News Excerpt
The Election Commission has recently informed the Government that it is not in favour of State Funding of elections as it will not be able to prohibit or check candidates' own expenditure or expenditure by others over and above that which is provided for by the state.
ECI is of the view that for addressing the real issues, there have to be radical changes in the provisions regarding receipts of funds by political parties and the manner in which such funds are spent by them so as to provide for complete transparency in the matter.

●    Indrajit Gupta Committee on State Funding of Elections (1998) recommended State funding.
●    Countries like Germany and Canada have provision for state funding of elections.

Meaning of State Funding of elections
→    In this way of funding the Government gives funds to political parties or candidates for contesting elections.
→    At present political parties receive funds from individuals, groups and corporates.

Arguments in favour
→    It will lead to transparency in political funding. At present, as per ADR report, majority of funding are from anonymous sources. Increased transparency will lead to lesser corruption and lesser black money finding a way to political funding.
→    It can reduce dependence of political partieson corporate donations which has potential to influence their policy.
→    Since income distribution is very skewed in India (Oxfam report reported that 1% of our population had 58% of total wealth), private funding of political parties will translate economic inequality into political inequality.
→    State funding will lead to a level playing field for political parties with less money.
→    State funding will make it possible for new and cleaner candidates from outside the mainstream parties to join politics.
→    It will reduce criminalization in politics by reducing dependence of political parties on corrupt and criminals.

Arguments against
→    Governments with already stressed finances will not be able to bear the burden.
→    Opportunistic groups will register as political parties just to feed on state funding.

⮚    The Indrajit Gupta Committee (1998): State funding is important in order to establish a fair playing field for parties with less money.  In the short-term state funding should only be given in kind, in the form of certain facilities to the recognized political parties and their candidates.
⮚    The 1999 Law Commission of India report: Total state funding of elections is “desirable” so long as political parties are prohibited from taking funds from other sources.
⮚    Second Administrative Reforms Commission (2008): Recommended partial state funding of elections for the purpose of reducing “illegitimate and unnecessary funding” of elections expenses.
⮚    The National Commission to Review the Working of the Constitution, 2001: Did not endorse state funding of elections.

Though state funding of elections appears to be a good idea on the surface but the appropriate framework for regulation of political parties would need to be implemented before state funding is considered.

Provisions related to funding of political parties in India
    Section 29B of the Representation of the People Act (RPA) entitles parties to accept voluntary contributions by any person or company, except a Government Company.
    Section 13A of Income Tax Act says that political parties will have to declare all donations above Rs 2,000 to obtain tax exemption. However, Section 29C of the RPA mandates political parties to declare donations that exceed 20,000 rupees. So, this anomaly needs to be resolved.
    Foreign Contribution Regulation Act, 2010 has been amended allowing foreign companies to fund political parties in India.
    Electoral Bond: It can be purchased by any citizen of India or a body incorporated in India to donate to the political party of their choice. Donor’s name is not there on the bond. To receive Electoral fund parties should be (1) Registered with ECI (2) Should have secured not less than one percent of the votes polled in the last general election to the House of the People or a Legislative Assembly.