Surgical strike on black money will be half marathon if expenditure and funding of elections are not accountable


The absence of ceiling on expenditure has created condition of financial recklessness. To propagate their political motive, all political parties spent thousands of crores of rupees in election campaign. Where does the money come from?

State Funding: Meaning

State funding essentially means, state/government should provide funds to political parties for contesting election and there should be regulations for accepting fund from any other source.

Why this issue has cached eyes?

Recently, PM Modi urged to start debate on “State funding of election”. Former Chief Election Commission S Y Quraishi has estimated that, it costs the exchequers around INR 10000 Cr for a cycle of parliament and state elections, roughly equal to what political parties themselves rise. The dominant role played by money power in election is vitiating the country’s democracy. The sources could be: corporate funds, small donations, sale of coupons and membership fee besides interest on deposits, rental and revenue income. There is no transparency in the source of donations. As much as 75 per cent of all funds are shown as donations without disclosing the source. This is a serious matter. It may be foreign money or from crime mafia. In any case, most of it is unaccounted for and could, therefore, be ‘black’ money.

Direct and Indirect state funding

Direct state funding means providing fund directly to political parties. Indirect state funding means funding may take place in the form of subsidised, free media, tax benefits, free access to public space for campaign and display, transport, travel expenses, security etc.

What is the current status in India?

Currently there is no provision of direct funding but available in the form of free campaign in public broadcasters for National parties in general election. Besides this political parties are also provided with utility space, security. Another is registered political parties do not have to pay income tax as per Section 13A of Income Tax Act.

Understanding the State funding of election

It is, no doubt, true that democracy cannot function without money to contest elections. However, money cannot be allowed to dominate the process so much that only the rich can contest and hijack the political system. The law, therefore, prescribes a ceiling on expenditure of the candidates — though not on the expenditure of political parties. The ECI (Election Commission of India) has been demanding for over two decades that there should be full transparency. It wants a law prescribing an annual audit of parties by an independent auditor from a panel given by the ECI — instead of an in-house auditor. The move to place political parties under Right to Information Act had drawn up sharp protests from all major parties which could have reduced the necessity of state funding of election. The issue is still under debate and political parties still don’t come under RTI.

Reports and committees

Various committees and reports have expressed their views.

  1. Indrajit Gupta Committee on State Funding of Elections (1998)


  1. Law Commission Report on Reform of the Electoral Laws (1999)
  2. National Commission to review the working of the constitution (2001)
  3. Second Administrative reform commission (2008)

 Let’s walk through their views

  1. Indrajit Gupta Committee on State Funding of Elections (1998)

It endorsed state funding of elections, seeing “full justification constitutional, legal as well as on ground of public interest” in order to establish a fair playing field for parties with less money. The Committee recommended two limitations to state funding.

Firstly, that state funds should be given only to national and state parties allotted a symbol and not to independent candidates. Secondly, that in the short-term state funding should only be given in kind, in the form of certain facilities to the recognised political parties and their candidates. The Committee noted that at the time of the report the economic situation of the country only suited partial and not full state funding of elections.

  1. Law Commission Report on Reform of the Electoral Laws (1999)

 Commission concluded that total state funding of elections is “desirable” so long as political parties are prohibited from taking funds from other sources. The Commission concurred with the Indrajit Gupta Committee that only partial state funding was possible given the economic conditions of the country at that time. Additionally, it strongly recommended that the appropriate regulatory framework be put in place with regard to political parties (provisions ensuring internal democracy, internal structures and maintenance of accounts, their auditing and submission to Election Commission) before state funding of elections is attempted.

  1. National Commission to review the working of the constitution (2001)

Commission did not endorse state funding of elections but concurred with the 1999 Law Commission report that the appropriate framework for regulation of political parties would need to be implemented before state funding is considered.

  1. Second Administrative reform commission (2008)

Ethics in Governance”, a report of the Second Administrative Reforms Commission (2008) also recommended partial state funding of elections for the purpose of reducing “illegitimate and unnecessary funding” of elections expenses.

Including Law Commission Report 2015, none of them have unequivocally supported introduction of state funding.

Valid conceptual and economic arguments against introducing state funding in our country

 Some experts are in the view that, why should a taxpayer be forced to contribute to political parties he does not support? Now he/she has NOTA option.

Is it legitimate and ethically sound to give scarce and hard earning to those who practice politics and no other profession?

It has been viewed that this is antidemocratic and protects the status quo of big political parties, make small and independent parties in disadvantage.

The economic arguments against state funding are stronger. The main objection is ‘in a resource-starved’ country where 300 million live below the poverty line and where the average per capita income is $1 a day, is it equitable to give such humongous sums of money to an elite class? Limited resources should be utilised for the welfare of the largest number.

It has been experienced in other developed countries with more effective regulations that state funding neither prevents parties from raising funds from corporates, nor does it reduces election expenditure. It actually makes elections more expensive because parties pocket government funds and continue to raise private funding, could possible end up with rise in more “Black Money”

Justification for and the appropriateness of state funding

 Experts in the view that introduction of state funding will make political parties accountable. Massive undisclosed money and its sources can be curbed by this encouragement. It will also help in reducing crony-capitalism. Some economists are also in view that it will boost India’s GDP and may help it streamlining our economy.

As per the view of Former Chief Election Commission S Y Quraishi, the best way out is the state funding of parties (as different from funding of candidates). The parties have been showing a fund collection of an average a thousand crore rupees per annum. This can be given by the state. For every vote secured, INR 100 can be given. In the General Election to the Lok Sabha in 2014, nearly 55 crore votes were cast. At the rate of INR 100 per

vote, this will add up to INR 5,500 crore. This roughly corresponds to the collection of all parties put together. Private and corporate donations will then be totally banned. State funding will free the parties from dependence on and clutches of the corporate houses who feel tempted to run the government by proxy. The amount proposed is so small that it can easily be accommodated in the national budget. But, if necessary, an Election Trust Fund could be created, to which corporates may be asked to make donations. The fund could be administered by an independent Trust or Election Commission. The allocation of funds will be based on the actual performance of parties, whose accounts will be audited by an independent auditor on the ECI approved panel or by CAG.

Impact of Demonetisation on State funding issue

In wake of demonetisation, PM Modi urged for constructive discussion on state-funding of election. The demonetisation move has hit hard on their finance.


Whether to introduce state funding of election is a matter of debate. But before introducing it, there are some questions which needs be answered.

  1. How will finance be distributed among the parties and its candidates?
  2. How will political parties be accountable for using the money judiciously for the right candidate through right means for right purpose?

More analysis and debate with proper policy formulation with implementation strategy would definitely solve the purpose.

Sankar Ray

Faculty, North East Institute of Advanced Studies






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North East Institute of Advanced Studies (NE-IAS) has been founded with a vision to make high quality professional education and training available at doorstep with the guidance and assistance of nationally acclaimed trainers and mentors who have achieved benchmark in their fields by consistent success records. NE-IAS aims to develop a quality and result-oriented coaching and training institute in NE India. The institute currently offers courses for preparation of UPSC and state level civil services.

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