Electoral bond controversy: How are democracies around the world funding their parties?

V Nivedita January 21 | Updated on January 21, 2020

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According to a recent report, political parties have declared income/donations worth Rs 1,931 crore through electoral bonds

The thirteenth tranche of electoral bonds is on sale this week. Introduced in the 2017 Budget, the Government said that the electoral bonds will help political parties accept donations from individuals and corporations. It would also help the Government to check cash donations, which are capped at ₹2,000. The names of the donors are also not known to the parties.

According to a recent report by the Association for Democratic Reforms (ADR) for the financial year 2018-19, political parties have declared income/donations worth Rs 1,931 crore through these bonds. The BJP has received nearly 75 per cent (Rs 1,451 crore) of the donations. The Congress received 20 per cent (Rs 383 crore) (20 per cent) and the TMC got 5 per cent (Rs 97 crore).

The CPI (M), BSP and CPI declared no income from electoral bonds, while the NCP is yet to submit its income details for the year with the Election Commission of India.

ADR’s research shows that BJP’s income in this period increased by 134.59 per cent, while the Congress’ income surged by 360.97 per cent. TMC's income soared by an incredible 3,628.47 per cent, which is the highest increase in income for any party in the period.

The report points out that the main source of income for the parties is donations and contributions. The BJP and Congress reported a high concentration of donations in their income, with donations forming nearly 97 per cent, 60.08 per cent of their income respectively. The BSP reported that most of its income came from bank interest, while CPI(M)'s revenue came from fees and subscriptions.

There is one major problem here. We know the incomes of these parties, but we don't know who funded them. Most parties reported an increase in income, but we don't know how they had raised the money.

Electoral bonds were supposed to make political funding more transparent, but these numbers indicate that the process is still very opaque.

This leads us to the main problem of Indian democracy - political corruption. Since there is no limit to donations and we don't know who the donors are, there is always a risk of parties pushing their donors' agenda instead of working for the benefit of the public.

So, in this scenario, it is worth seeing how parties in other leading democracies fund themselves.

Donations and regulations

In countries like the United Kingdom (UK), Australia and the United States (US), political donors must register themselves with the competent authority, if their donations cross a set limit.

In the UK, anyone can donate to a political party, individual or other organisation. Also,there is no cap on the amount that one could donate, but donors must register themselves in some cases. According to the UK's Electoral Commission's website, parties have to report funding if it is over £7,500 to the central party or £1,500 to accounting units (sections of a party whose finances are not managed directly by the party’s headquarters). Unincorporated associations must also register themselves and report their donations if they donate more than £25,000 to a political party, individual or other organisations in a year.

The Commission publishes a list of donations and loans accepted by each political party regularly. They include details like the name of the donor, the amount paid, or if it was public funding. Individual Members of Parliament and Members of Scottish Parliament, Welsh Assembly and Northern Ireland Assembly must also report donations and loans they accept.

Political parties comply with these rules more often than not. Even expenditure data is widely available to the public.

In Australia, the amount over which donations have to be disclosed is dynamic and is based on the consumer price index (CPI). For the period from July 1, 2018 to June 30, 2019, the disclosure threshold was AUD 13,800. The political parties must submit the full name and address of the donor, the amount received to the Australian Electoral Commission (AEC) if the donation is more than the threshold.

Each political party, their state and territorial unit as well as their associate entities must also lodge its annual returns with the AEC. In it, they must disclose various details like the amounts received, total values of receipts, payments and debts etc. They must also comply with the norms set by each Australian state.

Independent candidates must also submit similar reports to the commission. Campaigners and associated entities must register with the AEC.

In the United States (US), the campaign finance laws regulate the amount of money candidates or political parties receive from individuals, corporates and other such organisations and the cumulative amount they can donate.

One way that candidates use, to fund their campaign, is through Political Action Committees or PACs. The US Federal Election Commission, in its website, says these are formed by corporations, labour unions, trade associations, other organisations or individuals to channel voluntary contributions they raise to candidates running for the US House of Representatives, Senate and the office of the president.

These PACs are of two forms: separate segregated funds (established and administered by corporations, labour unions or trade associations to solicit contributions from their members only), non-connected committees (free to solicit contributions from the general public).

Super PACs and Hybrid PACs are commonly used methods of funding political campaigns, though the way they receive and spend funds are different. They are subject various limitations and prohibitions.

Even though the US has rigorous reporting requirements, and expenditure data is recorded meticulously, but the details about donors is are not always known. There is a problem with the FEC: the members are appointed on a partisan basis, and so their independence is not guaranteed.

Is Public funding the answer?

Public funding of political parties is followed by many democracies the world over. Nations like Croatia, Sweden, Serbia, Georgia, Germany Israel and Russia have various types of political funding. In each nation, there are different rules which deal with which party/candidate gets public funding, the amount they receive and how parties use this fund.

In some nations like Croatia and Georgia there are many restrictions on private donations, while in Germany, the laws allow donations from individuals and corporates.

In Russia, direct public funding is awarded to parties after the election on the basis of electoral performance. Parties and candidates also free access to advertising during. Private contributions are restricted, and a cap is in place for electoral spending by parties and candidates. However, various reports suggest many violations of these restrictions by the ruling party.

In the UK, the electoral commission receives £2 million from the Parliament to allocate ‘policy development grants’ to political parties to develop policies to include in their election manifestos. In Australia, parties need to be registered with the AEC. A candidate is eligible for election funding if they obtain at least 4 per cent of the first preference vote in the division or the state or territory they contested.

The US also has a programme to subsidise parties for presidential campaigns. The candidate has to fulfil some criteria to be eligible for the programme. This scheme is used mainly by smaller parties

Although public funding of political parties seems like an efficient and effective way to check political corruption, can India afford to spend money on parties? Political parties seem to be doing a fantastic job of getting the needed resources. Public funding of over 2,500 parties and all the independent candidates is a big request. Isn't it better to add reasonable restrictions on donations and making known the names of the donors?

Published on January 21, 2020

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