Political funding has always been a contested space in Indian democracy. The need for resources to contest elections, run political campaigns, and sustain party operations inevitably draws political entities towards corporate contributions, wealthy donors, and informal cash channels. Over decades, India has attempted different approaches to regulate political donations, from bans on corporate funding to caps and disclosure obligations. Despite these reforms, the system has largely remained opaque.
In 2018, the Electoral Bond Scheme was introduced with the stated aim of reforming political finance. It was presented as a mechanism to bring money into formal banking channels and to eliminate cash-based black money from elections. However, the scheme allowed complete anonymity of donors, effectively preventing citizens from knowing who financed political parties. This raised fundamental questions about transparency, accountability, and democratic fairness.
The Supreme Court of India, in its landmark judgment delivered on 15 February 2024, struck down the scheme as unconstitutional. It also invalidated associated amendments to the Representation of the People Act, 1951, the Companies Act, 2013, the Income Tax Act, 1961, and the Reserve Bank of India Act, 1934. The judgment not only reshaped the discourse on electoral finance but also reaffirmed the voter’s right to know as a cornerstone of democracy.
The Origins of the Electoral Bond Scheme
The Electoral Bond Scheme was announced in the Union Budget of 2017 and formally implemented in January 2018. The government justified it as a measure to curb black money in political funding while maintaining donor confidentiality. The scheme was backed by amendments to existing laws through the Finance Act, 2017, which altered the legal framework governing political contributions.
The scheme allowed any Indian citizen, company, or association to purchase bonds from the State Bank of India in specified denominations and donate them to political parties. These parties could then encash the bonds through designated bank accounts. The entire process was designed to preserve donor anonymity, as neither the Election Commission of India nor the general public could access donor details.
This design created an imbalance. On one hand, political contributions became traceable through formal banking channels, but on the other, secrecy was institutionalized, making it impossible for voters to know the source of party funding.
Key Features of Electoral Bonds
Electoral bonds were distinct from traditional forms of political funding due to their design and operation.
- The bonds could only be purchased from the State Bank of India, ensuring a centralized distribution mechanism.
- They were available in fixed denominations of 1,000 rupees, 10,000 rupees, 1 lakh rupees, 10 lakh rupees, and 1 crore rupees.
- Each bond was valid for 15 days from the date of purchase, ensuring quick redemption by political parties.
- Only registered political parties that had secured at least one percent of the votes in the most recent general or state election were eligible to redeem these bonds.
- Donor anonymity was absolute, with the State Bank of India alone holding the purchase details. Political parties were not required to disclose the identity of the donor.
- Parties declared only the total value of bonds received in their annual filings without revealing the contributors.
These features made the scheme attractive to corporations and high-net-worth individuals, as it allowed them to contribute large sums without public scrutiny.
Legislative Amendments through the Finance Act, 2017
The Finance Act of 2017 fundamentally altered the regulatory framework of political funding. Four major legislations were amended to accommodate the Electoral Bond Scheme.
Amendments to the Reserve Bank of India Act, 1934
Section 31 of the RBI Act was modified to empower the central government to authorize the State Bank of India to issue electoral bonds. This diluted the RBI’s exclusive authority to issue currency-like instruments and raised concerns about financial regulation.
Amendments to the Representation of the People Act, 1951
Section 29C of the RPA previously required political parties to disclose details of donations above 20,000 rupees. After the 2017 amendments, contributions received through electoral bonds were exempt from this disclosure requirement. This weakened the transparency provisions of electoral finance law.
Amendments to the Income Tax Act, 1961
Section 13A of the IT Act was altered to exempt political parties from keeping detailed records of donations made through electoral bonds. This meant that contributions routed through bonds would not affect the tax-exempt status of political parties, further incentivizing the use of this channel.
Amendments to the Companies Act, 2013
Section 182 of the Companies Act underwent the most significant change. The 7.5 percent cap on corporate contributions based on the average of the previous three years’ profits was removed. Loss-making companies were allowed to donate unlimited sums, and the requirement for companies to disclose the names of political parties receiving their donations was eliminated. This created a new avenue for opaque corporate funding, including shell companies with no business activity.
Evolution of Corporate Contributions in India
The journey of corporate political contributions in India reflects shifting balances between regulation and liberalization.
- In 1960, the Companies (Amendment) Act introduced Section 293A, which regulated political donations for the first time. Contributions were capped and required disclosure in company accounts.
- In 1969, corporate contributions were banned altogether due to concerns about the influence of big business over politics.
- In 1985, corporate donations were reintroduced with a cap of 5 percent of profits and mandatory disclosure provisions.
- In 2013, the Companies Act set the cap at 7.5 percent of average net profits of the past three years, and only profit-making companies could donate. Transparency was embedded in law, ensuring shareholders knew where company funds were being directed.
- In 2017, these safeguards were dismantled, allowing unlimited, anonymous contributions from both profit-making and loss-making entities.
The 2017 reforms thus marked a radical departure, creating a legal framework where corporate money could flow into politics without accountability.
Issues Raised in Constitutional Challenges
The Electoral Bond Scheme was challenged through petitions filed under Article 32 of the Constitution. Petitioners raised several critical issues:
- The scheme violated the voter’s fundamental right to information under Article 19(1)(a) by preventing disclosure of donors.
- The passage of the Finance Act, 2017 as a Money Bill under Article 110 was unconstitutional, as it bypassed the Rajya Sabha, where the ruling coalition did not have a majority.
- Unlimited and anonymous corporate donations undermined the principle of free and fair elections by enabling disproportionate influence of wealthy entities over politics.
- Shareholder rights and corporate governance norms were weakened since boards could donate without informing or seeking approval from investors.
- Companies with foreign ownership structures were allowed to purchase bonds, creating risks of foreign influence in domestic politics.
The Supreme Court found merit in these concerns and struck down both the scheme and the enabling amendments.
Concerns Raised by Constitutional Authorities
Election Commission of India
The Election Commission repeatedly cautioned that the anonymity of electoral bonds would increase opacity in political funding. It highlighted the risk of corporate dominance, the possibility of shell companies being used to funnel money, and the threat of foreign influence entering Indian elections through indirect corporate structures.
Reserve Bank of India
The Reserve Bank opposed the issuance of electoral bonds by the State Bank of India, arguing that bearer instruments resembled currency and undermined the RBI’s regulatory authority. The central bank also expressed concerns about risks to financial integrity and transparency.
Despite these objections, the government proceeded with the scheme, brushing aside institutional warnings.
Patterns and Trends of Electoral Bond Donations
Data on electoral bond sales provided striking insights into the nature of political funding under the scheme.
- Between 2018 and 2023, electoral bonds worth over 9,208 crore rupees were sold.
- Nearly 95 percent of the contributions came from corporations rather than individuals.
- The bulk of donations were made through the highest denomination bonds of 1 crore rupees, signaling dominance of large-scale donors.
- Smaller denominations like 1,000 rupees or 10,000 rupees saw negligible usage, contradicting the claim that the scheme would encourage small and medium contributors.
This pattern confirmed fears that the scheme disproportionately empowered wealthy corporations and eroded the principle of equality in political participation.
The Core Constitutional Debate
The judicial challenge brought to the fore a central constitutional question: the balance between donor privacy and the voter’s right to know.
The government argued that donor confidentiality was essential to protect contributors from political reprisals and to encourage voluntary funding. Petitioners contended that in a democracy, the public must know who finances political parties, as such information shapes policy decisions and potential quid pro quo arrangements.
The Supreme Court ultimately ruled that the voter’s right to know outweighs donor confidentiality. It reaffirmed that democracy rests on informed choice, and without knowledge of funding sources, citizens cannot fully exercise their democratic rights.
Transformation of Political Party Funding
Shift to Formal Banking Channels
One of the stated objectives of electoral bonds was to reduce the use of cash in political donations. Traditionally, a large share of party funding came from unaccounted cash contributions, often linked to corruption and illicit activities. With bonds, donations were routed through the State Bank of India, creating a record of transactions at least at the banking level. This shift appeared to formalize political donations.
However, while the State Bank of India recorded donor details, neither the Election Commission nor the public had access to this information. Thus, the mechanism failed to achieve transparency even though it moved funds into formal banking channels. Political parties gained access to vast resources without revealing the source of money.
Concentration of High-Value Donations
The majority of electoral bonds purchased were in the highest denomination of one crore rupees. This revealed a trend where large corporations and wealthy individuals dominated the funding landscape. Small donors were largely absent, reducing the diversity of financial support for political parties.
This concentration created asymmetries in influence. Parties in power, capable of offering favorable policy environments, attracted disproportionate funding compared to opposition parties. In effect, political competition became increasingly tied to financial might.
Decline of Grassroots Contributions
The availability of anonymous corporate funding further marginalized grassroots-level contributions. Political parties that once relied on membership drives, public campaigns, and smaller donations increasingly turned to large-scale, untraceable sources. This weakened the organic connection between political parties and the electorate, turning elections into high-cost exercises financed by a limited donor base.
Corporate Dominance in Political Finance
Removal of Limits on Corporate Contributions
Before the Finance Act of 2017, corporate donations were restricted to 7.5 percent of the average profits of the last three financial years, and only profit-making companies were eligible. The removal of this cap enabled corporations, including loss-making and newly established entities, to contribute unlimited sums.
This change incentivized the creation of shell companies designed specifically to funnel money into politics. It also meant that firms with no business operations could be used as conduits for anonymous political contributions.
Lack of Shareholder Oversight
The amendments removed the requirement for companies to disclose political donations in their financial statements. As a result, shareholders, many of whom are small investors, were deprived of information about how corporate funds were being utilized for political purposes.
This raised concerns of corporate governance, as boards and management could direct large amounts of company funds towards political donations without accountability to investors. For publicly listed companies, this was a direct infringement on shareholder rights.
Risk of Quid Pro Quo Policies
Unlimited and secretive donations created fertile ground for quid pro quo arrangements between corporations and political parties. Donors could expect favorable regulations, policy decisions, or government contracts in exchange for contributions. This blurred the line between political finance and corporate lobbying, raising the risk of regulatory capture.
Impact on Governance Structures
Policy Capture and Influence
The anonymity built into the electoral bond mechanism made it possible for corporations to exert disproportionate influence on governance. The absence of public disclosure meant that citizens had no way of knowing whether major policy decisions were linked to financial contributions by vested interests.
This undermined democratic accountability. A government’s policies, instead of being guided by public interest, could be shaped by large corporate donors whose identities remained concealed.
Distortion of Level Playing Field
In any democracy, a level playing field between ruling and opposition parties is essential for free and fair elections. Electoral bonds disrupted this balance by skewing contributions heavily towards ruling parties. Corporations and individuals naturally preferred to fund parties in power, anticipating reciprocal benefits. This concentration of resources undermined electoral competition and weakened the opposition.
Weakening of Democratic Institutions
The opacity surrounding political donations also affected institutional integrity. The Election Commission, which is mandated to oversee free and fair elections, was deprived of essential information about party finances. Similarly, the Reserve Bank of India’s regulatory role was undermined by the government’s decision to vest the authority of issuing bonds in the State Bank of India.
This sidelining of independent institutions reflected a broader trend of executive dominance over checks and balances, weakening the institutional framework necessary for democratic governance.
Concerns of Foreign Influence
Liberalization of Foreign Funding Rules
An important consequence of the 2017 amendments was the indirect opening of political funding to foreign influence. The removal of restrictions on corporate donations allowed Indian subsidiaries of foreign-owned companies to purchase electoral bonds.
This raised the risk that foreign entities, through their Indian arms, could finance political parties and thereby influence electoral outcomes and policy decisions. The absence of disclosure requirements made it impossible for regulators or the public to track such flows of money.
Implications for Sovereignty
The possibility of foreign-controlled companies contributing to political parties touched upon issues of national sovereignty. Allowing entities with significant foreign ownership to shape the financial base of Indian politics could undermine independent decision-making and create vulnerabilities in policymaking.
Shareholder and Public Scrutiny
Right of Shareholders
Shareholders in publicly listed companies have a legitimate interest in knowing how corporate resources are being utilized. By removing the disclosure requirement for political donations, the Finance Act of 2017 deprived shareholders of this right.
Investors could not assess whether their funds were being used to support political parties, and they had no opportunity to consent or object. This lack of transparency weakened corporate accountability and violated principles of informed decision-making in business.
Right of Citizens
From the perspective of the electorate, the opacity of electoral bonds compromised the right to information. Citizens must know who funds political parties in order to understand potential conflicts of interest and to make informed voting choices.
The Supreme Court emphasized that the right to know is an extension of the freedom of speech and expression. Without financial transparency, the capacity of voters to participate meaningfully in democracy is undermined.
Reactions of Key Institutions
Election Commission of India
The Election Commission consistently voiced concerns about electoral bonds, warning that they would increase opacity in political funding and encourage the use of shell companies.
It stressed that the scheme would have serious repercussions for transparency and fairness in elections. Despite these warnings, the scheme continued until the Supreme Court finally intervened.
Reserve Bank of India
The Reserve Bank objected to the issuance of electoral bonds by the State Bank of India, pointing out that bearer instruments of this nature were akin to currency and could undermine monetary regulation. The government ignored these concerns, arguing that bonds were necessary to curb black money.
The RBI’s sidelining in this process revealed the government’s determination to prioritize political objectives over regulatory advice.
Statistical Trends and Patterns
Scale of Donations
Between 2018 and early 2024, electoral bonds worth more than 9,208 crore rupees were sold. This figure represented one of the largest sources of political party funding in modern Indian history.
Corporate Dominance
Nearly 95 percent of the contributions came from companies rather than individuals. This showed that corporate entities overwhelmingly dominated political finance under the scheme, raising concerns of policy capture.
High-Value Bonds
Most purchases were in the denomination of one crore rupees, further reinforcing the idea that the scheme catered primarily to large donors rather than small or medium contributors.
Inequality Among Political Parties
Available data suggested that ruling parties received the lion’s share of contributions. Donors, driven by expectations of favorable treatment, overwhelmingly preferred to finance those in power rather than opposition parties. This financial asymmetry widened the gap between parties and further eroded electoral competition.
Democratic Implications
Undermining Equality in Democracy
A fundamental principle of democracy is equality in political participation. Electoral bonds, by concentrating funding power in the hands of wealthy corporations, eroded this principle. Political voices became tied to financial strength, marginalizing ordinary citizens.
Weakening the Voter’s Right to Know
By prioritizing donor confidentiality over public disclosure, the scheme compromised the ability of citizens to make informed electoral choices. The Supreme Court judgment restored the balance by recognizing the primacy of the voter’s right to information over donor privacy.
Rise of Money Power in Elections
The high cost of elections in India already tilted the field towards wealthy candidates and parties. Electoral bonds exacerbated this trend by institutionalizing large, anonymous contributions. This deepened the role of money power in politics, making electoral contests increasingly expensive and inaccessible to smaller parties.
The Post-Electoral Bond Vacuum
Reversion to Cash Donations
The striking down of electoral bonds may lead to a resurgence of cash donations. For decades, Indian political parties have relied on unaccounted money to finance campaigns, often linked to illicit activities. The Electoral Bond Scheme, despite its flaws, had at least moved donations into the banking system. Its absence raises the possibility that parties and donors may revert to untraceable cash contributions, reversing even the limited progress that had been made.
Challenge of Enforcement
Even before the Electoral Bond Scheme, legal frameworks such as mandatory reporting of donations were poorly enforced. Political parties often underreported or misclassified contributions. Without robust enforcement mechanisms, any replacement framework may face similar challenges of compliance.
Incomplete Disclosure by Parties
Under existing provisions, parties are required to disclose donations above a certain threshold. However, most contributions are often reported below this limit, fragmenting donations to avoid scrutiny. This loophole enables continued opacity in political finance.
Key Challenges Ahead
High Cost of Elections
One of the biggest obstacles to clean political funding is the escalating cost of elections in India. Contesting parliamentary elections requires enormous financial resources for campaigning, advertising, rallies, and voter outreach. Political parties therefore remain dependent on large donors, whether corporate or individual. Without addressing the structural drivers of rising election costs, reforms in political funding may have limited impact.
Corporate Influence
The dominance of corporate contributions is unlikely to diminish even after the end of electoral bonds. Businesses will continue to seek ways to secure favorable treatment through political financing. Unless robust regulations and disclosure requirements are introduced, corporate influence over governance will remain a pressing concern.
Weak Oversight Mechanisms
Institutions like the Election Commission and the Comptroller and Auditor General are tasked with ensuring transparency, but their authority is limited. Political parties, for instance, are not directly accountable under the Right to Information Act. Without expanding oversight mechanisms, financial opacity may persist.
Potential for Foreign Interference
The amendments introduced in 2017 had opened indirect avenues for foreign funding. While the judgment invalidated this framework, vigilance is required to prevent foreign-controlled entities from exerting financial influence through other channels such as indirect subsidiaries or global lobbying networks.
Global Models of Political Funding
Public Funding of Elections
Several democracies have adopted forms of state funding to reduce reliance on private contributions. In countries like Germany and Canada, public funds are allocated to political parties based on their performance in previous elections, with strict auditing requirements. This ensures a level playing field while reducing dependence on private donors.
Public funding can take the form of direct grants, reimbursements for election expenses, or free access to media and public infrastructure for campaigning. Such mechanisms shift the financial burden away from private influence and place accountability under public institutions.
Transparency-Based Models
In the United States, private donations are permitted but disclosure is mandatory for contributions above a certain threshold. This model emphasizes transparency rather than restriction, allowing voters to track which corporations or individuals finance political campaigns. The availability of information enables public scrutiny and discourages quid pro quo arrangements.
Hybrid Models
Countries like the United Kingdom adopt hybrid approaches, combining regulated private donations with partial public funding. Strict limits on expenditure are coupled with state subsidies such as free broadcasting time. This model attempts to balance private participation in political finance with safeguards against excessive influence.
Lessons for India
India’s experience shows that secrecy breeds mistrust and distortions. Any future system must incorporate global lessons of transparency, regulation, and a mix of funding sources. A purely state-funded system may not be feasible given India’s size and fiscal constraints, but hybrid models that combine transparency and limited public support could offer a sustainable alternative.
Possible Alternatives to Electoral Bonds
Strengthening Disclosure Requirements
One immediate reform is to tighten disclosure norms for political donations. All contributions above a low threshold could be disclosed with donor details, eliminating the loophole of fragmented donations. Parties could also be mandated to publish audited reports of funding on a publicly accessible platform.
Digital Platforms for Contributions
A transparent digital platform could be created to facilitate political donations. Donors could contribute through a centralized portal where transactions are recorded, and details are automatically shared with the Election Commission and made public. This would ensure traceability while minimizing administrative delays.
Public Funding for Smaller Parties
To level the playing field, smaller and regional parties could be provided with partial state support, such as reimbursements based on vote share or access to public media at no cost. This would reduce their dependence on wealthy donors and encourage more competitive elections.
Expenditure Limits and Audits
Strict expenditure limits on political campaigns could help reduce the demand for massive funding. Currently, parties often exceed spending caps by funneling resources through unofficial channels. Enforcing limits through independent audits and penalties could discourage excessive fundraising.
Independent Oversight Authority
Establishing an independent regulatory body for political finance could strengthen accountability. This body could oversee disclosures, enforce expenditure limits, and investigate violations. Such an authority would function autonomously, reducing executive influence over funding regulation.
Technology and Electoral Funding
Blockchain for Transparency
Emerging technologies like blockchain could be utilized to create tamper-proof records of political donations. Every transaction could be logged on a decentralized ledger, visible to the public and immune to manipulation. This would enhance trust in the integrity of political finance.
Artificial Intelligence for Monitoring
AI-based systems could track patterns of donations and expenditures to identify suspicious flows of money, shell company funding, or disproportionate contributions to specific parties. This would provide regulators with advanced tools to detect financial irregularities.
Digital Campaigning and Cost Reduction
The growing role of digital platforms in election campaigns may also reduce reliance on expensive traditional campaigning methods. If political communication shifts significantly online, the cost of elections could be moderated, indirectly easing the pressure of raising large sums.
Role of Civil Society and Media
Public Awareness Campaigns
Civil society organizations and media outlets play a crucial role in creating awareness about political funding. By scrutinizing party finances and educating voters about the influence of money in politics, these groups can foster greater demand for transparency.
Investigative Journalism
In the absence of official disclosure, investigative journalism has often uncovered hidden links between corporations and political parties. Strengthening media independence and protecting journalists is vital for exposing the influence of money in politics.
Voter Participation
Ultimately, voters must demand greater transparency and accountability from political parties. Civil society can mobilize public opinion to ensure that parties adopting transparent practices are rewarded electorally, creating incentives for reform.
Long-Term Democratic Implications
Restoring Trust in Democracy
Transparent political funding is essential for restoring public trust in democracy. Citizens must feel confident that governments act in the interest of the people rather than corporate donors. A transparent system can bridge the growing trust deficit between the electorate and political institutions.
Protecting Electoral Equality
Financial opacity and concentration of donations threaten the principle of electoral equality. Ensuring fair access to funding is vital to maintaining competitive elections and preventing the marginalization of smaller parties and independent candidates.
Reinforcing Institutional Integrity
Reforms in political funding can also strengthen democratic institutions. By empowering the Election Commission, judiciary, and oversight bodies with the authority to enforce transparency, India can reinforce the system of checks and balances that underpins constitutional governance.
Conclusion
The Supreme Court’s judgment striking down the Electoral Bond Scheme marks a turning point in India’s democratic journey. For years, the scheme shielded the nexus between money and politics under the guise of anonymity, creating avenues for unchecked corporate influence, weakening voter scrutiny, and raising the specter of foreign interference. By declaring the scheme unconstitutional, the Court reaffirmed the primacy of transparency, accountability, and the voter’s right to know as essential pillars of a healthy democracy.
Yet, the judgment is not the end of the debate on political finance but the beginning of a new chapter. India’s electoral system still grapples with fundamental challenges: the staggering cost of elections, the dominance of corporate contributions, loopholes in disclosure requirements, and the persistent risk of unaccounted cash donations. Unless these structural issues are addressed, the void left by the Electoral Bond Scheme may lead to a regression into opaque and informal funding channels.
Global experiences demonstrate that transparency, regulation, and a balance between private and public funding are essential to safeguard democratic integrity. Whether through strengthened disclosure norms, digital platforms for traceable donations, public subsidies for smaller parties, or independent regulatory oversight, India must adopt a model that curbs the corrosive influence of money without stifling democratic competition.
The way forward requires a multi-pronged effort. Lawmakers must legislate a new, transparent framework; institutions like the Election Commission must be empowered with greater oversight authority; civil society and media must continue to scrutinize party finances; and voters must demand accountability from those they elect. Only when all these elements converge can political finance be aligned with the principles of fairness, equality, and public trust.
In essence, the verdict restores hope that democracy belongs to citizens rather than corporations. But sustaining this hope demands more than judicial intervention; it requires collective political will, institutional resilience, and an engaged electorate determined to defend transparency in governance. The future of India’s democracy will depend not merely on the rejection of opaque schemes but on the creation of a robust, accountable, and equitable system of electoral finance that truly reflects the will of the people.