Originally Published 2012-04-12 00:00:00 Published on Apr 12, 2012
The pending Companies Bill provides for in an increase in the corporate funding to political parties from 5% to 7.5% of the average net profits. This increase is despite the fact that the presence of strong corporate funding laws has not hindered companies to squeeze out crores in bribes.
Corporate funding of elections: A scrutiny of some recent developments
The recent position espoused by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) in favour of "transparent and legal" corporate funding of elections is an announcement with far reaching implications for the country. One of their key demands is that both spending and expenditure during elections should be without any caps to the free flow of donations. This flows from the of-quoted predicament prevalent in the campaign finance regulations in India wherein caps exist for spending by individual candidates during election campaigning, but for spending by political parties, no such caps exist. This loophole in the current provisions of the Representation of People Act, 1951 has often been the source of "black money" during election period with the bulk of the finances being contributed by business houses - both large conglomerates as well as the small ones. The advocacy of ASSOCHAM is not the only instance, the pending Companies Bill, 2011 has provisions enumerating that corporate funding to political parties must increase from 5% to 7.5% of the average net profits earned by a company during the three immediately preceding financial years. This increase in the amount of funding is despite the fact that the presence of strong corporate funding laws has not hindered companies to squeeze out crores in bribes.1

The cosy relationship between business houses and political parties is not a recent phenomenon. Historically the Indian National Congress during its pre-independence era was also financed by large business houses notably the Birlas. In 1957-58, the Tatas had contributed Rs. 3,00,000/- to the Congress Party coffers - at that point of time a princely amount. In 1969, corporate funding was banned via legislation only to be re-introduced in 1985 by the Companies Act, 1956 without any well-thoughts institutional structures or mechanisms to contribute (Electoral Trusts pioneered by the Tatas in 1996 was not the result of a legislation, it was the contribution of an individual group). The growing political-corporate coziness has become a major debatable issue for obvious reasons. As the infamous Niraa Radia tapes have demonstrated, key policy decisions can be influenced to curry favour for certain business groups or corporate2. Overall, in its current mode, the corporate funding can possibly throttle democracy in the country.

Brief Analysis of the Companies Bill, 2011

The pending Companies Bill, 2011 which for all practical purposes is the blueprint on which companies will financially contribute to political parties in the future deserves more scrutiny. Clause 182 of the Companies Bill, 2011 (analogous to Section 293A of The Companies Act, 1956) is the relevant section dealing with funding to political parties by companies. Every donation to a political party must be authorized by a resolution passed by the Board of Directors. Furthermore, the amount contributed to a political party in a particular financial year must be disclosed in its profit and loss account. Advertisements, brochures and souvenirs released by or on behalf of political parties or if not directly released by a political party is nonetheless advantageous to a political party or meant for a political purpose, if financed through corporate funding will be considered as contributions by companies for a political purpose. The provisions of the Companies Bill, 2011 as it stands suffers from a large number of infirmities. The Election Commission and various members of the civil society have for a long time argued in public forums that funding and donations by companies to political parties should be made subject to audits and disclosures. All such audit reports to be conducted by independent auditors appointed by the Election Commission must be made public. It is also necessary to include provisions that all contributions should be made only by cheque and the financial relationships between corporate houses and political parties be made public. Furthermore, the practice of rotation of the appointed auditors (as practiced for the companies in India) must be duly instituted for all the political parties -something which the Standing Committee of Parliament on Finance has curiously refused to accept till date3. None of these suggestions have deserved any serious or notable mention in the Companies Bill, 2011.

Electoral Trusts - An innovation worth emulating?

The Tatas were the first conglomerate in India to introduce the concept of electoral trusts for funding political parties in India. Started in the year 1996, it is an adaptation of the German model of funding political parties. All political parties above a certain representation in Parliament are funded by the finances of the electoral trust. The funding is a two-step process wherein half the funds are distributed before elections and the remaining to the political parties post the election period. The Tatas have also evolved a General Electoral Trust which funds independents and local candidates too as opposed to political parties but only in those areas where the company has either a business interest or an investment destination. The concept of these electoral trusts have been emulated by the Birlas too - another Indian based conglomerate. According to the Association for Democratic Reforms ( a Delhi based civil society group), 36 corporate entities in the last general elections held in 2009 in India donated more than Rs. 1 crore to parties across the political spectrum. This in itself is a reminder of the role played by corporate houses to support political parties to win elections.

The electoral trusts though well-intentioned have obvious limitations. The finances are donated only during the election periods and are not a continuous process, since political parties like any other organization needs funds to conduct various activities apart from winning elections. This lack of commitment to the healthy functioning of political parties - an essential feature of democratic societies, needs to be given more consideration. Funds from trusts should help in better management of political parties as entities that too require to carry out works of social reforms and sensitize the citizens, strong organisational values and leadership and considering them merely as tools for winning elections betrays both the necessity of funding political parties as well as being part of the process to ensure a more democratic society. Secondly, the practice of funding candidates where business interests are involved though understandable in the practical sense of the term should be reconsidered to follow the format of funding above a certain representation in Parliament i.e. introduce the same practices in state assemblies and local elections by funding political parties. The primary focus of funding should be on political parties as opposed to particular candidates to avoid allegations of a dubious nexus and encourage non-partisan formula based funding. Furthermore, within the institutional framework of "electoral trusts", the concept of "shareholder approval" approach needs to be encouraged. Practiced currently in the United Kingdom under the PPERA, 2000 (Political Parties Elections and Referendum Act, 2000), it bans donations from companies without prior approval of the shareholders. The "shareholder approval" approach has been directly credited with the decline of corporate donations and the pernicious influence of "big money" in the United Kingdom. Inspite of certain drawbacks, the concept of an electoral trust needs to be seriously considered by providing for the same in legislations (Companies Bill for e.g. in India) and ensuring that the funding remains a continuous process.

US corporate funding experiences

To draw from experiences in other countries, the U.S. which is often celebrated as a beacon of democracy in our country offers useful insights for our purposes. In 2010, the U.S. Supreme Court in the landmark decision of Citizen United Case overruled over 100 years of federal legislations imposing limits on campaign finance contributions by both corporate entities as well as trade unions. The Court held that a ban on corporations using their general treasury funds for election related expenditures is violative of their free speech rights. Apart from the obvious question as to whether free speech rights extend to corporations (Free speech rights rests with the individual citizen in a society, corporates being legal entities are not individuals in the classical sense of the term unless one takes a distorted and dubious view of free speech rights which was enunciated in this case), the case is yet another reminder of campaign finance restrictions being tinkered around with for the sake certain vested interests. It assumes more importance in the context of historical evolution of campaign finance legislations in the United States which has for over 100 years laid down limits on campaign finance contributions from business houses or ordinary citizens. Though the legislations are far from curbing corruption or influencing policies in favour of certain vested interests, it offers instances of how increased funding by corporates is not a panacea for all ills in the Indian electoral funding system as has been hailed by many.

The example of the most recent legislation i.e. the Bipartisan Campaign Reforms Act (BCRA, 2002) is a case in point. The immediate backdrop of the BCRA was the role of soft money or fund raising dinners meant for soliciting large unlimited contributions from corporations. Considered one of the major corrosive influence on American politics alongwith issue advocacy (a form of support for candidates running for political office by financing specific issues highlighted by the candidate to bypass legislative limits on campaign finance instead of directly supporting the candidate and being hindered by legislations from contributing finances), it was widely accepted that the dubious influence of soft money had overshadowed all other genuine political issues and had alienated the election campaigns from grassroots issues affecting the ordinary voter. Often such contributions have been based on access to the electoral candidate rather than being driven by ideological support for the candidates and the political parties. The BCRA has been relatively successful in reducing soft-money contributions for Presidential Elections.

Another instance is the importance being accorded to small donors in the United States especially in the current Presidential Elections as well as their contributions during the 2008 Presidential Elections. This was a direct response to involve more people significantly in the electoral process rather than relying only on "large contributions". The Citizens United Case has effectively devalued the importance of BCRA and small donors and brought the spotlight back on the influence of big conglomerates. There has been no effective decrease in either corruption of the electoral system in the United States or influencing policies detrimental to public interest. This is despite that the agencies tracking disclosure of funds by candidate i.e. FECA (Federal Election Commission Act) as an institution is considered to be an effective watchdog body. These instances and anomalies should serve as instructive lessons when considering corporate funding in the Indian electoral reforms discussions.


The knee-jerk reaction of removing campaign finance limits or simply raising contribution limits to political parties is not the only solution to introduce more transparent funding structures. Apart from structural changes needed in other areas (notably inner party democracy, more political based on ideologies rather than money minting enterprises, a proactive media to continuously gauge the functioning of political parties), corporate funding itself needs to be more nuanced and balanced in its approach. The recommendation of the Election Commission regarding auditing and disclosure laws, public knowledge of contributions to political parties and learning from the U.S. experience (excessive reliance on corporations as opposed to any form of state funding) needs serious consideration.

(Samya Chatterjee is a Research Assistant at Observer Research Foundation)

< class="text11verdana">1 The Niira Radia Tapes exposed the relationship between the business houses and the political parties wherein particular policies were being propagated on the exploitation of hydrocarbons, coal and electromagnetic spectrum for certain vested interests, in 2001 during the NDA regime serious illegalities were reported in the defense purchases and back in 1987 the infamous Bofors scam during the regime of the Congress Government. At the core of all these scams was an unholy nexus between political parties and business houses, which is a consequence of the role of "big money" in the electoral funding in India.

2 Not only in India are policies changed to favour certain vested interests in the corporate sector as the Niira Radia tapes brought to light, but in advanced democracies like the United States of America and United Kingdom, the dependence on "big money" for the purposes of election funding has often led to policies being framed to the detriment of the larger public interest. During the financial crisis of 2008 in the U.S., some of the largest banks were bailed out by the use of taxpayers’ money due to their pernicious influence in deciding elections in favour of particular candidates as well as the financial clout they have in the economy via which they are known to influence policies.

3 Treat funding to political parties as expenditure: ICAI, available at http://www.thehindubusinessline.com/industry-and-economy/economy/article1127792.ece

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