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India has just concluded its 18th and likely most expensive general election. Campaigns require substantial funding, often provided by corporations and trusts seeking political influence. Lobbying, though common in developed countries, lacks regulation and is often viewed negatively because of its association with corruption. However, lobbying is widespread, with corporations significantly influencing political processes, sometimes compromising democratic principles and ethics.

Corporate funding of political parties has long been contentious. A complete ban was introduced in 1969. This was partially lifted in 1985, allowing limited contributions based on average net profits. The Companies Act, 2013, capped donations on the same basis. Disclosure of total amounts and recipients in profit and loss statements ensured accountability.

The Finance Act, 2017, removed the cap on corporate donations and permitted unlimited contributions without specifying recipients. The 2018 Electoral Bonds Scheme (EBS) aimed to reduce pressure on donors and curb black money. Individuals and companies could buy electoral bonds from the State Bank of India (SBI) that political parties could cash. The bonds maintained donor anonymity by not including purchaser details, just a unique identification number. Only the SBI could trace the bond from purchaser to recipient party, in theory safeguarding donor privacy while enabling political donations.

The Supreme Court case of saw petitioners arguing that the EBS saw unlimited corporate donations and obscured financial transparency. This violated voters’ rights to know who was funding political parties. Concerns were raised about hidden arrangements between donors and political parties.

The UOI claimed the EBS had curbed black money and protected donor privacy. However, in its February 2024 judgment, the court highlighted the influence of money in electoral politics and the lack of a clear legal distinction between electoral and campaign funding. The court emphasised the importance of transparency in political funding, allowing voters to know the links between decision-making and financial contributions. Robust disclosure should make companies reveal donations and political parties identify them, giving voters essential information. The EBS did not even guarantee complete anonymity because parties could still identify their donors. Such selective anonymity protected donors from public scrutiny but left them open to party influence and manipulation. The court ruled that the EBS’s anonymising provisions violated article 19(1)(a) of the constitution, which guarantees the right to information. Alternatives such as electoral trusts offered greater transparency and fewer restrictions on the right to information.

The court highlighted the unequal influence of corporate donations compared to individual contributions, with corporate funds often representing business transactions aimed at securing benefits. The Finance Act, 2017, allowing loss-making companies to donate to political parties, was criticised for equating corporate and individual contributions and enabling unregulated corporate influence.

This decision underscored the need for greater transparency and accountability in political funding and lobbying. India lacks a framework for regulating lobbying, and it is essential to establish legitimate channels for public and corporate entities to pass their concerns to elected officials. This would prevent undue corporate influence.

Countries such as the UK, the US and New Zealand have laws ensuring transparency and accountability in lobbying. For example, the UK’s Transparency of Lobbying, Non-Party Campaigning, and Trade Union Administration Act 2014 regulates lobbyists, requiring registration and disclosure of their activities.

India should similarly establish a legal framework to regulate lobbying, allowing groups and individuals to communicate their perspectives legally and transparently. A government portal could publish lobbying activities and meetings with elected representatives. Political parties must disclose donations, with only profit-making, not loss-making or shell companies permitted to make political contributions.

By legitimising and regulating lobbying, India will create a more transparent and accountable political funding system, strengthening its democracy and advancing its development goals.

Dinesh Pardasani and Samir Malik are partners at DSK Legal. They can be reached at dinesh.pardasani@dsklegal.com and samir.malik@dsklegal.com, respectively. The authors would like to thank Raghav Mudgal, an associate, for his contributions.