Political Funding in India: From Cash Donations to Electoral Bonds

Political funding has been a contentious issue in India since the country’s independence. The need for transparency and accountability in political donations has been a topic of debate for decades. This case study explores the history of political funding in India, the various reforms introduced over the years, and the controversies surrounding the introduction of electoral bonds.

The Early Years of Political Funding (1951-1969):

1. The first general elections in India were held in 1951, and political parties relied heavily on donations from individuals and corporations.
2. The Representation of the People Act, 1951, was introduced to regulate elections and political funding, but it did not provide for complete transparency in donations.
3. In 1957, the first major case of political funding controversy emerged when a shareholder of Tata Iron and Steel discovered that the company had donated money to the Congress party without proper disclosure.
4. In the 1960s, several cases of quid pro quo arrangements between corporations and political parties came to light, leading to the introduction of the Foreign Contribution (Regulation) Act (FCRA) in 1976, which prohibited foreign funding of political parties.

The Era of Black Money and Cash Donations (1969-1985):

1. In 1969, the then Prime Minister Indira Gandhi banned corporate donations to political parties by amending Section 293A of the Companies Act.
2. This move led to the proliferation of black money and cash donations, as companies and political parties found ways to circumvent the law.
3. In 1985, Prime Minister Rajiv Gandhi reversed the ban on corporate donations, hoping to reduce the influence of black money in politics.
4. However, the new amendment came with its own set of problems, as it put a limit on the amount of corporate donations and required disclosure of the same in the company’s annual financial report.

The Introduction of Electoral Trusts (1996):

1. In 1996, the Tata Group introduced the concept of Electoral Trusts to streamline corporate donations to political parties.
2. The idea behind Electoral Trusts was to create a buffer between corporations and political parties, thereby protecting the companies from potential harassment by the ruling party.
3. Electoral Trusts also provided anonymity to the donors, as the trusts were not required to disclose the names of the companies contributing to them.

The Demand for Transparency and Accountability (2002-2017):

1. In 2002, the Association for Democratic Reforms (ADR) filed a Public Interest Litigation (PIL) in the Delhi High Court, seeking disclosure of the criminal background and financial assets of candidates contesting elections.
2. The Supreme Court, in a landmark judgment, made it mandatory for candidates to disclose their criminal, financial, and educational background.
3. In 2013, the Central Information Commission (CIC) brought six national political parties under the ambit of the Right to Information (RTI) Act, but the parties refused to comply with the order.
4. In 2017, the Election Commission of India (ECI) recommended several reforms to the political funding system, including a cap on the amount of cash donations and stricter disclosure norms.

The Introduction of Electoral Bonds (2017):

1. In 2017, the government introduced Electoral Bonds as a means to promote transparency in political funding.
2. Electoral Bonds were introduced through the Finance Act, 2017, which amended several existing laws, including the Representation of the People Act, the Income Tax Act, and the Companies Act.
3. The scheme allowed individuals and corporations to purchase Electoral Bonds from designated branches of the State Bank of India (SBI) and donate them to the political party of their choice.
4. The identity of the donors was kept confidential, and only the political parties redeeming the bonds would know the identity of the donor.

Controversies Surrounding Electoral Bonds:

1. The Electoral Bond scheme faced criticism from various quarters, including the Election Commission of India (ECI) and the Reserve Bank of India (RBI).
2. The ECI argued that the scheme would lead to the proliferation of black money in elections, while the RBI warned that it could lead to money laundering and undermine the trust in the Indian currency.
3. Political parties in opposition accused the government of using the scheme to benefit the ruling party, as the anonymity provided by the scheme could lead to quid pro quo arrangements between corporations and the government.
4. In 2019, the Supreme Court heard petitions challenging the constitutionality of the Electoral Bond scheme but did not stay the scheme. The matter is still sub judice.

The Impact of Electoral Bonds on Political Funding:

1. Since the introduction of Electoral Bonds in 2017, the scheme has been used extensively by corporations and individuals to donate to political parties.
2. As per data released by the SBI, Electoral Bonds worth over Rs. 6,000 crore were sold in the first three years of the scheme.
3. The ruling party has been the biggest beneficiary of the scheme, with over 60% of the total value of Electoral Bonds being donated to the party.
4. The anonymity provided by the scheme has raised concerns about the influence of big money in politics and the potential for corruption.

Conclusion:

The history of political funding in India has been a long and complicated one, with various attempts made to regulate the flow of money into politics. The introduction of Electoral Bonds in 2017 was seen as a step towards promoting transparency in political funding, but the scheme has been mired in controversy since its inception. The lack of disclosure requirements and the potential for misuse of the scheme have raised concerns about the influence of money in politics. As the debate around political funding continues, it is important for policymakers to find a balance between the need for transparency and the right to privacy of donors. Only by ensuring a level playing field and reducing the influence of big money in politics can India hope to have a truly representative democracy.