ELECTORAL BONDS

It is a no-brainer that the first step in achieving transparency in a government is to make the political parties transparent. Although India enjoys a relatively accountable and transparent system of governance, the political parties’ functioning largely remains opaque. One of the biggest question marks is the source of funding obtained by these political parties. One need not have Sherlock Holmes’s intuition to guess that a majority of it is black money.

The BJP government came up with the idea of electoral bonds to solve this problem in 2018. However, it has received several criticisms, including the Election commission and the RBI. The ongoing elections in West Bengal, Tamil Nadu, Kerala, and Assam have again flared up the debates surrounding the Electoral bonds.

BACKGROUND

Prior to the budget of 2017, Political parties were not required to disclose the information of the donors who donated less than Rs. 20,000. This provided a loophole for the parties to accept under-the-table donations. It is evident from the fact that nearly 90% of the donations shown by the political parties were in denominations less than Rs. 20,000. A large portion of these donations was black money, obviously for political favouring and lobbying.

In the 2017 budget, this amount was reduced to Rs. 2000. Donations over Rs 2000 had to be made through electoral bonds. These bonds are issued only by notified banks (primarily SBI). Before we proceed further, it has to be noted that an electoral bond is different from traditional government or corporate bonds. A bond is a debt instrument; what that means is that it can be considered as a legal agreement between the donor (One who buys the bond) and the borrower (One who issues the bond).

On the contrary, electoral bonds are donation instruments. One will not gain any returns on the purchase of the bond. These bonds will be available for purchase for ten days each at the beginning of every quarter. In the year of the Lok Sabha elections, 30 days extra will be provided. The mechanism of its working is explained further in the text.

HOW IT WORKS

Suppose Mr A wants to donate Rs. 1 lakh to a political party, XYZ. He has to buy an electoral bond in the name of XYZ from a specified SBI branch (or any other bank notified by the government). He will deposit Rs. 1 lakh in the bank through digital payment, and the bank shall issue the bond. One important point to note is that the bond will not contain the name of the bond bearer, which effectively means the identity of the donor will not be revealed. This is done to make the donor immune from getting caught amidst political rivalry. However, the donor must be KYC compliant, i.e., the donor’s details will be present with the bank. 

Now, XYZ receives this particular bond; it can get the amount encashed into the account registered with the election commission of India. 

DEFENDERS OF ELECTORAL BONDS

• The biggest advantage of this system of donation is that it reduces the involvement of black money in electoral funding. The use of digital payments to buy a bond will leave a digital trail of the transaction, hence curbing unauthorized donations.

• . At the same time, provisions have been made to protect the donors’ identity so that they do not get caught amidst political rivalry.

According to the government, the system of Bonds will encourage political donations of clean money from individuals, companies, charities, etc. 

CRITICS OF ELECTORAL BONDS

• Although the limit for the disclosure of sources of donations of less than Rs. 20,000 has been reduced to Rs. 2000, it is easy for political parties to bypass this by simply multiplying the number of donors by 10. 

• The anonymity of the donor makes the system of donation opaque. This has received heavy criticism from the Supreme Court as well as the Election commission of India. The supreme court had ordered political parties to disclose their donations received via electoral bonds to the Election commission during the 2019 state elections. 

• Although the bond does not contain the bond bearer’s name, the details of the donor are present with the bank issuing the bonds, which is SBI. Also, both the donor bank and the receiver bank report to the RBI. Both of these entities are under the central government, which means that the ruling party can know the voters’ identity while the opposition party is not. This is evident from the fact that over 95% of the bonds purchased belong to those for the ruling party at the centre. 

• Companies had a cap of 7.5% to make political donations under the companies act before 2017. Also, they needed to mention the donations in the profit and loss statements. These critical provisions have been made away with. Also, it has been mandatory for a company to be three years old to donate. These provisions make it easy for dying, troubled, shell (hoax) companies to make unlimited contributions anonymously. This makes it a convenient channel for black money, thereby seriously undermining the intent of the scheme. 

It is clear that although electoral bonds try to bring transparency into the system, it has serious shortcomings. It requires serious political will to tackle the issue of transparency of the political parties. It easy to see that the political parties themselves cannot initiate such solid reforms. Recently, the supreme court has agreed to hear the plea against the sale of electoral bonds as it has come into the limelight because of the ongoing state assembly elections. The future of this scheme and the reforms that might be undertaken remains to be seen.