Electoral Bonds: Will it Bring Transparency in Political Funding?

What are Electoral Bonds?

Electoral Bonds are financial instruments that can be used by the individuals, institutions and organizations to donate money to the political parties. These bonds are in the nature of Promissory Notes and are issued by Banks.

When did it come to exist? 

Electoral Bond scheme was announced by Union Finance Minister Arun Jaitley  in the Union Budget 2017-18. Government of India has notified the Electoral Bond Scheme on 2 January 2018. Accordingly, the first sale of Electoral Bonds commenced from 1 March 2018 for a period of 10 days.

Who can purchase Electoral Bonds?

Electoral Bonds can 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.

How many denominations are available? 

Electoral Bonds shall be issued in the denomination of Rs 1000, Rs 10,000, Rs 1,00,000, Rs 10,00,000 and Rs 1,00,00,000. The minimum amount for donation in Electoral Bonds is Rs 1000. There is no maximum limit for Donation.

When can they be bought?

Electoral Bonds are available for purchase for 10 days each in the months of January, April, July and October. An additional period of 30 days would be specified by the Centre in the year of general elections.

where can they be bought?

These bonds can be bought from selected branches of State Bank of India only. SBI is the Sole Authorized Bank by the Government of India for selling Electoral Bonds.

How does the Electoral Bond Scheme works?

The process would work something like this:

  1. A Donor (a person, or a corporate entity) can buy an Electoral Bond for some amount from an Authorized Bank.
  2. The Bank records all the KYC details of the Donor, along with the details of the account from where the donation funds are to be withdrawn from.
  3. The Bank issues the Bond to the Donor
  4. The Donor then gives this Bond to a Party (any recognized political party)
  5. The Party submits this Bond, to the bank where it has it’s own account recognized by the Election Commission of India (ECI), for encashing.
  6. The Bond is processed and the funds are transferred from the issuing bank to the account of the party.

But these points have to be noted:

  • The Electoral Bonds shall have validity/maturity period of 15 Days from the Date of Issue. This means that an electoral bond need to be encashed within 15 days of issuance, otherwise they will be useless.
  • Electoral bonds can be encashed by the political party only through a designated bank account held with an authorised bank (here SBI). Every political party has to submit details of its designated account to the Election Commission.

Can all political parties receive electoral bonds? 

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 House of the People or the Legislative Assembly of the State, shall be eligible to receive the Electoral Bonds.

What is the need of Electoral Bond?

Electoral Bond scheme was introduced to bring about greater transparency and accountability in political funding, while preventing future generation of black money.

Through this scheme banks would be able to track the buyers of electoral bonds using their KYC details and thus ensure that clean money comes into system. If required,  law enforcement agencies can always check the details of donors from banking channels. Since the details of the donor is only with Bank and is not in public domain, he/she can also be safeguarded from political victimization.

Thus the government claims that electoral bonds achieve the twin purposes of greater accountability in political funding as well as anonymity of the donor.

What do the critics have to say?

Many criticise that, in the name of transparency the government has made political funding more opaque. They points out many flaws in this scheme. Some of them are discussed below.

  • Electoral Bond scheme is a blessing for corporates that fund huge amounts to political parties as they can remain anonymous. It is important for the public to know the  donation a party received from corporates and similar entities to check whether they received any unduly favours from government in return.
  • The NDA government through The Finance Act of 2017 amended various laws, including the Representation of the People (RP)Act of 1951, the Income Tax Act, the Companies Act and made changes in the Foreign Contribution (Regulation) Act, 2010, to launch Electoral Bonds. Many fear that the new provisions would wreck transparency in political funding.
  • The Income Tax Act and the Companies Act were amended by Government to facilitate unlimited corporate contributions through electoral bonds.
  • Section 29C of the Representation of the People Act 1951 was amended  to allows political parties not to disclose the source of electoral bonds. The parties do not have to disclose where their money comes from, as long as the mode of funding is through electoral bonds.
  • Under Section 13A of the Income Tax Act, 1961, all political parties registered with the Election Commission were required to maintain details of donations of Rs 20,000 and above, received from any source, and have them audited. Government amended this provision and exempted electoral bonds from this requirement.
  • Now only contributions over Rs 20,000 received through cheques or digital mode of payment will be required to be reported to the Income Tax department and the Election Commission of India. As the Election Commission pointed out in Supreme Court, the bulk of the donations to parties have been coming in sums smaller than that amount.
  • Previously, a company could only donate an amount not greater than 7.5% of its net profits of the past three financial years. This provision was done away with.
  • Before the budget of 2017, there was a rule that if a political party gets a cash donation of less than Rs. 20,000 from a donor, then it was not mandatory to reveal the source of fund. The government had reduced the limit of anonymous cash donation to Rs. 2000 only in budget 2017. Now it is possible for political parties to break huge amounts up into donations of less than Rs.2000 so that there is no trail of the donor. Thus, electoral bonds is unlikely to stop because of Electoral bonds.
  • The Election Commission also opined that that the amendments would help to pump in black money for political funding through shell companies and clear the route for unrestricted foreign funding of parties which would pave the way for Indian politics being influenced by foreign companies.

What is the current status? 

The Supreme Court of India on April 5, 2019 agreed to hear a plea on the legality of electoral bonds. The plea was filed by Association for Democratic Reforms (ADR), a not-for-profit organization. The Election Commission filed an affidavit in Supreme Court, stating that the electoral bond scheme would have a serious impact on transparency in political funding. But the central government is firm in its opinion that the new reform will bring transparency in political funding while maintaining the privacy of the donor.


(Courtesy: The Hindu, Indian Express, Live Mint, PIB, Arthpedia, Quora) 

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