidates' expenditure. The campa ` ign spending should also be subject to the public scrutiny for which the Right to Information Act should be made applicable to political parties. It has suggested change in IT Act, such that political parties are under the purview of income tax at the rate of 30 per cent in respect of anonymous donations received by them. They should also be subjected to penalty for not filing return well in time.

Law Commission of India, 255th Report (2015)

  1. The commission in this report has opined that a system of complete state funding of elections or of matching grants, wherein the government matches the private funding (by donors or corporates) raised by political parties, is not feasible given the economic conditions and developmental problems of the country.
  2. It has also suggested the continuation of the existing system of indirect in-kind subsidies instead of giving money via a National Election Fund. This could be expanded to include free public meeting rooms, certain printing costs and free postage among others.
  3. State funding should be preceded by reforms such as decriminalisation of politics, introduction of inner party democracy, electoral finance reforms, transparency and audit mechanisms, and stricter implementation of anti-graft laws so as to reduce the incentive to raise money and abuse power.

Views of Election Commission of India on Political Finance

The commission has thus far taken the stand that unless radical reforms are carried out in election campaign and political finance, state funding should not be allowed. In its view, it will not be possible to prohibit or check candidate's own expenditure or expenditure by others over and above that which is provided by the state. In view of high cost of election campaigning in terms of media advertisements and public rallies, use of 'Big Money' in politics is a major concern. If wealthy individuals and corporates pay to the political party or the candidate in order to do their bidding, the core principles of democracy are undermined and economic inequality transfers to political inequality. The commission is open to the idea of expanding the in-kind subsidy for the election campaign, with simultaneous reforms for transparency and accountability of parties and candidates.


In the view of former chief election commissioner, S Y Quraishi, it is difficult to keep tabs on money spent in elections, monitoring the usage of black money or other forms of transgressions. He therefore disagreed with the idea of state funding but favoured public funding of political parties in order to check corruption. The main issue in his opinion was of black money and not white money.11

Conclusion

No government so far has had the political will to act upon the above suggestions and work towards an accountable and transparent polity. In the absence of this, unbridled expenditure on campaign spending and opacity in submission of sources of funding continues with impunity. The concept of electoral bonds, mentioned in the 2017 budget, instead of incentivising a system of free and fair elections, leaves a lot of scope for corruption, opaqueness and surreptitious dealings.

Before the electors exercise their informed choice in elections, they have a right to know the source of the funds of the parties and candidates in fray. Though there is a general consensus that the country is not ready for direct state funding, partial funding too, should be subject to certain considerations.

There ought to be provisions to ensure that the entire burden is not imposed upon state directly and the tax payers indirectly. For raising of funds by the state, the exemption on income tax given to political parties can be withheld for a year or two. Whether tax exemption should continue for political parties also needs to be debated and discussed. With the EC engaged in conduct of frequent elections, a separate and effective regulatory mechanism/authority for fund allocation and checking electoral malpractices ought to be in place.

There are some questions which need answers. If state funding is allowed, would parties who are so averse to information sharing under Right to Information (RTI), answer queries under the Act? Should they and their candidates also be allowed to spend from their own funds? Finally, do we need a separate law for political campaign financing which enunciates the basic principles and penal provisions for violations?

The most effective measure and the only guarantee for a transparent polity lies in a political culture of simplicity. This is easier said than done, but not impossible to achieve. We, therefore need to work towards the creation of a system where any ostentatious expenditure works to the detriment of the candidate's electoral prospects.


  1. http://adrindia.org/research-and-report/political-party-watch, file:///C:/Users/ADMIN/Downloads/Analysis_of_Sources_of_Funding_of_National_and_Regional_Parties_FY_2004_05_to20 14_15_English.pdf (Last visited April 6, 2017)

  2. http://www.thehindu.com/news/national/foreign-firms-can-now-fund-parties/article8604763.ece( Last visited on March 28, 2017)

  3. Sourced from: http://www.gktoday.in/iaspoint/current/amendment-to-fcra-via-finance-bill-route-controversy/ (Last visited on April 3, 2017)

  4. Sourced from: http://indianexpress.com/article/india/india-news-india/foreign-funding-bjp-congress-withdraw-appeals-from-sc/a

  5. http://www.firstpost.com/india/fcra-are-political-parties-unique-organisations-and-thus-above-the-law-3151662.html

  6. https://thewire.in/83388/bjp-congress-fcra-foreign-funds-supreme-court/ (Last visited on April 10, 2017)

  7. (Paragraph 4.3.4)

  8. (Paragraph 4.14.6)

  9. 4th Report of ARC- Ethics in Governance; (Paragraph - 2.1.3.1.6)

  10. Reference- Background Paper on Political Finance and Law Commission Recommendations Election Commission of India-accessed at:http://eci.nic.in/eci_main1/Current/BackgroundPaper23032015.pdf) (March 22, 2017)

  11. http://www.thehindu.com/opinion/op-ed/Should-elections-be-state-funded-writes-yogendra-yadav-Manish-Tewari-S.Y.-Quraishi/article17314365.ece


*Anumeha is a Senior Research Analyst at Common Cause.

Volume: Vol. XXXVI No. 1
January-March, 2017