Electoral Bonds – Is it effective to bring Transparency in Political Funding?

Electoral Bonds scheme - features, merits, demerits upsc ias


The State Bank of India (SBI) has opened a 20-day window from where an individual, acting singly or in concert with others, can buy electoral bonds and donate money to political parties. Purchasers of these bonds have been granted anonymity, thereby creating opacity in what should have been a transparent process. Data gathered in response to an RTI query revealed that there has been a 62% jump in donations collected through electoral bonds this year (2019).

Notably, Election Commission of India (ECI) has told the Supreme Court that the electoral bonds, wreck transparency in political funding. In its affidavit submitted to the Supreme Court, the EC pointed to the amendments made to key laws, with dangerous consequences.

What are Electoral bonds?

  • Electoral bonds are bearer instruments similar to Promissory notes that do not carry any information about the owner (donor) however yield to the holder or bearer of the bond (donee).
  • The information about the donor is not made public but are available only with the bank in the form KYC (Know Your Customer) details.
  • The bonds can be purchased by an Indian citizen or a body incorporated in India.
  • A political party registered under Representation of People Act (RoPA) 1951 that secures at least 1% of votes polled in state elections or Lok Sabha elections will be provided with an account by the Election Commission, into which the bonds can be redeemed within 15 days of purchase.
  • Funds provided via this route are exempted from taxes.
  • The bonds are issued in multiples of Rs 1000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore and can be bought by the donor with a KYC complaint account.
  • The bonds cannot be bought with cash. The maximum amount that a political party can receive the donation in cash is capped at Rs 2000. Electoral bonds thus allow them to raise higher sums.
  • State Bank of India (SBI) is the only authorised bank to issue electoral bonds. *

What is the need for electoral bonds? (Pros)

  • The ADR (Association for Democratic Rights) study shows that 69% of political funding in India comes from unknown sources. In this situation, Electoral bonds give an alternative and the transparent route for parties to collect funds and meet election expenditures.
  • Since the donor purchases electoral bonds after submitting KYC details to the bank, it is a more transparent tool than cash.
  • Further, it also provides anonymity to donors which is essential since they need to be protected against any post-poll intimidation or harassment by political opponents.
  • Moreover, the life of these bonds is only 15 days which prevents the scope for misuse.
  • Also, the political parties are required to submit the details about contributions received through electoral bonds to the Election Commission.
  • Hence the bonds help in cleaning up the system of electoral finance in India.
  • The bonds also provide tax exemption to donors = making them an attractive route for providing political donations.

Most probable and repeated topics of upsc prelims

What are the concerns raised against the Electoral bonds? (Cons)

  • RBI’s autonomy: The government had to amend the RBI act in order to issue bonds since the bearer bonds have the features of currency notes which are issued solely by the RBI. Hence the amendment is amount to dilution of the notes issuing power of the RBI.
  • Lack of transparency: The bonds are not registered in the name of the concerned person = donations via electoral bonds continue to provide anonymity to donors.
  • Lack of enough secrecy: Another concern raised by political parties against the electoral bonds is that the ruling government can easily ascertain donor information using KYC details submitted in the banks.
  • Black Money: The bonds could be used as a conduit for money laundering and hoarding black money. Since these bonds continue to provide anonymity to donors, they can be misused similar to the Indira Vikas Patras which were issued as development bonds in 1987 but were discredited due to similar reasons.
  • Round-tripping/Tax evasion: These bonds will also facilitate round tripping i.e., rerouting illegal money that originates in India, back into the country through a tax haven. Electoral bonds provide secrecy and will encourage such tax evasion. Note – Tax haven is a country or independent region where taxes are low.
  • Lobbying: The secrecy and anonymity encourage lobbying and capture of governments by big donors which will result in the government of the few.
  • Non-disclosure to Election Commission: While RoPA, 1951 mandates that the funds received by political parties in sums greater than Rs 20,000 be disclosed to the tax authorities, the Finance Act 2017 explicitly provides an exemption to this clause to electoral bonds. This affects the very purpose of cleaning up electoral finance.
  • Undemocratic: As the scheme was introduced through a money bill route = not debated in the upper house (Rajya Sabha) = undemocratic.
  • Foreign funding: The Election Commission observed that with the removal of the cap on foreign funding, electoral bonds invite foreign corporate powers to impact Indian politics.
  • Economic impacts: As electoral bonds eliminate the 7.5% cap on company donations, even loss-making companies can make unlimited donations = not good for the economy.
  • Affect Shareholders: As companies no longer need to declare the names of the parties, shareholders of the companies won’t know where their money has gone.

What are the reforms needed in Indian electoral funding?

  • Cash donations: The cap of Rs 2000 for cash donations offers an opportunity for the flow of black money into elections. This should be eliminated altogether. Election Commission has suggested that parties should be made to disclose funds received in cash for smaller sums in case they exceed 20 percent of total funds raised. This suggestion can be considered.
  • Intensive scrutiny: of election expenditure incurred by parties and candidates is needed in order to ensure detection of black money in the system.
  • Higher expenditure limit: In order to prevent parties from violating expenditure norms, the Election Commission should allow higher expenditure limit for candidates.
  • Simultaneous elections: should be considered since a shorter campaign period will limit expenses incurred by parties.
  • National Electoral Fund: as suggested by the former Chief Election Commissioner S.Y.Quraishi shall also be explored, to which all donors can contribute and the funds are distributed among the parties. Funds could be allocated based on the votes they get. It will also protect the donors’ identity and wipe out black money with an annual audit by CAG.
  • State funding of elections: shall be explored for bringing all parties on a level playing field and to make private donations less relevant.

Electoral bonds are much-needed instruments introduced to clean up the electoral finance in the country. Even though they raise some concerns, they are better than cash for bringing more transparency in electoral finance. The need of the hour is to implement the scheme with other reforms to completely eliminate the role of money power in Indian politics and strengthen Indian democracy.

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