Author: Akash Pal, Faculty Of Law, Delhi University
Introduction
“Money is the mother’s milk of politics.” This quote by Jesse Unruh underscores the profound impact of financial contributions on the political landscape. In India, political donations play a pivotal role in shaping election outcomes, with the 2019 general elections witnessing an unprecedented expenditure of over ₹60,000 crores. Such staggering figures highlight the influence of money in politics and the potential for it to skew democratic processes.
Regulating political donations is crucial for maintaining the integrity of a democracy. Unchecked financial contributions can lead to undue influence by wealthy individuals and corporations, undermining the principle of equal representation. It can also foster corruption, as political parties may feel beholden to their donors, prioritizing their interests over those of the general public. A robust legal framework ensures transparency and accountability, preventing the concentration of power and promoting fair competition among political entities. By setting clear guidelines and limits on donations, the legal system can help safeguard democratic values, ensuring that elections are contested on the basis of ideas and policies rather than financial might.
Historical Background
The regulation of political donations in India has evolved significantly since its inception. The earliest framework can be traced back to the Representation of the People Act, 1951, which laid the foundation for electoral laws in the country. Initially, there were minimal restrictions on political donations, leading to concerns about the influence of money in politics.
In response to these concerns, the government introduced the Companies Act, 1960, which prohibited corporate donations to political parties. However, this ban was lifted in 1985, allowing companies to contribute up to 5% of their average net profits over the past three years. This amendment aimed to increase transparency and accountability in political funding.
The introduction of the Election and Other Related Laws (Amendment) Act, 2003, marked a significant shift in the regulatory landscape. This act mandated political parties to disclose donations exceeding ₹20,000 and introduced the concept of electoral trusts, providing a more structured and transparent mechanism for corporate donations.
The most recent amendment, the Finance Act, 2017, introduced the controversial Electoral Bonds Scheme. This scheme allows donors to purchase bonds from designated banks and donate them to political parties anonymously. While intended to increase transparency, critics argue that it may lead to increased opacity in political funding.
These amendments reflect the ongoing efforts to balance the need for political funding with the imperative of maintaining a fair and transparent electoral process.
Current Legal Framework
Current legal framework for political donations is designed to ensure transparency and accountability in political funding. Key laws and regulations include:
Representation of the People Act, 1951: This foundational law mandates the disclosure of donations exceeding ₹20,000. It aims to prevent the influx of unaccounted money into the political system. For instance, political parties must submit annual reports to the Election Commission of India (ECI), detailing their sources of funding.
Companies Act, 2013: This act allows companies to donate up to 7.5% of their average net profits over the last three years to political parties. The donations must be disclosed in the company’s profit and loss statement. For example, a corporation like Tata Group must report its political contributions in its annual financial statements.
Foreign Contribution (Regulation) Act, 2010 (FCRA): This act prohibits political parties from accepting foreign contributions, ensuring that domestic politics are not influenced by foreign entities. An example is the ECI’s scrutiny of political parties’ accounts to ensure compliance with FCRA regulations.
Electoral Bonds Scheme, 2018: Introduced to increase transparency, this scheme allows individuals and corporations to purchase bonds from designated banks and donate them to political parties anonymously. However, the scheme has faced criticism for potentially increasing opacity. For instance, a donor can buy an electoral bond from the State Bank of India and donate it to a political party without revealing their identity
Supreme Court Verdicts and Judicial Interpretations
Supreme Court of India has played a pivotal role in shaping the legal framework for political donations through several landmark verdicts. One of the most significant cases is the Association for Democratic Reforms (ADR) v. Union of India (2002), where the Court mandated the disclosure of criminal records, assets, and liabilities of electoral candidates. This ruling aimed to enhance transparency and accountability in the electoral process.
Another crucial verdict came in Lok Prahari v. Union of India (2018), where the Court directed political parties to disclose the sources of donations received through electoral bonds. This decision was intended to curb the influence of unaccounted money in politics and promote transparency.
The most recent and impactful verdict is the Supreme Court’s decision in 2024 to strike down the Electoral Bonds Scheme. The Court declared the scheme unconstitutional, stating that it violated the right to information under Article 19(1)(a) of the Constitution. The ruling emphasized that transparency in political funding is essential for the effective exercise of the right to vote. The Court ordered the State Bank of India to stop issuing electoral bonds and disclose details of past transactions.
These verdicts underscore the judiciary’s commitment to ensuring transparency and accountability in political funding. They have significant implications for the political donation landscape, pushing for greater openness and reducing the potential for corruption and undue influence in Indian politics.
Challenges and Criticisms
Legal framework for political donations in India faces several challenges and criticisms, primarily due to the opacity and potential misuse of funds. One prominent example is the controversy surrounding the Electoral Bonds Scheme. Critics argue that the scheme, despite its intention to increase transparency, has instead facilitated anonymous donations, making it difficult to trace the source of funds. This anonymity can lead to the influx of black money into the political system, undermining the integrity of elections.
The role of black money in political donations is a significant concern. For instance, during the 2019 general elections, reports indicated that a substantial portion of political funding came from unaccounted sources. This influx of illicit funds can lead to quid pro quo arrangements, where donors expect favorable policies or contracts in return for their contributions. Such arrangements compromise the democratic process, as elected officials may prioritize the interests of their donors over those of the public.
Additionally, the lack of stringent enforcement mechanisms exacerbates these issues. Despite laws requiring the disclosure of donations, many political parties fail to comply fully, further obscuring the true extent of political funding. The Election Commission of India has repeatedly highlighted these compliance gaps, calling for stricter regulations and enforcement to ensure transparency and accountability in political donations.
Proposed Reforms
To address the challenges in the current legal framework for political donations in India, several practical reforms can be proposed:
Enhanced Disclosure Requirements: Mandate real-time disclosure of all political donations above ₹10,000. This would ensure greater transparency and allow the public to scrutinize the sources of political funding. For example, political parties could be required to update their donation records on a publicly accessible platform within 48 hours of receiving funds.
Cap on Corporate Donations: Limit corporate donations to a fixed percentage of their net profits, with stricter penalties for non-compliance. This would prevent undue influence by wealthy corporations and promote a more equitable political environment. For instance, a cap of 2% of net profits could be enforced, with mandatory audits to ensure compliance.
Ban on Anonymous Donations: Abolish the Electoral Bonds Scheme and prohibit anonymous donations. This would enhance accountability and reduce the risk of black money entering the political system. The Supreme Court’s recent verdict declaring the scheme unconstitutional underscores the need for such a reform
Conclusion
Continuous improvement in the legal framework governing political donations is essential for safeguarding the integrity of India’s democratic process. As challenges and loopholes emerge, it is crucial to adapt and refine regulations to ensure transparency, accountability, and fairness. By addressing existing issues and implementing robust reforms, we can mitigate the undue influence of money in politics and promote a more equitable electoral system. A dynamic and responsive legal framework will help maintain public trust and uphold the democratic values that form the cornerstone of our society.
FAQS
What are political donations and why are they significant in democratic processes?
Political donations are financial contributions made to political parties, candidates, or campaigns. They are significant because they can influence election outcomes, policy decisions, and the overall functioning of a democracy. Regulating these donations ensures a level playing field and prevents undue influence by wealthy individuals or entities.
Why is a legal framework necessary to regulate political donations in India?
A legal framework is essential to ensure transparency, accountability, and fairness in political funding. It helps prevent corruption, reduces the influence of black money, and ensures that political parties and candidates operate within defined ethical boundaries. This framework is crucial for maintaining public trust in the democratic process.
What are the key laws governing political donations in India?
The key laws include the Representation of the People Act, 1951, which mandates the disclosure of donations above ₹20,000; the Companies Act, 2013, which regulates corporate donations; the Foreign Contribution (Regulation) Act, 2010, which restricts foreign donations; and the Electoral Bonds Scheme, 2018, which allows anonymous donations through designated banks. Additionally, the Income Tax Act, 1961, provides tax exemptions for political donations.
What are some landmark Supreme Court verdicts related to political donations?
Significant verdicts include the Association for Democratic Reforms (ADR) v. Union of India (2002), which mandated the disclosure of candidates’ criminal records and assets, and Lok Prahari v. Union of India (2018), which required political parties to disclose the sources of donations received through electoral bonds. The Supreme Court’s 2024 decision to strike down the Electoral Bonds Scheme as unconstitutional is another landmark ruling.
What are the main challenges and criticisms of the current political donation framework in India?
The primary challenges include a lack of transparency and accountability, the influence of black money, and quid pro quo arrangements where donors expect favorable policies in return for their contributions. The current regulatory framework has gaps that allow for the misuse of funds and the potential for corruption, highlighting the need for continuous reforms and stricter enforcement.
