Context

• Political parties are indispensable to representative democracy, yet the Indian Constitution gives them limited explicit recognition.
• They primarily function as associations protected by Article 19, while the Tenth Schedule recognises their role in the anti-defection framework.
• Their unusual legal status allows them to enjoy substantial tax exemptions and regulatory privileges, making transparency in political finance a crucial democratic concern.
• The proliferation of Registered Unrecognised Political Parties (RUPPs), unexplained donations and controversies surrounding electoral bonds reveal weaknesses in India's electoral-finance framework.
• The central issue is whether citizens can know who finances political power and whether financial contributions influence public policy.

The Mystery of Political Funding

• Political funding is regulated through the Representation of the People Act, 1951, the Income-tax Act and Election Commission regulations.
• Section 29A provides for registration of political parties, while Section 29B permits voluntary contributions subject to statutory restrictions.
• The large number of RUPPs creates a significant regulatory challenge. The Election Commission reported 2,854 RUPPs in August 2025 and subsequently delisted 334 parties for non-compliance with requirements such as contesting elections.
• However, delisting, recognition and deregistration have distinct legal meanings.
• Registration allows an organisation to function as a political party, while recognition determines its status for purposes such as reserved symbols.
• The distinction can create regulatory gaps when parties remain formally registered despite limited electoral participation.
• Former Chief Election Commissioner T.N. Seshan had already highlighted the poor internal discipline and weak compliance of political parties in the 1990s.
• His emphasis on institutional accountability remains relevant because electoral integrity requires not merely conducting elections but ensuring that political organisations themselves follow transparent rules.

The Scale of Political Wealth

• The magnitude of political finance raises questions about the relationship between democratic competition and private wealth.
• Large financial reserves, substantial donations and tax exemptions can provide political parties with resources extending well beyond immediate electoral requirements.
• The fundamental concern is insufficient information about the source, purpose and beneficiaries of political contributions.
• Political parties exercise considerable public influence by selecting candidates, shaping legislation and participating in government formation.
• Tax exemptions strengthen the case for transparency. When the State forgoes revenue to facilitate political activity, citizens have a legitimate interest in knowing whether such concessions serve genuine democratic purposes.
• Financial disclosure must therefore move beyond formal submission of accounts towards meaningful verification and public accountability.

Electoral Bonds and the Transparency Debate

• The electoral-bond scheme became the most significant episode in India's political-finance debate.
• In February 2024, the Supreme Court declared the Electoral Bond Scheme and related statutory amendments unconstitutional.
• It held that non-disclosure of political contributions violated citizens' right to information under Article 19(1)(a) and also invalidated the removal of the earlier corporate-contribution limit.
• The judgment established that political funding cannot be completely insulated from citizens' right to know.
• At the same time, allegations of quid pro quo require evidence and investigation rather than assumptions based merely on the timing of donations and government decisions.
• The broader lesson is that financial transparency should enable citizens and institutions to scrutinise political funding while ensuring that individual allegations are examined through due process.

Necessary Reforms

• Institutional Accountability
  • Political-finance regulation is fragmented among the Election Commission, Income-Tax authorities and other institutions.
  • Political parties have also historically resisted greater external scrutiny.
  • The Election Commission possesses extensive constitutional authority over elections and maintains financial-disclosure mechanisms.
  • However, disclosure alone is insufficient when submitted accounts are not meaningfully scrutinised.
  • Reform should include:
    • Standardised digital disclosure of party finances.
    • Independent auditing of political-party accounts.
    • Clear links between continued registration and electoral participation.
    • Greater scrutiny of unusually large or unexplained donations.
    • A central database of contributions, expenditure and assets.
    • Appropriate and proportionate taxation of political donations.
    • Better coordination between the ECI and tax authorities.
    • Enforceable procedures for deregistration of persistently inactive parties.
• Balancing Regulation and Democratic Freedom
  • Political-finance reform must not become a mechanism for excessive governmental control over political organisations.
  • Political parties are essential to freedom of association, political participation and democratic pluralism.
  • Regulation should therefore be transparent, politically neutral and subject to legal safeguards.
  • The objective should not be to restrict citizens' ability to establish or support political parties, but to ensure that parties enjoying the privileges of political status also fulfil corresponding obligations of financial disclosure and accountability.

Conclusion

• The fundamental challenge is not simply the existence of political money but the opacity surrounding its sources, uses and consequences.
• A democracy cannot function effectively when citizens know who seeks their votes but lack adequate information about who finances those organisations.
• The electoral-bonds judgment and the Election Commission's action against non-compliant RUPPs demonstrate the continuing importance of electoral-finance reform.
• India needs a framework based on transparency, independent auditing, standardised disclosure, institutional coordination and enforceable accountability.
• Political parties must retain the freedom necessary for democratic competition, but that freedom must coexist with a corresponding obligation to disclose how political power is financed.