India's Supreme Court on Thursday scrapped a seven-year-old election funding system that allows individuals and companies to donate money to political parties anonymously and without any limits, calling it "unconstitutional".
The decision is seen as a setback for Prime Minister Narendra Modi's Bharatiya Janata Party, which has been the largest beneficiary of the system it introduced in 2017.
The system, called Electoral Bonds, was challenged by opposition members and a civil society group on grounds that it hindered the public's right to know who had given money to political parties.
Under the system, a person or company can buy bonds from the state-run State Bank of India (SBI.NS) and donate them to a political party.
Undeclared individuals and companies bought 165.18 billion rupees ($1.99 billion) of such bonds up to November 2023, according to the Association for Democratic Reforms, a non-government civil society group working on election funding in India. The group was a petitioner challenging the system.
A five-judge bench headed by Chief Justice D.Y. Chandrachud said: "Political contributions give a seat at the table to the contributor... this access also translates into influence over policy making."
Because of the close nexus between money and politics it is possibile that financial contributions "would lead to quid pro quo arrangements", the court said.
Individuals can donate any amount of cash. Companies had been restricted based on their revenue and profits, but the bond system removed those limits.
The Supreme Court brought reinstated corporate donation limits, saying that treating companies and individuals alike for this was "manifestly arbitrary".
"The ability of a company to influence the electoral process through political contributions is much higher when compared to that of an individual... contributions made by companies are purely business transactions made with the intent of securing benefits in return," the court wrote.
The court directed SBI to not issue any more such bonds, to furnish identity details of those who bought them, and to provide information about bonds redeemed by each political party.
Modi's government had defended the policy, saying it mitigates the use of cash or "black money" in political funding, allowing donors a confidential channel to contribute to any party's funds.
Of the 120.1 billion rupees' worth of bonds sold up to the end of the fiscal year in March 2023, BJP had received more than half, worth 65.66 billion rupees.
