Political Funding in India

Syllabus: GS2/Polity & Governance

Context

• Concerns over the finances of Registered Unrecognised Political Parties (RUPPs), rising political donations and the continuing debate over electoral transparency have brought political funding back into focus.

About Political Parties in India and Electoral Finance

• Political parties are an integral feature of representative democracy. The constitutional basis of political parties is found mainly in Article 19(1)(c) which gives to the citizens the freedom to organise associations.
• They are registered under section 29A of RPA, 1951.
• The procedure for recognition and allotment of election symbols is provided in the Election Symbols (Reservation and Allotment) Order, 1968.
• Section 29B of the RPA permits contributions to political parties. The income-tax status of political parties is mainly controlled by Section 13A of the Income-tax Act, 1961 which is subject to stipulated restrictions pertaining to accounting, audit and transparency.

• Donors may receive deductions under Sections 80GGB and 80GGC, subject to the law.
• Thus, political parties perform a public democratic function while operating through a legal framework that is considerably less comprehensive than the regulatory regimes applicable to companies or other institutional entities.

Why Do Political Parties Need Funds?

• Political activity inevitably involves expenditure. Parties need resources for:
  • election campaigns and public meetings;
  • offices and organisational machinery;
  • communication and voter outreach;
  • research and policy work;
  • training of workers and candidates; and
  • increasingly, digital and social-media campaigning.
• The issue, therefore, is not whether parties should receive money, but how that money is raised, disclosed and spent.

Scale of Political Wealth

• 22 political parties had ₹18,742.31 crore at their disposal around the Lok Sabha election (2024). 
• Between the announcement and completion of the election, they raised another ₹7,416.31 crore. 
• After the election, ₹14,848.46 crore reportedly remained with them, while their reported election-related expenditure during the campaign period was ₹3,861.57 crore.
• The same analysis estimates that tax exemptions associated with political donations resulted in around ₹11,813 crore in foregone revenue over the decade considered.
• It shows a sharp rise in stated donations among the parties studied, from ₹714 crore in 2015-16 to ₹7,203 crore in 2023-24.
• These data indicate that political funding is no longer a peripheral electoral concern, but an essential aspect of public accountability.

Related Issues and Challenges

• Registered Unrecognised Political Parties (RUPPs): These are registered parties which do not meet the criteria for registration as a State or National party.
  • According to the Association for Democratic Reforms (ADR), income of RUPPs grew by 223% in FY 2022-23.
  • Only 739 of the 2,764 RUPPs had submitted their financial records to the ECI.
  • The ECI, in August 2025, stated that it had delisted 334 RUPPs out of 2,854 as part of its electoral-clean-up exercise.
  • However, delisting and  deregistration both are different measures. 
  • The ECI’s legal authority to deregister political parties is limited, and enforcement is a concern.
• Transparency Deficit: Political parties have a lot of money, but the framework for disclosure is fragmented.

• Merely filing accounts does not necessarily ensure that the public can easily understand the source, destination and ultimate beneficiaries of political money.
• It gained prominence after the Central Information Commission’s 2013 decision concerning the applicability of the RTI framework to major political parties, which was resisted by the parties concerned.

• Electoral Bonds: The Electoral Bonds Scheme (2018) was conceived to bring about a legitimate banking route for political donations but with the name of the donor not being disclosed to the public.
• Other Challenges: These include the rising costs of elections, unequal access to financial resources, non-availability of scrutiny of party accounts, funding of inactive parties, and the lack of a single, publicly searchable database that offers comprehensive political-finance data.

Efforts and Measures

• Judiciary: The Supreme Court in Association for Democratic Reforms v. Union of India,struck down the Electoral Bond Scheme and the amendments to the law connected to it as illegal.
  • It stressed the right of the voter to transparency about political finance and proved that the manner of political funding might have direct ramifications for election openness.
  • Earlier judicial interventions have demonstrated the link between informed voters and free and fair elections.
• Election Commission: ECI has taken action against inactive RUPPs, and has pushed for election reforms several times.
  • Article 324 gives it broad powers over the conduct of elections, although those powers remain subject to existing legislation.
• Government and Legal Framework: The principal safeguards include Section 29A of the RPA, Sections 29B and 29C, the Election Symbols Order and Section 13A of the Income-tax Act.
  • Donor-side deductions are separately governed by Sections 80GGB and 80GGC.
• Use of Technology: A central digital platform can make political-finance disclosure more meaningful by allowing standardised, searchable and machine-readable reporting of donations, expenditure, audited accounts and compliance status.

Way Forward: Strengthening Electoral Integrity

• Uniform Financial Disclosure: All registered parties are required to upload audited accounts, donor information and spending data to a common, searchable site of ECI.
• Independent Audit: A stronger external audit of party accounts, with a proper legal framework, can enhance confidence.
• Clear Standards on Deregistration: Objective criteria should target parties that remain registered but frequently fail to contest elections.
• Rationalisation of Tax Exemptions: Tax advantages should be tied to real democratic and electoral action and not only to formal registration.
• Stronger ECI Capability: Article 324 provides the ECI with wide constitutional powers over elections; this should be supported by clear statute authorities and substantial investigative capacity.
• Greater Public Disclosure: Political finance should be transparent enough for citizens to understand who funds political organisations and how those funds are utilised.

Conclusion

• Money is necessary for political competition, but secrecy around money can weaken public confidence in that competition.
  • The objective should not be to prevent political parties from raising funds; it should be to ensure that citizens can reasonably know where significant political money comes from and how it is used.
• For Indian democracy, the larger principle is simple: political finance must remain compatible with the voter’s right to make an informed choice.
  • Electoral reform will remain incomplete unless the financial side of politics receives the same seriousness as the conduct of polling itself.

Source: TH