The troubling ties of Indian politics to the Hawala system

The Aam Aadmi Party (AAP) has been facing the heat ever since the BJP has started raising questions about the Rs. 2 crore in donations the AAP amassed in the past two years. The incident has also highlighted the much talked about hawala system that powers Indian politics to a great extent.

Jain Hawala scam

Who can forget the 18 million dollar Jain Hawala scam that involved over 115 politicians and businessmen who had exchanged money for political funding via the hawala system. Years may have passed since the incident that literally shook the nation. However, the sad truth is that discreet political funding still continues in Indian politics today, with many of these exchanges flouting the rules regarding the disclosure of interest according to their requirements.

So what exactly is this hawala system? And how does it control Indian politics? Let’s take a closer look.

A hawala channel can be considered as an illegitimate gateway for money to be transferred between businessmen, politicians and even terrorists. The money transfer is informal and is done via a non-existent company, which first sends across a few donations to the specific party and collects receipts for the same. Following this, the fake company sends across a much larger amount that can go undetected by authorities.

The hawala system is usually used by political parties for their election campaigns, and is moved into India from abroad via these fake companies. It is a known fact that election campaigns in India cost billions. Hence, political parties who have parked their money abroad can use the hawala channel to get it back in time for the campaign. While the parties receive the funds they require, the real donor benefit themselves by being offered control of policy decisions as soon as the government attains power.

Remedies to consider

hawala system

So what can be done to get rid of this hawala system forever and ensure a clean, dirt-free politics in India? One solution involves replacing political funding with direct, open state funding. However, this may pose problems to states in the form of in equal distributor of finances as well as assets between the parties in power and those that are not. Increased transparency and capped donations can also help abolish the hawala system effectively.

What India actually needs is a complete overall of all the issues related to the donation and disclosure system. Some appropriate measures to achieve the same would include stringent disclosure norms, capped party spending limits, recognition of entity expenditures as means of campaign finance and realistic spending limits on state and central election campaigns. Until these measures are introduced, Indian politics will continue to be influenced and to a certain extent, controlled by the hawala system.


The hawala system has become prevalent in Indian politics and has started controlling the same to an extent. As such, appropriate measures would need to be introduced in order to abolish the hawala channel and rid Indian politics of its influence.

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