Electoral Funding After Electoral Bonds

Electoral Funding After Electoral Bonds: Can India Build a Truly Transparent System?

India’s debate on electoral funding has entered a new phase after the Supreme Court struck down the Electoral Bond Scheme in 2024 and forced unprecedented disclosure of who funds which political party. The focus has now shifted from secrecy to transparency, and from one controversial scheme to the larger question: what should a clean, fair and workable system of political finance look like for India?​

Evolution of Electoral Funding in India

For decades, political parties in India have relied heavily on cash donations, much of it unaccounted, leading to a large “black money” component in election campaigns. Reforms such as mandatory PAN details for contributions above a threshold, tax incentives for donors and the creation of electoral trusts were introduced to encourage more formal channels, but they did not fully solve the problem of opacity.​

By the mid‑2010s, concerns grew about rising campaign costs, corporate influence and the inability of voters to know who was funding parties. It was in this context that the government launched the Electoral Bond Scheme in 2018, presenting it as a way to move donations into the banking system while protecting donor anonymity.​

What Were Electoral Bonds?

Electoral bonds were bearer banking instruments issued by designated branches of the State Bank of India (SBI). Any Indian citizen or company could buy these bonds in fixed denominations using a KYC‑compliant bank account and donate them to a registered political party, which could then encash them into its account.​

Key features included:​

• Donor identity known to SBI but not disclosed to the public or even to the receiving party in a transparent way.
• No upper limit on corporate donations; caps in the Companies Act were removed, and the requirement to disclose which party a company donated to was relaxed.
• Parties had to meet certain vote‑share or representation thresholds to be eligible.

Supporters argued that bonds would reduce cash donations and bring money into the formal banking channel. Critics countered that they created “anonymous, unlimited and unchecked” corporate and individual funding, undermining the voter’s right to know and tilting the playing field.​

Supreme Court Verdict: Why Electoral Bonds Were Struck Down

In February 2024, a five‑judge Constitution Bench of the Supreme Court declared the Electoral Bond Scheme unconstitutional. The Court held that:​

• Voters have a fundamental right to information about the funding of political parties under Article 19(1)(a) (freedom of speech and expression).
• The scheme’s anonymity provisions disproportionately restricted this right, because voters could not link large donations to potential policy favours or decisions.
• Amendments that removed corporate donation caps and disclosure requirements increased the risk of quid‑pro‑quo, especially when loss‑making or shell companies could donate unlimited sums.​

The Court directed SBI to stop issuing bonds and to share complete data on bond purchases and encashment with the Election Commission of India (ECI). The ECI then published this data on its website, giving the public, perhaps for the first time, a detailed picture of who funded which party through electoral bonds.​

What the Disclosures Revealed

Analysis of the released data by civil society and media showed significant concentration of donations among a few corporate groups and a sharp skew in favour of the ruling party at the Centre, though other parties also benefited.​

The disclosures also flagged patterns such as:​

• Large donations from companies that had limited business history or had received major public contracts or regulatory decisions around the same time.
• Donors using multiple small bonds to route very high sums.
• The centralisation of political funding, raising issues of level playing field among parties.

These revelations strengthened the argument that opacity in political finance can distort democratic competition, even if the money technically flows through the banking system.​

Problems Beyond Electoral Bonds

The end of the bond scheme does not automatically make political funding transparent. Several issues remain:​

1. Cash donations: Parties can still receive significant amounts in cash below the reporting threshold, making it hard to track the real volume and source of funds.
2. Electoral trusts: Although designed as intermediaries to funnel corporate donations, many trusts disclose only aggregate information, not detailed donor‑to‑party links, which has led activists to call them another “non‑transparent” channel.​
3. Corporate influence: Even with bonds gone, large companies can donate directly, and the existing disclosure regime and enforcement capacity may not be strong enough to catch indirect or camouflage funding.
4. Rising campaign costs: Competitive elections now require huge spending on media, data analytics, travel and mobilisation. Without a sustainable legal financing model, parties are tempted to tap opaque sources.​

Follow‑Up Debates: What Should Replace Electoral Bonds?

After the judgment, the public discussion has turned to possible alternatives. Think‑tanks, election‑watch bodies and experts have put forward several options:​

1. Full Disclosure and Digital Trail

Many proposals stress mandatory, near real‑time disclosure of all significant donations (for example, above a modest threshold) on an online portal maintained by the ECI. This would include the donor’s identity, amount, mode of payment and beneficiary party.​

Digital payment channels for contributions—UPI, net‑banking and other traceable methods—could become the norm, creating a clear audit trail and reducing the scope for anonymous cash.​

2. Revisiting Corporate Donation Rules

Experts have suggested restoring or tightening caps on corporate donations, linking them to profits and ensuring more detailed reporting in company financial statements. Some argue that heavily regulated industries or those receiving major public contracts should face stricter limits to avoid conflicts of interest.​

3. Regulating Electoral Trusts

Given concerns about the opacity of some electoral trusts, there are calls for clearer rules on how they collect, pool and distribute donations. Suggested reforms include mandatory donor‑wise disclosure, limits on administrative expenses, and tighter scrutiny by the tax and company regulators.​

4. Partial or State Funding of Elections

The idea of state funding of elections has resurfaced, not necessarily as full public funding but in hybrid forms. Options discussed include:​

• State‑funded public broadcasting time for recognised parties.
• Direct subsidies for certain campaign items or vouchers for small digital ads.
• Matching grants for verified small individual donations, to encourage broad‑based funding rather than reliance on big donors.

While state funding can reduce dependence on private money, it also raises questions about fiscal cost, fairness and how to allocate funds between parties.​

5. Stronger Oversight and Audits

Reformers have suggested giving the ECI greater powers to scrutinise party finances, order independent audits, and penalise non‑compliance. Enhanced cooperation between the ECI, tax authorities and enforcement agencies is seen as necessary to detect complex funding patterns and shell‑company networks.​

International Perspectives

Comparative studies show that democracies use a mix of tools to manage political funding:​

• Some rely heavily on small individual donations with strict caps and full transparency.
• Others combine public subventions (such as per‑vote grants) with tight rules on corporate giving.
• Independent audit bodies and strong disclosure cultures often play a larger role than complex schemes.

For India, these examples highlight that no single instrument—whether bonds or trusts—can guarantee clean funding. A robust system needs transparency at its core, backed by enforceable rules and an informed public.

Why Electoral Funding Transparency Matters

Transparent political funding is not only a technical or legal issue; it is central to the health of democracy:​

• Voters can better understand the interests behind parties and candidates and make more informed choices.
• Parties can compete on ideas rather than on access to opaque money.
• Governments can take policy decisions with greater legitimacy if funding channels are open to public scrutiny.

Opacity, on the other hand, fuels perceptions of corruption, cronyism and policy capture, weakening trust in institutions.​

Way Forward: Towards a Cleaner Model

Most experts agree on three broad principles for future reform:​

• Transparency first: The default should be disclosure, not secrecy. Any exceptional confidentiality must be narrowly defined and justified.
• Limits and diversity of sources: Caps on corporate and high‑value donations, combined with incentives for small citizen contributions, can reduce the dominance of a few big funders.
• Strong institutions: The Election Commission and auditing bodies need both powers and capacity to monitor, investigate and act against violations.

The striking down of electoral bonds has created an opportunity—and pressure—for India to design a more balanced and transparent system of political finance that matches the scale and complexity of its democracy.

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FAQs on Electoral Funding and Transparency After Electoral Bonds

Q1. Why did the Supreme Court strike down the Electoral Bond Scheme?
The Court found that donor anonymity under the scheme violated voters’ fundamental right to information about political funding, and that related legal changes allowing unlimited, less‑transparent corporate donations created a serious risk of quid‑pro‑quo and undermined free and fair elections.​

Q2. What changed after the verdict?
SBI stopped issuing bonds and was ordered to share complete purchase and encashment data with the Election Commission, which published it online. This revealed who had funded which parties via bonds and exposed patterns of concentrated, opaque funding.​

Q3. Are political donations now fully transparent?
No. While bond data is now public, parties can still receive money through cash, electoral trusts and direct contributions where disclosure and enforcement remain imperfect. Structural reforms are still needed to achieve comprehensive transparency.​

Q4. What reforms are being discussed as alternatives?
Proposals include real‑time digital disclosure of donations above a modest threshold, tighter rules on corporate giving and electoral trusts, more rigorous audits of party accounts, and exploring partial state funding to reduce dependence on big private donors.​

Q5. Why is transparent electoral funding important for democracy?
When citizens know who finances parties, they can better judge potential conflicts of interest and hold representatives accountable. Transparent funding helps protect elections from undue influence, supports fair competition and strengthens trust in democratic institutions.