• The recent Supreme Court hearing on the constitutionality of electoral bonds has focused attention on an issue that goes to the heart of Indian democracy — the funding of political parties.

Election campaigning around the world

• US elections revolve around individual candidates’ campaign machinery. Even national presidential campaigns are run, in large part, by individual candidates.
• On the other hand, in India, like in most other parliamentary systems, parties are central to electoral politics.
• The primary focus of the campaign finance framework in India needs to be parties, not individual candidates.

A fruitful party funding framework requires attention to at least four key aspects

• Donations- Some individuals or organisations, for instance, foreign citizens or companies, may be banned from making any donations. There may also be donation limits. Donation limits are aimed at ensuring that a party is not captured by a few large donors — whether individuals, corporations, or civil society organisations.
• Therefore, some jurisdictions rely on contribution limits for regulating the influence of money in politics. For instance, the US federal law imposes different contribution limits on different types of donors. Some other countries, such as the UK, do not impose contribution limits, but instead, rely on expenditure limits.
• Expenditure limits- If contribution limits are aimed at avoiding a political party capture, expenditure limits safeguard politics from a financial arms race. It relieves parties from the pressure of competing for money before they even start to compete for votes. Therefore, some jurisdictions impose an expenditure limit on political parties.
• In the UK, for instance, a political party is not allowed to spend more than £30,000(approximately 30 Lakh rupees) per seat contested by that party. However, the US Supreme Court’s highly expansive interpretation of the First Amendment (freedom of expression) has been a major roadblock for various legislative attempts at imposing expenditure limits. In addition to the regulation of donations and expenditure, many countries also provide public funding of parties.
• Public financing- Broadly, there are two ways of implementing public funding. The most commonly used method around the world is to set predetermined criteria. For instance, in Germany, parties receive public funds on the basis of their importance within the political system. Generally, this is measured on the basis of the votes they received in past elections, membership fees, and the amount of donations received from private sources. Moreover, German “political party foundations” receive special state funding dedicated to their work as party-affiliated policy think tanks.
• A relatively recent experiment in public funding is that of ‘democracy vouchers’, which is in place for local elections in Seattle, US. Under this system, the government distributes a certain number of vouchers to eligible voters.
• Each voucher is worth a certain amount. The voters can use these vouchers to donate to the candidate of their choice. While the voucher is publicly funded, the decision to allocate the money is taken by individual voters. Put simply, voters get to “vote” with their money before they cast their vote.
• However, some recent studies have pointed out that while this system may be more egalitarian, it may also promote more extremist candidates. More generally, one of the problems with public funding is that unless we decide to ban private funding altogether (likely to be a tall ask in India), public funding only tops up party funds; it does not solve the challenging task of regulating private money.

• Disclosure is a less intrusive form of regulation. It does not outrightly prevent parties or donors from receiving or making donations. Instead, disclosures nudge voters against electing politicians who have used or are likely to use their public office for quid pro quo arrangements. As such, it may discourage parties from using public office to benefit their donors.
• Disclosure as regulation rests on an assumption that the information supply and public scrutiny may influence politicians’ decisions and the electorate’s votes. However, mandatory disclosure of donations to parties is not always desirable.
• At times, donor anonymity serves a useful purpose of protecting donors. For instance, donors may face the fear of retribution or extortion by the parties in power. The threat of retaliation may, in turn, deter donors from donating money to parties of their liking.
• Many jurisdictions have struggled with striking an appropriate balance between the two legitimate concerns — transparency and anonymity. Indeed, this is the issue that lies at the heart of the electoral bonds case. Could we reap the benefits of anonymity, and yet, prevent quid pro quo arrangements? One such experiment was attempted in Chile, which sought to ensure “complete anonymity” of party funding.

• The most prominent response, then, is to balance legitimate public interests in transparency and anonymity. Many jurisdictions strike this balance by allowing anonymity for small donors, while requiring disclosures of large donations. For instance, in the UK, a political party needs to report the donations received from a single source amounting to a total of more than £7,500 (roughly Rs. 7,50,000) in a calendar year. The analogous limits in the US and Germany are $ 200 and €10,000 respectively.
• The argument in favour of this approach goes as follows: small donors are likely to be the least influential in the government and most vulnerable to partisan victimisation. On the other hand, large donors are more likely to strike quid pro quo arrangements with parties.

• In India, there are no donation limits on individuals. Moreover, the Finance Act, 2017 also removed any official contribution limits on companies. In other words, an individual or an organisation can donate as much as they want to a political party. Similarly, there is no legal expenditure limit on expenditure by political parties. A party can spend as much as it wants for its national or state-level campaign as long as it does not spend that money towards the election of any specific candidate.
• However, parties are required to disclose donations of more than Rs 20,000, unless they are made through electoral bonds. Parties are not required to disclose the sum or the source of any single donation that is below Rs 20,000. This is where the legal loophole steps in — parties generally break large donations from a single donor into multiple small donations. This practice exempts them from any disclosure requirement.
• Since 2017, electoral bonds enable large donors to hide their donations if they use official banking channels. The bonds enable political parties and large donors to strike quid pro quo deals without any public scrutiny. Even more importantly, the ability of the party in power to access the information about donors of other parties (through law enforcement agencies) undermines the scheme of electoral bonds on its own terms, i.e., to prevent victimisation of donors.
• Indian electioneering is no longer restricted to parties and candidates.
• Over the last decade, we have seen a staggering rise in the involvement of political consultancies, campaign groups and civil society organisations in online and offline political campaigns.
• In the US, for instance, the relatively lax regulation of third-party expenditure has pushed a large amount of political money to shadow campaigns that influence political outcomes but often fall outside of the traditional objects of regulation of campaign finance. This should make us rethink the assumptions of 20th-century Indian politics, which form the basis of our political funding framework.