The murky world of political party finance

1. At a Glance

• Political party finance is the legal and financial regime governing how parties raise, hold and spend money. Parties are not defined in the Constitution except through the Tenth Schedule. They exist as "associations" under Article 19, and are not classed as a company, trust or society. [1]
• The core problem is opacity. Parties enjoy income-tax exemption "in an unprecedented and unparalleled manner", and shell political parties may serve as conduits for unexplained money. [1]
• The electoral bonds scheme, which allowed anonymous donations, was struck down in 2024. Attention has since shifted to Registered Unrecognised Political Parties (RUPPs). [2][3]
• This is relevant for GS-II (electoral reforms, transparency) and GS-IV (probity, quid pro quo).

2. Why in the News

• Ashok Lavasa, a former Election Commissioner and former Union Finance Secretary, wrote an op-ed dated 25 Sep 2026. It argues that the ECI should scrutinise parties and political finance rather than legitimate voters. [1]
• A recent BBC investigation revealed extraordinary donations received by six RUPPs. [1]
• An ADR report of 18 July 2025 found a 223% rise in RUPPs' declared income in FY2022-23. [1][5]

3. Background & Evolution

• Electoral bonds were introduced in 2018 by then Finance Minister Arun Jaitley. They were interest-free bearer instruments sold through SBI, in denominations from ₹1,000 to ₹1 crore, with a 15-day validity. [2]
• SBI issued bonds worth ₹16,518 crore in 30 tranches since 2018. [2][4]
• The BJP encashed ₹6,060.5 crore (over 47.5%) between 12 Apr 2019 and 24 Jan 2024. [2]
• In April 2019, the Supreme Court asked parties to disclose bond details before 30 May, as an interim step. [6]
• On 15 Feb 2024, a five-judge Bench led by CJI D.Y. Chandrachud held the scheme unconstitutional. It directed SBI to stop issuing bonds and to furnish details to the ECI, which was to publish them by 31 March. [2][3]
• SBI submitted the data to the ECI in March 2024, and the ECI published it with alphanumeric bond numbers. [7][8]
• In Aug 2024, the Supreme Court rejected pleas for a court-monitored SIT probe into the scheme. [9]

4. Core Static Facts

Item	Fact
Legal status of parties	Not defined in the Constitution; mentioned only in the Tenth Schedule; exist as associations under Art. 19 [1]
RUPP disclosure duty	Audit report and statement of donations above ₹20,000 [10]
2024 verdict	Electoral bonds unconstitutional; the Court cited the citizen's right to know and possible quid pro quo from corporate funding [2]
Bond denominations	₹1,000 to ₹1 crore [2]
Bond validity	15 days [2]
Issuing bank	SBI [2]

5. Multi-Dimensional Analysis

Legal / Constitutional

• Parties have no defined legal character, which leaves a regulatory gap. [1]
• The 2024 ruling links political funding transparency to voters' informed choice. [2]

Ethical / Governance

• Corporate funding risks quid pro quo. [2]
• Shell parties may channel inexplicable money. [1]

Economic

• Income-tax exemption for parties is unparalleled. [1]
• RUPP declared income rose 223% in FY23. [5]

Administrative

• Compliance is weak: 163 of 275 Bihar RUPPs (59.27%) did not upload their FY24 reports. [10]
• Only 67 parties (24.36%) filed both reports. [10]
• 32 parties were delisted for inactivity and non-compliance. [10]

6. Recent Developments (last 12-18 months)

• 18 Jul 2025: ADR report on the 223% rise in RUPP income. [5]
• Aug-Sep 2025: 32 parties delisted. [10]
• Nov 2025: ADR flagged that over half of Bihar's RUPPs skipped financial disclosure. [10]
• Feb 2025: ADR reported that the BJP spent ₹2,212 crore in FY24, double the combined spending of all national parties. [11]
• Sep 2026: BBC investigation into donations to six RUPPs, and Lavasa's op-ed. [1]

7. Prelims Hooks

• Parties are mentioned in the Constitution only in the Tenth Schedule. [1]
• Parties exist as associations under Article 19. [1]
• Electoral bonds were introduced in 2018. [2]
• The scheme was struck down on 15 Feb 2024. [2]
• The bench was led by CJI D.Y. Chandrachud and had five judges. [2]
• Bond denominations ran from ₹1,000 to ₹1 crore. [2]
• Bond validity was 15 days. [2]
• Bonds were sold through SBI. [2]
• Total bonds issued: ₹16,518 crore in 30 tranches. [4]
• RUPP stands for Registered Unrecognised Political Party. [1]
• ADR reported a 223% rise in RUPP income in FY2022-23. [5]
• The ECI was to publish bond data by 31 Mar 2024. [2]

8. Why the Money Did Not Get Clean When the Bonds Died

• Striking down bonds closed one door, not the corridor
• Parties need not name any donor who gives ₹20,000 or less [13].
• So a ₹1 crore gift can be written up as 501 small donations, and no name has to be shown.

• ADR calls this bucket income from unknown sources — money shown in the party's income-tax return with no donor named [13].

• How big is that bucket?

• In FY2018-19, ₹2,512.98 crore, or 67% of the total income of seven national parties, came from unknown sources [15].
• In FY2019-20, national parties took ₹3,370 crore from unknown sources [13].

• This existed before bonds and survives after them. The 2024 verdict did not touch the ₹20,000 rule [2].

• The favourite labels used to park such money

• "Sale of coupons", "purse money", "relief fund", "voluntary contributions", "contribution from meetings/morchas" [13].
• Each is a legal head of income. None has to carry a donor's name. That is the whole trick.

9. Why a Shell Party Is Cheaper Than a Shell Company

• A party is the softest legal shell available in India
• It gets income-tax exemption, and the note's source calls this exemption unmatched by any other kind of body [1].
• It is not a company, trust or society, so no company law, no registrar, no statutory auditor bound by those laws [1].

• It need not fight an election to keep existing. A RUPP can sit dormant for years and still receive money [1].

• Why RUPPs and not big parties

• Big parties are watched by journalists and the ECI. A one-room party with no candidate is watched by nobody.
• This is why a BBC investigation found unusually large donations going to just six RUPPs [1].

• And why ADR found RUPP declared income jumping 223% in FY2022-23, in a year with no general election [5].

• The audit chain has no last link

• A RUPP must file an audit report and a list of donations above ₹20,000 [10].
• But the auditor is chosen and paid by the party itself, and the ECI does not test the books behind the report.
• So the filing proves paperwork exists, not that the money is real.

10. Why the ECI's Only Weapon Does Not Hurt

• Delisting is a name-removal, not a punishment
• The ECI delisted 32 parties for being inactive and not filing [10].
• Delisting takes the party off a list. It does not recover the money already received, and nobody goes to court over it.

• So for a party set up to move money, being delisted after the money has moved is not a loss.

• The proof that the deterrent is weak is in the filing numbers

• In Bihar, 163 of 275 RUPPs (59.27%) did not upload their FY24 reports at all [10].
• Only 67 parties (24.36%) filed both required reports [10].

• When three out of four bodies skip a legal duty in an election-year state, the cost of skipping is clearly close to zero.

• Lavasa's point, stated as a mechanism

• The ECI spends its energy on verifying individual voters, where the risk of fraud is small and spread out [1].
• The money side, where one transaction can be worth crores, gets far less scrutiny [1].
• Same agency, same budget — the attention is placed where the damage is smaller.

11. The Strongest Argument For Anonymity, and What Is Wrong With It

• State the other side honestly. The bonds scheme was defended on two real grounds [2][3]:
• Donor safety — if a business is named as a funder of the losing party, the winning government can harass it. Anonymity was meant to protect the giver.

• Killing cash — before 2018, most funding moved as unrecorded cash. Bonds at least went through a bank, so the money entering the party was white money [3].

• What is right in it: the cash problem was genuine, and bonds did pull some funding into the banking system [3].

• Where the argument breaks
• Anonymity was one-sided. The bonds were bought from SBI, a government-owned bank, so the government could in principle learn who gave what, while the voter and the opposition could not [2].
• Protection that only the ruling side can see through is not protection from revenge. It is an information advantage.
• The outcome matches this: the BJP encashed ₹6,060.5 crore, over 47.5% of all bonds [2].
• The Supreme Court answered the privacy claim directly — the voter's right to know who funds a party outweighs the donor's wish to stay hidden, because corporate money can buy policy (quid pro quo) [2].

12. Reforms Already Recommended and Still Not Done

• Law Commission of India (1999): fix the books before giving public money
• It said total state funding of elections is desirable only if parties are barred from taking money from anywhere else [14].
• Given India's finances it advised partial state funding instead [14].
• Its key condition: first make rules on internal democracy in parties, keeping of accounts, auditing, and filing with the ECI [14].

• The NCRWC (2001) refused to back state funding but agreed with that same condition — regulate the party first [14].

• Indrajit Gupta Committee (1998): fund symbols, not individuals

• State funding should go only to recognised national and state parties that have been allotted a symbol, and not to independent candidates [14].

• Read against today's problem, this is directly useful: it keeps public money away from exactly the RUPP layer where the opaque money is collecting [5].

• Second ARC (2008): partial state funding, to cut down "illegitimate and unnecessary" election spending [14].

• Test it against the scale of today's spending: the BJP alone spent ₹2,212 crore in FY24, double all national parties put together [11].

• Partial funding only works if the private tap is narrowed at the same time; otherwise public money is added on top.

• Parliament should lower the disclosure floor below ₹20,000

• The ₹20,000 threshold is what makes the "unknown sources" bucket legal [13].

• A low or zero threshold for reporting, with the donor named to the ECI, removes the coupon-and-purse-money route in one step.

• Bring parties under the RTI Act

• Pleas to declare political parties public authorities under RTI are still pending; the Supreme Court deferred the hearing in May 2025 [16].
• The logic is the same one the Court used in 2024: money that shapes public policy cannot be private information [2].

13. Anchors for Answers

• Data: ₹2,512.98 crore, 67% of the total income of seven national parties in FY2018-19, came from unknown sources [15]; ₹3,370 crore for national parties in FY2019-20 [13]
• Data: 223% rise in RUPP declared income in FY2022-23 (ADR, 18 Jul 2025) [5]; 59.27% of Bihar's RUPPs skipped FY24 disclosure [10]
• Report/Committee: Indrajit Gupta Committee, 1998; Law Commission of India, 1999; NCRWC, 2001; Second Administrative Reforms Commission, 2008 — all on state funding and prior regulation of parties [14]
• Law/Case: Association for Democratic Reforms electoral bonds verdict, 15 Feb 2024 — scheme unconstitutional; voter's right to know under Article 19(1)(a) beats donor anonymity [2]; RTI applicability to parties still pending before the Supreme Court [16]
• Comparison: India's own pre-2018 cash regime versus the bonds regime — bonds moved money into banks but hid the donor, showing that banking the money and disclosing the donor are two separate reforms [3]
• Scheme: Electoral trusts — the surviving legal route for corporate funding, which does disclose donors to the ECI, unlike bonds [12]

14. Mains Relevance

• GS-II: Representation of People Act, electoral reforms, role of ECI, pressure groups and formal/informal associations.
• GS-IV: probity in public life, transparency, quid pro quo.
• GS-III: black money and shell entities.
• Question stems:
• Opacity in party funding undermines electoral democracy. Discuss in light of the 2024 electoral bonds verdict.
• Examine the regulatory gaps concerning Registered Unrecognised Political Parties and suggest reforms.
• Should political parties be given a defined legal character? Critically analyse.

15. Related Topics to Study Next

• Representation of the People Act, 1951: registration and disclosure provisions.
• Tenth Schedule / anti-defection law: the only constitutional mention of parties.
• Electoral trusts: an alternative funding channel (ADR data on trusts is in S12).
• ECI powers: registration and delisting of parties.
• State funding of elections: a proposed reform.
• Right to information and Article 19(1)(a): the basis of the "right to know".
• Shell companies and black money: the parallel with shell parties.

16. Common Errors / Trap Areas

• Do not confuse RUPPs (registered but not recognised) with recognised national or state parties.
• Parties are not mentioned in the Constitution beyond the Tenth Schedule, so do not assume Article 324 defines them.
• The electoral bonds issuer was SBI, not the RBI.
• The 223% rise is for FY2022-23, and the report was released in July 2025.
• The verdict was in 2024, not 2019. The 2019 order only required interim disclosure. [6]