Last month the Election Commission of India (ECI) organised a national consultation on "Political Finance and Law Commission Recommendations" in which experts, political parties and other stakeholders from across the country discussed the issues raised by the 255th report of the Law Commission of India.

While the report of the Law Commission discussed topics related to electoral reforms, two issues raised by it, transparency on the financing of political parties during elections and increasing the role of corporate houses in political funding were hotly debated at the meeting.

Most felt that corporate funding of political parties should end. "There was a broad consensus on banning corporate funding. Except for two national parties, everybody was in favour of it. Ideally, elections should be state-funded and corporations should be stopped from funding political parties directly," says N.R. Madhav Menon, founder of the National Law School of India University, Bangalore, and one of the participants in the national consultation.

The ECI too is opposed to corporate funding and has come up with a suggestion. In its draft outcome report of the National Consultation released last week, the ECI says that a law should be brought in allowing corporate contributions to be made to the corpus of a National Election Trust, controlled by it. The commission would in turn fund the parties according to a mechanism that is yet to be worked out.

"We have seen that some corporate houses have tried to influence the outcome of elections by allocating disproportionate amounts of money to parties that they feel should win. It is pretty clear that they are contributing money with the intention and expectation that they will be rewarded if the party they are supporting comes to power," says an Election Commission official who was part of the deliberations.

Barring the two big political parties - the BJP and the Congress - most political parties in India insist that they are against corporate funding. "Companies don't contribute without expecting something in return. And people who take money for elections are expected to do favours. That is against the very spirit of democracy," says D. Raja of the Communist Party of India. According to Raja, the BJP and the Congress are opposed to banning corporate funding as they are the "biggest beneficiaries" of corporate funds.

Corporate funding in India has a chequered history. Corporate donations to political parties were banned in 1969 by the Indira Gandhi government. The reason given at that time was that industrialists were exerting undue influence over political parties and could affect election outcomes. But according to experts, this move led to black money entering the system during elections. The ban was revoked in 1985. And over the years, several changes have been made to laws allowing for corporate funding of political parties.

Corporate funding of political parties was liberalised under Section 182(1) of the Companies Act of 2013.Under this law, a private company can fund a political party up to a limit not exceeding 7.5 per cent of the average net profits earned in the preceding three years. The contribution should be approved by the board of directors of the company. Section 80GGB of the Income Tax Act provides that corporate contributions to political parties and "electoral trusts" are entitled to income tax deductions.

In the last few years, several "electoral trusts" have been set up by industrial groups to fund political parties. According to the Association for Democratic Reforms (ADR), a group working for electoral reforms, some of these trusts include Janhit Electoral Trust, managed by the Vedanta Group, Satya Electoral Trust, by the Bharti group, Progressive Electoral Trust, by the Tata group, Triumph Electoral Trust, by the Murugappa group and several others.

According to Jagdeep Chhokar, founder-director, ADR, each of these trusts has several contributors, besides the group that is managing them, and not everybody's name is known. "We do come to know how much money they contribute to political parties, but what we don't know are the names of all the people who fund these trusts. They don't have a well-defined system to fund political parties. How they make the decision to fund a particular party is still a mystery. Some are very open while most of these trusts are opaque," he alleges.

For instance, the Tata group's electoral trust allocates half its contribution to parties on the basis of their strength in the current Lok Sabha, subject to a minimum of three per cent of seats, and distributes the rest to parties according to their strength.

Chhokar says that private contributions have been increasing over the years. For instance, an analysis of the BJP's report to the ECI on the contributions in its kitty for 2013-14 revealed that 92 per cent of the donations above Rs 20,000 were from corporations or the business sector. A total of 704 donations from corporations or the business sector amounting to Rs 157.84 crore were made to the BJP.

Section 29(C) of the Representation of Peoples' Act stipulates that all contributions exceeding Rs 20,000 to a political party have to be reported to the ECI.

So will the government act on the EC's suggestion and look at bringing in a law to change the system of corporate funding of political parties? It looks unlikely at the moment, but since the debate has been thrown open, it may just happen one day.