Electoral Bonds: Tool For Transparency Or Opacity?

On December 30, 2021, the Union Finance Ministry announced that the 19th phase of the sale of electoral bonds will begin from January 1 and go on till January 10.

• Politicians and rights activists have once again raised the grave concerns associated with anonymous funding through these bonds. They have also questioned why the Supreme Court has so far not taken up the petitions which challenged the constitutional validity of this scheme.
• In 2017, the Election Commission had also raised serious concerns about the scheme.

Electoral Bond

Electoral Bond is a financial instrument for making donations to political parties.

• It is a bond issued in the nature of promissory note which shall be a bearer banking instrument.
• The party can convert these bonds back into money via their bank accounts.
• It neither carries the name of the buyer nor the payee.
• Each political party would have to open designated accounts for this purpose, with banks mandated by the Reserve Bank of India.

Features of Electoral Bond Scheme 2018

The Government notified the Electoral Bonds Scheme back in January 2018 as an alternative to cash donations to political parties in order to bring transparency in political funding.

• Electoral bonds are interest-free banking instruments, which can be bought from specified branches of State Bank of India in multiples of Rs.1,000, Rs.1 lakh, Rs.10 lakh or Rs. 1 crore.
• As per provisions of the Scheme, Electoral Bonds may be purchased by a person, who is a citizen of India or incorporated or established in India. A person being an individual can buy Electoral Bonds, either singly or jointly with other individuals.
• Only the Political Parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than one per cent of the votes polled in the last General Election to the Lok Sabha or the State Legislative Assembly shall be eligible to receive the Electoral Bonds.
• The Electoral Bonds shall be encashed by an eligible Political Party only through a Bank account with the Authorized Bank.
• It may be noted that Electoral Bonds shall be valid for 15 calendar days from the date of issue and no payment shall be made to any payee Political Party if the Electoral Bond is deposited after expiry of the validity period.
• The contribution made by an individual/company through an electoral bond will be exempt from income tax as per Sections 80GGC/80GGB of the Income Tax act.
• Further, the contribution received by any eligible political party in the form of electoral bonds will be exempt from income tax as per Section 13A of the Income Tax Act.

Will it curb the Flow of Unaccounted Money in Elections?

There is no doubt that these bonds have to be bought through the banking system and after fulfilling the relevant KYC norms. Practically, the bonds cannot be bought through cash or unaccounted money.

• However, even after the recent amendments, donations below Rs 2,000 can still be received in cash. Hence political parties could just make more receipts for higher cash donations to break them up into donations of less than Rs 2,000 so that there is no trail of the donor.
• In essence, the flow of unaccounted cash/black money into the political parties is unlikely to stop because of electoral bonds.

Is it a Tool for Transparency in Political Funding?

• Political Parties are not required to disclose the name of the person/entity donating to a party through electoral bonds. Since the bonds are bearer instruments and have to be physically given to the political parties for them to encash, parties will know who is donating to them. It is only the general citizens that will not know who is donating to which party.
• Hence Transparency in political funding will not be enhanced because of electoral bonds. In fact, the bonds increase the anonymity of political donations.

Will it check the Floodgate of Corporate Funding?

• The recent amendment to the companies act removed the ceiling of 7.5% net profit that can be donated to political parties. Companies are now free to donate their entire net profit to political parties. Further, the entire donation could be in the form of electoral bonds. Also the scheme eliminates the requirement for a company to have been in existence for 3 years to make donation.
• Hence, corporate funding to political parties is now completely opaque and electoral bonds may not help in scuttling corporate finances.

Election Commission’s Views

• According to EC, Electoral Bonds coupled with the removal of cap on foreign funding, can invite foreign corporate powers to impact Indian politics. Donations received through electoral bonds would cause a serious impact on transparency in funding of political parties.
• The EC also condemned the amendments made to the Representation of the People’s (RP) Act of 1951, the Income Tax Act and the Companies Act and Foreign Contribution (Regulation) Act of 2010 through the two consecutive Finance Acts of 2016 and 2017.
• These amendments might pump in black money for political funding through shell companies and allow unchecked foreign funding of political parties in India, which could lead to Indian politics being influenced by foreign companies.
• These amendments virtually derailed ECI guidelines of August 29, 2014, requiring political parties to file reports on contributions received, their audited annual accounts and election expenditure statements.

SC Order on Electoral Bond Donations

• On 11^thApril, 2019, the Supreme Court directed all political parties to provide details of donations received in electoral bonds and the identity of the donors to the Election Commission in a sealed cover in an attempt to bring transparency around anonymous poll funding. SC issued following directives:
• The political parties were also directed to give details of the bank account of the donors.
• The order was given on a petition filed by an NGO-Association of Democratic Reforms (ADR)-challenging the validity of the scheme and sought a stay on the issuance of electoral bonds or that names of the donors be made public to ensure transparency in the poll process.
• The court would examine in detail the changes made in laws - Income Tax, electoral and banking laws to bring them in consonance with the electoral bond scheme and ensure that the balance does not tilt in favour of any political party.
• It also directed the Finance Ministry to reduce the window of purchasing electoral bonds from 10 days to five days in April-May and said it would fix a date later for final disposal of the petition.
• If the identity of the purchasers of electoral bonds meant for transparent political funding was not known, then efforts of the government to curtail black money in elections would be futile

Possibilities and Prospects

• In the struggle to bring about electoral reforms, the first step should be to scrap the Electoral Bond system and the amendments which have opened the floodgates for corporate funding and money coming in from foreign entities.
• The Election Commission has gone back and forth about the bonds, with one chief calling it a retrograde step. It appears that the Commission has now taken a clear view against bonds, in the Supreme Court no less. It is imperative that the court, which should have taken up this matter well before the elections, look into the question immediately. After all, India’s democracy – and the ability of the system to stay insulated from corporate or foreign bribery – depends on it.