Executive Summary

India's electoral democracy faces profound challenges from the pervasive influence of money, often termed "money power”, which undermines political equality, transparency, and fair competition. The report attempts to undertake an assessment of India’s political finance system, to understand its limitations and how it fares on parameters of electoral integrity, transparency, and equality. It traces how unregulated money often from illegitimate or opaque sources has become central to Indian politics, creating an uneven playing field where wealth dictates political power. Despite decades of reform proposals, the nexus between money, crime, and politics persists due to weak legal enforcement, inadequate regulation, and complete lack of political will. The report highlights that financial dominance—not ideology or public service—determines political success in India. The lack of transparency and accountability in political funding has fostered corruption, unequal access to political power, and policies influenced by vested interests.

The findings of the report were formulated by an in-depth literature review, analysis of official data in public domain, expert interviews and a validation meeting in New Delhi, all carried out between May 2024 and October 2025. It also covers some of the landmark judgements delivered by the Supreme Court and the High Courts that made invaluable contribution towards reforming the political finance system in a major way. Based on the findings and the broader Indian context, concrete recommendations are provided at the end of the Report for consideration by policymakers, political parties, the Election Commission of India, civil society organizations and other stakeholders for regulatory reforms or systemic changes. The Report pays particular attention to the main building blocks of political finance regulations, notably (a) monitoring and regulation of political parties; (b) private funding; (c) campaign expenditure; (d) reporting and disclosure requirements; (e) freebies and voter inducements; (f) search and seizure of illicit items; (g) paid news and political advertising; (h) oversight mechanism; (i) strengthening of the Election Commission and (j) sanctions. While the detailed recommendations are discussed in Chapter 7, some of the main findings and recommendations are highlighted below.

Regulatory Framework and Legal Gaps

The foundation of political funding in India is governed by the Representation of People Act (1951), Income Tax Act (1961), Companies Act (2013), and Foreign Contribution Regulation Act (2010). However, these laws fall short of ensuring a robust political finance framework. The report identifies seven key limitations: dominance of money and muscle power, lack of internal democracy within parties, absence of statutory backing to Election Commission of India (ECI) rules, inability of ECI to de-register defaulting parties, evasion of Right to Information (RTI) scrutiny, flouting of existing laws by contestants, and lack of political will to implement reforms. These systemic weaknesses enable financial opacity and unaccountable campaign financing.

Political Contributions and Corporate Donations

Individuals and companies can legally donate to political parties, with disclosure requirements for contributions above INR 20,000. However, party disclosures are routinely underreported, parties can hide donor identities through multiple small contributions or cash payments. Corporate funding, initially capped at 7.5 per cent of average profits under the Companies Act (2013), became virtually limitless after the Finance Act (2017), which also removed the requirement to disclose beneficiary parties. This change enabled opacity in political funding and undermined citizens’ Right to Know, contrary to democratic principles of equality and transparency.

Electoral Bonds: Institutionalizing Opacity

The introduction of the Electoral Bonds Scheme (2017) marked a turning point in India’s political finance regime. Under this system, unlimited anonymous donations could be made through bank instruments, bypassing public scrutiny and disclosure requirements. The scheme enabled untraceable political financing from corporations, including loss-making or foreign-controlled entities. The Supreme Court struck down the scheme in February 2024, deeming it unconstitutional for violating citizens’ “Right to Know,” but its legacy reflects severe damage to electoral transparency and equality.

Electoral Trusts and Unknown Income Sources

Electoral Trusts, established ostensibly to promote transparency, also suffer from weak oversight. They must donate 95 per cent of contributions annually, but there are no stringent penalties for non-compliance or disclosure failures. Political parties continue to report substantial proportions of income from “unknown sources,” including donations below INR 20,000 and sale of coupons. Such untraceable funds undermine accountability and perpetuate corruption. Enforcement of reporting obligations by the Election Commission of India (ECI) and Central Board of Direct Taxes (CBDT) remains negligible despite clear statutory powers such as withdrawal of tax exemption for non-compliant parties.

Election Expenditure and Freebies

While candidates face spending caps, there is no ceiling on party expenditure. This loophole allows massive off-book spending under the guise of general campaigning, travel, and advertising. There is also mismatch between reported and actual expenditure, fueling quid pro quo arrangements with donors. The proliferation of freebies and inducements such as cash, liquor, narcotics etc further distorts voter choice. In the 2024 elections alone, the ECI seized illicit inducements worth INR 88,890 million between March 1 to May 18, 2024, highlighting the magnitude of the problem.

Governance, Enforcement, and Reform Needs

Despite numerous transparency guidelines issued by the ECI, including those under Article 324 of the Constitution, the absence of statutory enforcement and penalties renders them ineffective. The lack of accountability mechanisms for political parties, unlike other public institutions, undermines citizens’ rights to information and fair representation.

Main Recommendations

1. Monitoring and Regulation of Political Parties and Candidates

• Enact a comprehensive political parties’ law to regulate finances, internal democracy, and leadership accountability.

• Empower the Election Commission of India (ECI) to de-recognize or deregister parties that fail to comply with financial disclosure or court directives.

• Bring political parties under the ambit of the RTI Act and define bribery and freebies as corrupt practices under the RP Act, 1951.

2. Private Donations

• Impose donation limits and require full disclosure of donors and parent companies behind electoral trusts.

• Ban anonymous and cash donations, mandating digital transactions for all political contributions.

• Require independent audits of party accounts, verified by the CAG, with reports made public.

3. Public Funding

• Adopt objective and transparent criteria for the allocation of public funds to political parties.

• Continue indirect in-kind subsidies until broader transparency and accountability reforms are in place.

• Introduce vote- or seat-based funding, including incentives for women and underrepresented groups.

4. Campaign Expenditure

• Set enforceable expenditure limits for parties and candidates to prevent financial dominance and corruption.

• Extend the reporting period for election expenses to begin from the notification of elections.

• Develop and enforce specific rules for online and third-party campaign spending.

5. Reporting and Disclosure

• Mandate complete, standardized financial disclosures and reject incomplete submissions.

• Create a public online database for real-time disclosure of income, expenditure, and sanctions.

• Require periodic expenditure reporting by parties before and during elections.

6. Freebies and Voter Inducements

• Impose a total ban on freebies (such as illicit items) used to entice voters during elections.

• Classify such inducements as corrupt practices under Section 123 of the RP Act.

• De-register or disqualify parties and candidates found guilty of distributing freebies.

7. Search and Seizure of Illicit Items

• Ensure public disclosure of all election-related seizures, including names of involved candidates or parties.

• Mandate state-wise reporting of seizure cases and follow-up actions to the ECI.

• Establish a dedicated ECI investigation/prosecution wing for election-related seizures.

8. Paid News and Political Advertising

• Legally define paid news and categorize it as a corrupt practice under the RP Act.

• Broaden Section 126 to cover digital and online paid content and advertisements.

• Introduce penalties and disqualification provisions for publication or broadcast of paid news.

9. Oversight and Monitoring

• Ensure independent, politically neutral oversight bodies free from government influence.

• Strengthen ECI’s capacity to monitor online and third-party campaign finance.

• Foster collaboration with digital platforms for transparency in political advertising.

10. Strengthening the Election Commission of India

• Align the appointment process of Election Commissioners with the Supreme Court’s 2023 directive.

• Legally empower the ECI to countermand elections in cases of money power abuse.

• Enhance capacity building and stakeholder dialogue for effective electoral management.

11. Sanctions and Enforcement

• Impose monetary penalties and loss of tax exemptions for non-compliance or falsified disclosures.

• Authorize the ECI to withdraw financial privileges of defaulting parties.

• Maintain a public database of sanctions and penalties to ensure accountability.