Electoral Trusts: A Surge in Donations Post Supreme Court Ruling

➡️Why Is It in the News?

The Election Commission of India (ECI) has recently released the electoral trust contribution reports, which highlight a significant rise in political donations funneled through electoral trusts. This surge follows the Supreme Court’s decision in February 2024 to scrap the controversial electoral bonds scheme.

➡️What Are Electoral Trusts?

Electoral trusts are non-profit organizations established to facilitate transparent political funding in India. They function as intermediaries, receiving voluntary contributions from individuals or companies and distributing them to registered political parties.

➡️Who Can Set Up Electoral Trusts?

Only companies registered under Section 25 of the Companies Act, 1956 are eligible to form electoral trusts. These companies must first seek approval from the authorities to operate as electoral trusts.

➡️Creation of Electoral Trusts

The concept of electoral trusts was introduced through Section 13B of the Income Tax Act, 1961, offering tax benefits to donors. The Electoral Trusts Scheme, 2013, introduced by the Ministry of Finance, governs their operation and ensures their regulation by the Election Commission of India (ECI).

✅Who Can Donate?

• Indian citizens
• Domestic companies registered under the Companies Act, 2013
• Disclosures: Donors must disclose their identity and the amount they contribute.

✅Who Cannot Donate?

• Foreign companies or individuals
• Government companies
• Entities prohibited under the Representation of the People Act, 1951, such as trusts that receive foreign funds.

➡️Issues with Electoral Trusts

1. Transparency Concerns: While electoral trusts disclose donors' names, the specific amounts donated to individual political parties are not publicly available.
   
   
2. Corporate Influence: The system sees large corporate donors dominating the funding, raising concerns about potential undue political influence.
   
   
3. Inequitable Distribution: A major portion of donations tends to flow to ruling or major political parties, leaving smaller parties sidelined.
   
   
4. Lack of Donor Diversity: Contributions primarily come from a few large corporations, leading to a concentration of influence.
   
   

➡️Benefits of Electoral Trusts Over Electoral Bonds

✅Transparency in Donations:

• Electoral trusts are legally required to disclose both donors' names and amounts received by political parties to the ECI.
• In contrast, electoral bonds allow for anonymous donations, making it difficult to trace the source of funds.

✅Accountability of Political Parties:

• Electoral trusts mandate the disclosure of the contributions made to political parties, ensuring public awareness of the funding received.
• Electoral bonds lack this level of disclosure, reducing accountability.

✅Regulatory Oversight:

• Electoral trusts operate under the Electoral Trusts Scheme, 2013, ensuring closer monitoring by the ECI.
• Electoral bonds, on the other hand, are managed by banks, with little transparency regarding regulatory scrutiny.

✅Prevention of Foreign Influence:

• Electoral trusts explicitly prohibit foreign donations, reducing the risk of foreign interference in Indian politics.
• Electoral bonds do not have explicit restrictions on foreign-controlled entities from purchasing bonds, raising concerns about foreign influence.

➡️Surge in Donations Post Supreme Court Ruling: Following the February 2024 Supreme Court ruling to scrap the electoral bonds scheme, there was a noticeable shift in corporate political donations towards electoral trusts. Electoral Trust, the largest contributor, saw a significant surge in donations in the months that followed. This shift highlights the diversion of funds from the electoral bonds route to electoral trusts, marking a major change in the way political donations are channeled.

➡️Transparency in Electoral Trusts vs Electoral Bonds: Unlike electoral bonds, which allow for anonymous donations, electoral trusts are required to disclose both the donors' names and the amounts distributed to political parties. However, exact allocation details regarding the contributions made to specific parties are not fully disclosed.

This growing reliance on electoral trusts post-Supreme Court decision suggests a potential move toward greater transparency in political funding, but it also brings to light ongoing issues related to corporate influence and the concentration of donations among a limited number of donors. The future of electoral transparency will depend on how well these trusts are regulated and how effectively political parties disclose their funding sources.