Political Funding Reforms | 04 Apr 2026

Source: Mint 

Why in News? 

A report by the Association for Democratic Reforms (ADR) focuses on donations of Rs 20,000 or more declared to the Election Commission of India (ECI) by national political parties for FY 2024-25, highlighting efforts toward democratic accountability.   

• It revealed that the Bharatiya Janata Party (BJP) received Rs 6,074 crore in donations during FY 2024-25, marking a 171% increase from the previous year. 

What are the Key Highlights of the ADR Report on Political Funding? 

• Massive Funding Surge: Total donations (above Rs 20,000) to National parties rose by 161% to Rs 6,648 crore, with the BJP accounting for over 91% of the total aggregate.

• Dominance of Corporate Funding: Business sectors contributed 92.18% of total donations, while individual contributors accounted for only 7.61%. 
• Role of Electoral Trusts: The Prudent Electoral Trust remains the largest donor, contributing Rs 2,413 crore collectively to the BJP, Indian National Congress (INC), and Aam Aadmi Party (AAP), with a major share directed toward the BJP. 
• Geographic Concentration: The highest volume of donations originated from Delhi, followed by Maharashtra and Gujarat. 
• Zero-Declaration Trend: The Bahujan Samaj Party (BSP) maintained its 19-year streak of declaring nil donations above the Rs 20,000 threshold.

How has the Political Funding Landscape Evolved in India? 

• Pre-2017 Era: Before 2017, the system was largely informal. Most donations were made in cash, with a reporting threshold of Rs 20,000. Parties often broke down large donations into smaller "anonymous" chunks to avoid disclosure.  
  • Companies were restricted from donating more than 7.5% of their average net profit from the previous three years. 
• Electoral Bond Era (2018–2024): It prioritized donor privacy over public transparency. While it successfully moved funds into the banking system (reducing "black money"), it created an information asymmetry where the public did not know who was funding whom. 
  • The 7.5% corporate profit cap was removed, and the requirement for companies to disclose which party they funded in their profit-and-loss accounts was eliminated. 
• Supreme Court Electoral Bond Ruling 2024: In Association for Democratic Reforms & Anr. v. Union of India & Ors Case 2024, the Supreme Court struck down the Electoral Bond Scheme as unconstitutional. The Court ruled that anonymous funding violates the voters' right to information under Article 19(1)(a).  
  • The Court highlighted that unlimited corporate funding could lead to "institutionalized corruption" where policies are influenced by large donors. 
• Current Landscape (2025–2026): Since the ban on bonds, political funding has reverted to three primary pillars: 
  • Electoral Trusts: These act as intermediaries. Companies donate to the Trust (e.g., Prudent Electoral Trust), which then distributes funds to parties. 
  • Direct Corporate/Individual Donations: Parties are back to receiving direct cheques and digital transfers.  
  • Digital Reporting (IEMS): The Election Commission of India (ECI) now requires the online filing of contribution reports through the Integrated Election Management System (IEMS) to speed up the auditing process.

How does Financial Transparency in Elections Ensure Democratic Accountability? 

• Prevent "Quid Pro Quo" Arrangements: Without transparency, large corporate donors can provide massive funds to political parties in exchange for favorable policies, licenses, or contracts once that party is in power. Transparency acts as a deterrent against the "politico-corporate nexus" by making these transactions visible to the public eye. 
• Ensure a Level Playing Field: Elections should be a competition of ideas, not a competition of wallets. By knowing the source of funds, ECI can better enforce spending limits, preventing a "financial arms race" that marginalizes the common citizen. 
• Protect National Sovereignty: Foreign entities may attempt to influence a country’s domestic policies by funding specific candidates or parties. Strict enforcement of the FCRA, 2010 and mandatory disclosure ensure that political parties are not beholden to foreign interests.  
• Empower the "Informed Voter": A voter has the right to know who is "powering" a candidate. If a candidate is funded by an industry that the voter opposes (e.g., a specific tobacco or mining conglomerate), that information is vital for the voter to make a rational decision. 
  • When funding is transparent, the mandate given by the people is based on a clear understanding of the candidate's allegiances. 
• Constitutional Perspective: The Supreme Court struck down the Electoral Bonds Scheme specifically because it compromised transparency in political funding. The Court ruled that while curbing black money is a legitimate goal, it cannot be used as a "blanket excuse" to keep the entire funding process anonymous. 

Which Reforms are Essential for Ensuring Transparent Political Funding in India? 

• Mandatory & Real-Time Disclosure: Currently, parties only report individual donations above Rs 20,000 annually. The disclosure threshold should be lowered (e.g., to Rs 2,000) to prevent "splitting" large donations into many small, anonymous ones. 
• State Funding of Elections (In-Kind): Indrajit Gupta Committee (1998) proposed "partial state funding" in kind—providing facilities like free airtime on media, fuel for vehicles, paper for posters, and rent-free office space—rather than giving cash. 
  • Some experts suggest a central fund like Electoral Trust where corporates can donate blindly; the ECI then distributes these funds to parties based on their previous vote share. 
• Ceiling on Party Expenditure: While there is a legal limit on how much an individual candidate can spend, there is currently no limit on what a political party can spend on an election.  Introduce a formal cap on the total expenditure a political party can incur during an election cycle to ensure a level playing field for smaller parties. 
  • The Law Commission of India (255th Report, 2015) has supported the introduction of expenditure ceilings for political parties to complement candidates’ expenditure limits. 
• Independent Auditing: Currently, political parties choose their own auditors. Mandate that political party accounts be audited by a panel of auditors approved by the Comptroller and Auditor General (CAG) or the ECI. This would ensure that the audits are impartial and rigorous. 
• Decoupling Corporate Influence: Restore the cap on corporate donations (previously 7.5% of net profit) to prevent loss-making "shell companies" from being used as conduits for money laundering.  
  • Require companies to get explicit approval from shareholders during Annual General Meetings (AGMs) before making political donations. 
• Empowering ECI: The ECI currently has limited power to punish parties for financial non-compliance. Grant the ECI the statutory power to de-register a political party if it fails to submit audited accounts or violates funding norms. 

Conclusion 

The surge in political donations, dominated by corporate interests and specific parties, highlights a critical intersection of finance and governance. Addressing these disparities through capping party expenditure, reintroducing corporate donation limits, and granting the ECI de-registration powers is essential to safeguard democratic integrity and ensure a level playing field.