Funding of political parties with respect to Finance Bill, 2017

Funding of political parties

“It is the opinion of Author and LTJ do not agree or disagree with the same”

This Article is submitted by –

  • Surabhi Sarawgi
  • S. Ayesha Azma 



India being the largest democracy in the world has emerged successful in protecting its parliamentary system and the reason being its elections, which takes place once in every 5 years. The very mechanism of elections is structured in part XV of the Indian Constitution, 1950. The other legislations drafted for like The Representation of People Act 1950 and 1951 are also for the same purpose. The citizens of the nation have a right to elect and be elected and the Indian Constitution assures the same[1]. The very fact that the makers of the constitution have included these provisions shows how apprehensive they were to safeguard political right of citizens which form integral part of the Constitution. To ensure free and fair elections in India the statutory provisions of the U S has been incorporated to uphold the independence and neutrality of the electoral body at the top and also to prevent gerrymandering.[2] However, in reality the working model of the democracy and its electoral structure, from the very beginning remain distorted and various pitfalls, drawbacks and sundry malpractices were brought into limelight. More than almost 40 years of the judgment in Raj Narain vs. Indira Gandhi[3], yet the electoral funding even today remains under suspicion.  Money plays a key role, with the unprecedented growth in the campaign expenditure; it becomes rather difficult for the ECI to control the ‘money power’.  And this money power is being used to undermine the democracy. The problem of money power playing such a significant role in the elections has lead to ‘Money to power and power to money’, the idea iterated by Anna Hazare[4]. Political funding remains one of the most important problems of the Indian democracy. In this backdrop, this paper throws light on the influence of money power on elections. It highlights the amendments proposed by the Finance Bill, 2017 and how it makes the funding of elections opaque. It also suggests the much-needed reforms to regain the purity of electoral process.

Research Problem

The issue of funding of elections is of great significance in today’s times as it influences the results to a very large extent. The first problem centers to the amendments proposed in the form of changes in monetary limit, introduction of electoral bonds, allowing of foreign funding and removing the cap on corporate funding by the Finance bill of 2017 and the implications of the same. The second issue is to suggest reforms to establish a better and unconcealed system of electoral funding, thereby bringing to the light the issues in the implementation mechanism.

Existing Legal Situation

The Election laws in India are majorly dealt under The Representation of People’s Act, 1951 (RPA). Apart from the aforementioned act, the government has tabled the Finance Bill, 2017 that brings in certain amendments in the funding of the election.

Section 29B of the RPA states the sources from which the political parties can receive donations. The section specifically restricts foreign contributions as mentioned under the Section 2(e) of the Foreign Contribution Regulation Act, 1976. However, the same is proposed to be amended retrospectively by the Finance Bill, 2017. And also, Section 29C of the RPA makes it mandatory for the political party to declare the donations received by them.

Literature Review

  • Jeevan Nair and U C Jain, Electoral System in India (Pointers Publishers, 2000)

This book is a compendium on the election laws of the country. The author in this book has elaborated on huge task of conducting free and fair elections and also the obstacles in conducting the same, from the outlook of the legislations governing and the administrative principles in a country where most of the population is not educated.

  • NamitOberoi, ‘Notes and Comments: Reforming Election Funding’ (2008) 1 National University of Juridical Sciences Review 137

This article talks about how the enormous power of money specifically the black money influences the elections and threatens the very touchstone of democracy. The author has suggested certain electoral reforms to eliminate the danger with the assistance of the apex court judgments. It further discusses the implications of corruption thereby pointing out as to how it is going to erode the foundation of the country.

  • SidhantChandalia and AnirudhLekhi, ‘Regulation of Election Campaign Finance in India: Making Elections Truly Free and Fair’ (2013) 6 National University of Juridical Sciences Review 503

This article signifies the essence of a healthy democracy is to have free and fair elections. It lays down the need for an institutional organization that regulates the campaign expenditure for the welfare of public at large. It also recognizes the consequences of campaign expenditure after the elections are conducted. It talks about the need for expenditure limits to promote transparency in the electoral system of the country.

  • B Venkatesh Kumar, ‘Funding of Elections: Case for Institutionalized Financing’ (1999) 1 Economic and Political Weekly 1884

This article highlights the constant issue that arose in the recent past. The author further underlines various commissions that have been set up for bringing in the electoral reforms, which would remove these impediments. It further strengthens the need for state funding and argues institutionalized funding to be a must for the country.

  • Dolly Arora, ‘State Funding of Elections: Some Posers’ (2000) 1 Economic and Political Weekly

This article is a critical analysis of the electoral mechanism in general and discusses funding of elections in particular. The author feels the need for national election fund as an imperative step for curbing any kind of electoral concerns in the democratic country like India. The author has further compared the system of funding with the other democratic countries and concluded giving the goals stated and their possible outcomes.

  • Dr. Kamal Hossain, ‘Legal Strategies to Combat Corruption: Some developments in SAARC Region’ (2005) 17 Student Bar Review 6

The article gives a very elaborate view regarding corruption and its impact on the elections. The author suggests certain measures that could contribute to fight the evil of corruption. It includes measures like, legally binding the moral code of conduct, strict evaluation of the election expenses that are incurred by the political parties and their respective candidates. The author also points out that the rampant increase in the cost of elections and the funds has provided an opportunity to the political parties for abusing the power even before actually gaining it.

Scope and Objective


The scope of the paper extends to discussing the amendments brought in by The Finance Bill of 2017 and the ways in which it makes the funding of elections opaque than transparent. It also suggests the changes needed in the election funding thereby making it a more effective and inclusive system.


The paper aims to fulfill the following objective:

  • To understand the need of a transparent system of funding of elections and how it effects the democracy of the country.
  • To analyze the Finance Bill of 2017 and the amendments proposed by the same, thus to evaluate the rigidity the bill proposes and the modes in which it is making the system smeared.
  • To discuss the existing legal system which regulates the election funding and enlisting the reforms to be made in the system so existing.

Research Methodology and Chapteristaion

This paper has adopted doctrinal method of research. Doctrinal methodology denotes a way of managing research, which is generallyassumed as ‘typical legal research’. A doctrinal approach to research will includecase-law, statutes and other legal sources. It is distinct from other methods, it looks at the law within itself; a pure doctrinal approach makes no attempt to look at the application of law, but in its placeobserves law as a written body of principles which can be determined and analyzed using only legal sources.

For the purpose of convenience this paper has been divided into 3 chapters.

  • The first chapter includes the introduction, the identification of the research problem and the existing legal situation of the same.
  • The second chapter will be descriptive in nature, which would cater to the amendments brought by the Finance Bill of 2017 and further highlighting the opaqueness it followed.
  • The third chapter would sum up the entire discussion in the chapters aforementioned and would contain the possible recommendations to make the funding of elections transparent

Funding Of Elections- Finance Bill 2017:A Perusal

The political parties and the candidates are in need of large amount of funds in order to promote their party and their foresight of governance.[5] The basic assumption that runs during the elections is that more the amount of funds spent, more valuable the outcome, as the party with greater funds would have more number of voters.[6] One of the evils that have aroused in the electoral processes is the huge influence of the money power especially the black money. It is a well-known fact that the funds raised in the elections are of utmost significance for the politicians which in turn, gives birth to political corruption. Every political party is prone to such offences. In the pursuit of gaining political power the parties and the candidates spend huge amount on the elections and there is no accountability of any kind concerning the same. Approximately more than 7000 crores is being spent by most of the political parties in the Lok Sabha and State Assembly during the elections.[7] The actual money spent is ten folds the prescribed ceiling. There are some reports, which has estimated that about 419 billion dollars of taxable income has been drained out of the nation in the last decade, thus corruption has lead to a consequential loss of revenue to the state treasury.[8] The huge amount of money spent by the political parties compels the parties to extort huge amount from various known and unknown sources, giving rise to corruption and black money and at the same time discouraging high-spirited citizens from exercising their right to contest elections and thus facilitating greed, corruption and extortion in the Indian democracy.[9]

Against this backdrop the government through the Finance Bill, 2017 tried to bring transparency in the contributions made to the political party. It adopted certain measures through which it could attain a see-through system of funding of elections.

 Monetary values

The law in India is that the political parties have a limitation to accept cash donations up to 20,000 from a single person and this money received is not mandatory to be reported. However any sum above the limitation needs to be reported to the Election Commission of India. The details of donations made above the prescribed limit can be obtained by the citizens, through the Right to Information Act (2005). The political parties are not obligated to keep an account of the donated money or source of the same.  They have a privilege to not report the sumptuous amount of money in the name of cash donations received by anonymous sources.

This massive amount of cash donations would usually be multiples of hundreds of crores thereby making it imperative to know about it.  This has paved way to political parties and the candidates in accepting lump sum amount of black money from various donors as mentioned in the Birla-Sahara Diaries.[10] Apart from this, there is an issue of political parties and the candidates not coming under the umbrella of the Right to Information of Act, even though the Central Information Commission (CIC) has directed that they come under the ambit of ‘public authorities’ under Right to Information Act therefore they are bound by it.[11]Nevertheless, the political parties and the candidates have contravened this direction; as a consequence no information even about the donors can be asked from the political parties. The acceptance of black money by political parties in the nature of undisclosed cash donations has been a pressing issue in the recent past.

The Finance Bill, 2017 made an amendment which lowers the limit of permissible cash donations from Rs.20,000 to Rs.2000. Though the political parties and the candidates claim this step to be reformative in nature but in spirit the reduction in limit still paves way to black money. As the donations accepted even now are not to be mandatorily disclosed or mentioned in the accounts, thus the amendment has not touched the revelation threshold. This step has been widely criticized as now the political parties and the candidates will only have to show 10 times more anonymous entries of amount less than Rs.2000. Thus what at present is shown under as cash donations of Rs.20,000 would be shown as less than Rs.2000. However there will be no change in the total amount so received by the political parties and the candidates.

Electoral Bonds

The Finance Bill, 2017 has proposed for another amendment relating to funding of elections in the form of allowing donors to donate to political parties through electoral bonds. The nature of these bonds is that it can be anonymously procured from certain specific banks; these bonds would not carry any information including the name of the holder and can be given to any anonymous political party in their registered bank accounts. The donors can purchase the bonds starting from Rs.1, 000 to Rs.1 crore. Every political party or the candidate who has received one percent in the preceding general or state elections can form an account to which these bonds’ amount would be deposited within a span of 15 days from the date of the issuance of these bonds. Thus, even if a donation worth crores were made, it would remain unknown to the Election Commission or to the citizens. The Finance bill 2017 made an exception, that if the donations are more than Rs.20, 000 by means of electoral bonds, these need not to be recorded in the details of the donor and also the political are exempted from tax on these bonds.

As the flow of these funds will pass through the banking system which is safeguarded by its own means, the corporations or the individuals are not obligated to reveal neither their purchases nor the names of the parties receiving the amount. As a result the influence of the outsiders in the decision making in the politics of the country will increase manifold. Making the Electoral bonds anonymous has wrecked even more the transparency that was not even present in the system of funding of elections.

However the government in support of this scheme argues that short life span of these bonds and their regulated availability will not pave way to misappropriation and also contends that the return of the political parties will enumerate the amount received through these bonds, thus providing accountability. Apart from these, the government postulates that the donor’s right to privacy is being protected, as they need not reveal the donations so made, thus supplementing the right to vote through secret ballot.

Nonetheless, the objective of the government in letter by proposing this amendment was to bring transparency in the system. But in spirit it has achieved a contrary notion.

Foreign Fund

The law that prohibited foreign funding for the Indian politics, which is The Foreign Contribution (Regulation) Act, 2010, has been proposed to be amended by the finance bill 2017. By virtue of this bill the government legalized foreign election funding retrospectively. Which means to say it allowed anonymous and boundless donations from foreign corporates and individuals. The bill that is actually supposed to protect funding, is contravening the FCRA Act. The amended provisions of the bill make the parties immune from any kind of scrutiny. According to this, the political parties and the candidates are not answerable for any foreign transaction. The amendment was given a retrospective effect to make sure that the funds received by the political parties since 1976 cannot be subjected to probe thus validating all the foreign funds received since then. The task of Election Commission to carry out free and fair Elections in the country has become rather robust. Even the Chief Election Commissioner O.P Rawat iterated that Foreign Funding in elections should not be allowed.[12]

Not just in India but the concept of foreign fund in election has been disputable all over world. For instance, there have been allegations that the Libyan dictator Muammar Gaddafi funded the former President of France Nicolas Sarkozy. And also there is a contention that Russia has influenced the Presidential elections of Donald Trump in the United States of America. Now in India, the same is being repeated. The political parties and the candidates are receiving funds from the foreign corporates and individuals. This may result in opening the gates of the country’s democracy to be influenced by the external factors. By this amendment put forth by the Finance bill 2017, it completely destructs the idea of free and fair elections, as the political parties and the individuals need not reveal the amount that they received from outside the country. The external factors would influence on the prime policies of the nation, which would, in a way, affect its internal affairs. Thus, the Finance Bill, 2017, in the name of bringing transparency in the system, had made it more opaque.

Corporate Cap

The elections of the nation are not just influenced by external factors but also are affected by internal factors.

The Finance Bill, 2017 brought two keys changes in the existing law, firstly, it has removed the ceiling that existed earlier, which restricted a corporate body from donating more than 7.5 percent of its average net profit estimate in the previous three financial years.[13] And Secondly, the amendment scrapped an existing rule which made it mandatory for the corporate bodies to reveal the name of the political party to which funding is made in its profit and loss account. From the aforementioned, it is clear that bill has made the system of funding rather opaque.

Electoral reforms in funding of elections

The advent of electoral reforms curtailing to finances has three bases namely – corruption and black money, increase in campaign expenditure and the increased concern in the public in regard to providing equal participation opportunity in politics.

The first step to popularize the concept of electoral reforms is the J.P. Movement launched in the year 1974 that tinted the failure in the implementation channel, in the electoral system of India and also discussed about the, abuse of the official machinery during elections and the power of black money.

The legal framework is the pinnacle for the role that money ought to have in political life. Nevertheless, there is little scope for the laws to survive on their own. For accomplishing fruits of justice we need better written-laws, stronger implementation, improved financial supervision within the parties to have control over money in politics. But as, politicians themselves are the lawmakers, they are supposed to abide, by the regulations, which would include loopholes, enforcement agencies are not sufficiently empowered and parties do not account for their finance.

The body, that ensures the compliance of elections in the nation, is often called as a toothless tiger. For the same reason, there shall be immense development of political financial regulations and that could be achieved by having wide domain of stakeholders. The lack of political will has to be identified, technical know-how or the concept of independency. The lawmakers must give agencies more power to show serious obligation towards transparency and increased public trust.

In order to increase the independency and the claim for free and fair elections, reforms are needed both, in the very nature of elections and the political funding which is the root cause of dubious elections.

Getting the political parties under the umbrella of the Right to Information (RTI) Act.

The Central Information Commission (CIC) in 2013 passed an order directing six national parties to get under the scope of the Right To Information (RTI).  Nevertheless the Election Commission issued a directive refuting the order of the CIC by affirming that the political parties do not fall within the ambit of the RTI. The same issue has been mounted several times in the Supreme Court wherein it is argued that the Election Commission lacks the jurisdiction, as the decision of CIC is unquestionable. Thus the need arises to bring the political parties under the ambit of the RTI, so that there is an end to accounted expenditure by the political parties.

Limit to anonymous donations.

The political parties and the candidates tend to receive limitless anonymous contributions. In most of the cases the donors chose to be anonymous and the parties accept the same, as the former would influence the governmental policies in their favor in return for their contributions made. The large amount of donations would lead to greater influence and political support. The limitless anonymous donations if not restricted would destroy the idea of ‘one voter, one vote, one value.’[14]

System of Proportional Representation

The primary method through which it can be achieved is linked to the ‘First past the post’ system. This system operates in two levels. Namely – at the initial level of the election of the candidate wherein if he receives the largest number of votes, he is declared as the winner of the constituency. The main issues arises when all the votes casted in favor of the other candidates irrespective of the aggregate in their particular constituency goes in vain as the candidate who has received the highest percentage of the vote becomes the elected candidate. Secondly, ‘First past the post’ plays a crucial role in the formation of the government in that particular constituency, and during that course of time the party or coalition with more than 50 percent gets the chance to form the government and the rest of them have no role to play in the daily affairs of the government except for being a productive opposition. Therefore, replacing the current first past the post system with the System of Proportional Representation can bring a reform.  For instance, countries like Austria, Switzerland, the representation in the government happens according to the proportion of the Member of parliament/ Members of legislatures. Under this system of proportional representation, a list of candidates is given by the parties to the voters thereafter the voters casts two votes, wherein one vote is casted to his preferred party and the other to the preferred candidate in one of those political parties. In this System, the voter gets a fair chance to elect a desirable candidate catering to any party and not just a candidate that represents a particular political party, which have high chances of winning the elections.

State Funding of Elections or National Election Fund

The next reform that is required in the electoral funding is that of State Funding of the elections.The very concept of state funding of elections is not unique to India. The idea of public financing model is in discussion since 1989.[15]As stated by the global democracy watchdog, that is The International Institute for Democracy and Electoral Assistance (IDEA) an estimate of 116 democracies have dedicated some percentage of their state subsidies for the sake of political activities as funding is crucial for a successful democracy and they would not want to hamper it.[16] The concept of state funding has been experimented by the prominent upholders of democracy like that of United Kingdom (UK), United States of America (USA), and Germany etc. Even within Asia, nations like South Korea, Japan and Israel have already adopted this successful model of State Funding.

According to the recommendations of The Law Commission, regarding the financial electoral reforms it is said that the money power almost dominates the sphere of election, therefore the notion of equality by placing the rich and the poor candidates on the same position.[17]

In this system, a fair chance is given to the candidate who does not have access to sumptuous amount of money required for campaigns to get their share of the bargain. According to this method of funding, post the elections the government will refund each and every candidate their amount of expenses incurred, which shall be in proportion to the vote received.  This system works on the basic principle that if a party is popular enough to receive a significant number of votes, it would be in a position to get the expenses refunded by the state. The roots of the public financing are traced to the philosophical ideologies of John Rawls and Donald Dworkin. According to these ideologists, public funding will establish “ equalizing influence”- which is an attempt to make sure that certain powerful political parties and individual candidates do not influence the voters unduly.[18]  This school of thought brings to the light, with the concept of “equal political influence” their exists political equality wherein no political party or the candidate of a higher footing to exercise more power over the other political parties or candidates. The rationale of the theory lies in the “equality view of public funding”, which is centered to one point of fear that the well-known political actors will leave no stone unturned to transform their economic power into the political power which will be against the basic principle of political equality.

Indeed the State Funding of Elections will be a burden on the treasury of the government as India’s current financial system is in crisis and the focus of the Election Commission is to bring transparency and accountability in the system and this will pave way for the same.  However, this system is being promulgated for the sake of anti-corruption contentions.  The theorists claim on both instinctive and historical standards when election contributions also the ones made legally, act as a permissible form of bribery which limits the politicians to function.[19] This concept can help and safeguard the elections from direct form of corruption. The public financing of elections is based on two facets. Firstly it reduces the dependency on corporate houses or any kind of private inflow of money.  And secondly by imparting white money across state funding which would include tax-free donations or matching funds etc. This model of national election fund or state funding will be of great significance not only for the financial reform needed in the funding of elections but also uplifting the values of democracy thereby paving way towards uncompromising transparency of funds, better disclosure standards, detailed regulatory structure and public perusal of expenditures by the political parties and the candidates.


The Finance Bill, 2017 with an aim to have free and fair elections dedicated an entire chapter named “The Transparency in Electoral Funding”. The same had two paragraphs wherein, the first one describes certain basic statements and the second consisted of definite proposals. The public with a lot of zeal and zest welcomed the step. Unfortunately, this step was only momentary as the provisions in the finance bill when being tabled were exactly contradictory of its nature that is it lacked transparency, in fact making the funding of elections rather opaque. The bill is thus a treat to the very essence of democracy and the authors have suggested certain reforms, which would eradicate this impediment.

“It is the opinion of Author and LTJ do not agree or disagree with the same”


[1] N S Gehlot, ‘Electoral Reforms in India; a need for national action whither Indian politics’ (1996) India Law Journal 212

[2]B.Hyedervalli, ‘Law and Corruption in India’, (2002) 29 Indian Bar Review

[3]Raj Narain v Indira GandhiAIR 1975 SC 2299

[4]Ralegan Siddhi, ‘Sweeping electoral reforms needed to end malpractices: Anna Hazare ‘, The Economic Times(New Delhi, 20 April 2019)

[5]Prashant Bhushan, The Case That shook India: The Verdict That Led to the Emergency (Penguin Books, 2017)

[6]Transparency International, Standards on Political Funding and Favors <> accessed 9 May 2019

[7] Citizens Campaign for Electoral funding reforms. <> accessed  22 April  2019

[8]Harvard Institute of Politics, Fighting Corruption in India<> accessed 9 May 2019

[9] Dolly Arora, ‘State Funding of Elections Some Posers’, (2000) Economics and Political Weekly

[10]Paranjoy andAdvaitRaoPalepu, ‘Did Modi receive over Rs.55 crore from the Sahara Group as the chief Minister of Gujarat?’ (2016) 51 Economic and Political Weekly

[11]PTI, ‘Political parties come under RTI Act, says Central Information Commission’, India Today(New Delhi, 3 June 2013)

[12]KaushikDeka, ‘Political Funding: Who pays for the Party?‘India Today(New Delhi, 19 November 2018)

[13] The Companies Act, 2013, s 182(1)

[14]Reynolds v. Sims 377 U S 1964 53

[15]  Richard Sisson, ‘India in 1989: A Year of Elections in a culture of change’ (1990) 30 Asian Survey 111


[17]Law Commission, Electoral Reforms (Law Com No 255, 2015) paras 2.6-2.7

[18] Harry Brighouse, ‘Political Equality in Justice as Fairness, Philosophical Studies’ (1997) 86 An International Journal for Philosophy in the Analytical Tradition 155

[19]  Bradley A. Smith, ‘The Sirens’ Song: Campaign Finance Regulation and the First Amendment’ (1997) 6 Journal of Law and Politics 2

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