Anonymous Funding of Political Parties

In his budget speech on February 2, 2017 the Finance Minister Arun Jaitley proposed to bring down the amount of anonymous contributions by individuals to political parties from Rs. 20,000 to Rs 2,000. This proposal was made following a recommendation by the Election Commission calling for transparency in collection of funds by political parties. Although it appears to be a very significant move towards ensuring transparency in fund transfers to political parties, the very idea of any anonymity in donation is contradictory to transparency. But in spite of this fact, some opacity is still kept in this.

In order to identify the true intention of the government in this regard, one needs to look at the current scenario of political parties both in terms of the legal and socio-political situation. Then, one can look into the various criticisms drawn to this move and suggest improvements.

Current Status of Anonymous Funding

The current figures given in below table by EC regarding anonymous funding to political parties are shocking:

The data also indicates that during the period 2004-2015, around 7 national parties and 50 regional parties received 70% of their funds from anonymous sources. The parties have also admitted that out of their total income of Rs 11,367 crore, Rs 7832 crore has been received from unknown sources. This gives a big blow to transparency in one of the most important institution of democracy.

Legal Position

There is nothing in the constitution regarding anonymous funding and there are no explicit laws that regulate anonymous funding. However, Section 29C of the Representation of People’s Act, 1951 provides that every political party must disclose all donations above Rs 20,000. The current proposal is to make an amendment and make this figure to Rs. 2000.

The Debate

The debate on anonymous donation up to Rs 2000 is around the following arguments. First, since every big or small trader is required to maintain a record of the source of every penny,  why political parties should be allowed to keep donations up to Rs. 2000 undisclosed. Thus, this would violate fundamental right to equality under article 14. Second, all political parties can still claim that a large fraction of amount they received was made of donations of less than Rs. 2000. Large transactions can be divided into parts and escape record. Third, the government should first of all bring all donations to parties under Digital mode and it should make sure that all donatiions to political parties are cashless. Fourth, there is an opposition to concept of proposed electoral bonds, which is opposed on the ground that those bonds are to be bearer bonds which will automatically keep the donor anonymous.

Tax exemption to political parties

Political parties are entitled to some exemption from taxation under the Income Tax Act. But this exemption os not absolute and a return has to be filed for the unexempted amount. The two conditions for exemption have also been laid down in the budget and any amount falling out of the exemptions is liable for income tax. But, strangely, the two conditions have been operative since 1979 and 2003 respectively. Still, they fail to pressurize the parties to file proper returns. In such situation, reform can be brought only by introducing new stringent conditions, which has been ignored. Thus, it is another means to woo the public on reforms.

Moves suggested but not taken

Many critics point out that certain moves are essential to ensure transparency but they have not been undertaken. One such move was prevention of corporate funding. There are various big business houses who channelize the illegal money into the funds of the party they support. This leads to unfair decisions in their favour during the reign of their chosen party. It creates an anti-competitive situation in the economy. So, this should have been stopped. Another such suggested is the creation of a separate National Electoral Trust and Fund. The donors can deposit their contributions into this and later it can be distributed among political parties as per display of their needs. This can be done by dividing political parties according to National and State category. Then their needs can be assessed accordingly.

But, instead a small and insignificant step has been taken.


One can call this as another half-hearted move by the Government to bring in any reform to the system of political funding. As referred to by the former professor of IIM Ahmedabad, Mr Jagdeep M Chhokar, the whole effort by the government is only a mirage to woo the common public about reforms in politics.

If true reforms in politics have to be brought about, it should begin with the political parties themselves. Their activities have to be kept a check on, especially funding requirements. This change will bring no impact on the current scenario except in forcing the donors to divide their sources of funding or reduce it to a small extent in order to remain anonymous. In other words, the intention of the government in taking this move is quite unclear at present. No rationale can be found behind it other than the Election Commission’s pressure.

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