Finance Minister Arun Jaitley announced electoral bonds in the recent Union Budget. Can these bonds usher in a new era of much-needed glasnost in political financing in the world’s largest multi-party democracy?

Presenting the Union Budget 2017, Arun Jaitley unveiled a six-point agenda to bring transparency and clean a corrupt Indian political system. On the lines of the demonetisation decision, this budgetary proposal strongly brings out the anti-corruption credentials of Prime Minister Narendra Modi.

“Even 70 years after independence, the country has not been able to evolve a transparent method of funding political parties, which is vital to the system of free and fair elections. Political parties continue to receive most of their funds through anonymous donations, which are shown in cash,” Jaitley declared, while making the proposal.

Salient features

  • There is a need to cleanse the system of political funding in India.

  • Maximum amount of cash donation a political party can receive will be INR 2,000 from one source.

  • Political parties will be entitled to receive donations by cheque or digital mode from their donors.

  • The Reserve Bank of India Act will be amended to enable issuance of electoral bonds in accordance with a scheme that the Government of India will frame in this regard.
  • Every political party will have to file its return within the time prescribed, in accordance with the provision of the Income Tax Act.
  • Existing exemption to the political parties from payment of income tax will be available only subject to the fulfilment of these conditions.

Having authored the budget, Jaitley defended it strongly. “It is a step that deserves to be tried. I have no doubt that once one or two elections are contested on this particular pattern, we will see a significant amount of clean money getting into democratic elections,” Jaitley said, while addressing a post-Budget interaction with industry associations in New Delhi, two days after he presented his budget.

Jaitley did find support for his proposals outside the ruling party.

The Congress vice president, Rahul Gandhi, who has opposed several of Modi government’s initiatives, came out in support of this significant budgetary proposal. “Any step to clean political funding will be supported by us,” he wrote on Twitter.

“Considering that this is the first budget with focus on transparency in electoral funding, it is hoped that the stringent and bold measures proposed this year will have the positive effect of ensuring transparency in electoral funding,” observed M Devaraja Reddy, president of the Institute of Chartered Accountants of India (ICAI).

Election watchdog, Association for Democratic Reforms (ADR)—established way back in 1999 by a group of professors from the Indian Institute of Management, Ahmedabad—is least impressed, and has counted some flaws.


The Budget does not promise scrutiny of income declared by political parties from various sources and the corresponding measures of penalisation without which the reforms will remain incomplete. ADR argues that unless scrutiny of accounts of political parties is taken up by a body approved by the Comptroller and Auditor General (CAG) or ECI, the parties’ declared income is unlikely to reflect their true income.


The Budget does not propose that the details of all donors who donate above INR 2,000 be made available to the Income Tax department or an external body auditing the accounts of political parties. Even if the donors make donations by cheque/demand drafts or electronic transfer, unless their complete information is available for audit scrutiny, the sources of donations below INR 20,000 to political parties will continue to stay hidden.

The Obvious Question

Will the budgetary proposal, when it becomes part of the statute, have a desired effect? The capping of cash donation at INR 2,000 can be exploited by political parties when the limit was INR 20,000. For instance, a registered political party would have issued ten receipts for a total donation of INR 100,000 that it received in cash as per the general practice in the past. The same party will now issue 100 receipts for INR 1,000 for the same cash donation of INR 100,000.

Another significant proposal is that of introducing electoral bonds aimed at making the structure of political funding more transparent and accountable.

There are three major players in case of electoral bonds: the donor (an individual or entity) who wants to donate funds to a political party, the national or regional political party that will receive the bond, and the Reserve Bank of India.

To be issued by a notified bank, the bond can be bought using cheques or digital payments, and the political parties have to redeem these bonds within a few days.

The Representation of People’s Act stipulates that for a party to claim tax exemption, the treasurer of the party has to submit a donations report declaring details of donors who contributed over INR 20,000. However, there is no legal provision where political parties are debarred from disclosing details of donors who donate below INR 20,000. ADR points out that this only show a lack of political will.

It is important to understand that 70 pc of the declared income for both national and regional political parties put together came from unknown sources.

Since 2011, the BJP defaulted in the submission of its audit report to the Election Commission of India  by an average of 182 days, while the Indian National Congress defaulted by 166 days on an average.

In 2014, expenditure limits for the Lok Sabha elections was raised to a maximum of INR 7 million and a minimum of INR 5.4 million, allowing candidates to spend more on their poll campaigns. The Centre for Media Studies, an independent think tank, put a price tag of USD 5 billion for the 2014 General Elections.

Former chief election commissioner, TS Krishnamurthy suggested that the Election Commission should consider setting up of a national election fund to check the use of illegal money, instead of introducing bonds. All corporates who donate to this fund could get a 100 pc tax waiver. A similar suggestion of state funding of elections to ensure a level playing field was made by the Indrajit Gupta Committee in 1998.

Even as this idea is gaining favour with the Congress and Left Parties, it is uncertain whether there is enough political will to bring all the political parties under the Right to Information Act as public authorities. Successive governments are dead against bringing their political parties within the ambit of RTI. The moot question then is who will bell the cat?

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