Electoral Bonds

Syllabus: General Studies Paper 2

The government has shelled out Rs 9.53 crore of taxpayers’ money towards commission and printing costs of the Electoral Bonds (EBs) issued to fund political parties.

• The total amount collected by parties through EBs has gone up to Rs 10,791 crore from various anonymous donors in 22 phases since 2018 when the Electoral Bond Scheme was introduced. 
• As many as 93.67 per cent of EBs are in Rs 1 crore denomination.

Electoral Bond Scheme

• The electoral bonds are the non-interest-bearing financial instruments. 
• These Electoral bonds allow eligible donors to pay eligible political parties using banks as an intermediary. 
• The Electoral Bonds aim to ensure transparency in the funding of political parties.

Eligibility criteria for receiving and donating funds

Eligibility of Political Parties

• Only the political parties registered under Section 29A of the Representation of the People Act, 1951 are eligible to receive funds through Electoral Bonds.
• Further, these registered political parties also have to receive not less than 1% votes in the last Lok Sabha elections or the State Legislative Assembly to receive funds through electoral bonds.

Eligibility of Donors

• Any citizen of India or entities incorporated or established in India can purchase these Electoral Bonds.
• Citizens can buy electoral bonds either singly or jointly with other individuals.

Functioning of the Electoral Bond Scheme

• The State Bank of India (SBI) issues electoral bonds in the months of January, April, July, and October.
• The electoral bonds are available in denominations from Rs 1,000 to Rs 1 crore.
• The donors can buy electoral bonds and transfer them into the accounts of the political parties as a donation. The name of the donor is kept confidential.
• Political parties will create a specific account. This account will be verified by the ECI. The political parties will encash the electoral bonds only in this verified account.
• The bonds will remain valid for 15 days. Within that time, the political parties have to encash the electoral bond in the designated accounts.

Need for Electoral Bonds

• These bonds are aimed to reduce anonymous cash donations made to political parties. In the previous system, the political parties did not disclose the donor, the amount of donations received, etc. These anonymous donations led to the generation of black money in the economy.
• For example, Nearly 70% of the Rs.11,300 crore in political funding came from unknown sources.
• The Electoral bonds encourage political donations of clean money. According to the government, the bonds will encourage political donations from individuals, companies, HUF, religious groups, charities, etc. Since the amount is transferred through the bank, the identity of the donor can be captured by the issuing authority.

Criticism of Electoral Bonds

• Hindering Right to Know: Voters will not know which individual, company, or organisation has funded which party, and to what extent. Before the introduction of electoral bonds, political parties had to disclose details of all its donors, who have donated more than Rs 20,000.
• The change infringes the citizen’s ‘Right to Know’ and makes the political class even more unaccountable.
• Unauthorized Donations: In a situation where the contribution received through electoral bonds are not reported, it cannot be ascertained whether the political party has taken any donation in violation of provision under Section 29B of the RPA, 1951 which prohibits the political parties from taking donations from government companies and foreign sources.
• Leading to Crony-Capitalism: It could become a convenient channel for businesses to round-trip their cash parked in tax havens to political parties for a favour or advantage granted in return for something. Anonymous funding might lead to infusion of black money.
• Loopholes: Corporate Entities may not enjoy the benefit of transparency as they might have to disclose the amount donated to the Registrar of Companies; Electoral bonds eliminate the 7.5% cap on company donations which means even loss making companies can make unlimited donations etc.

Supreme Court’s Stance on Electoral Bonds:

• The Supreme Court (SC) agreed that the scheme protects the identity of purchasers of electoral bonds in a cloak of anonymity, but highlighted that such purchases happened only through regular banking channels.
• In 2019, the Supreme Court asked all the political parties to submit details of donations received through electoral bonds to the ECI. It also asked the Finance Ministry to reduce the window of purchasing electoral bonds from 10 days to five days.
• The Election Commission of India (ECI) also told the Supreme Court of India that while it was not against the Electoral Bonds Scheme, it did not approve of anonymous donations made to political parties.

Way-forward

• An alternative to electoral bonds is a National Electoral Fund to which all donors can contribute. The funds can be allocated to political parties in proportion to the votes they get. This will protect the identity of donors. Apart from that, it would also weed out black money from political funding.
• The best way to bring transparency in political funding is to put a complete ban on cash donations by individuals or companies to political parties. (At present Political parties can receive cash donation below Rs.2000)
• Further, India has to consider State funding of political parties. The Indrajit Gupta Committee on State Funding of Elections has supported partial state funding of recognised political parties.
• Further, the government have to amend the changes made in the Finance Act of 2017.

Question: What are the features of Electoral Bond Scheme and its challenges and also suggest alternative ways for funding political parties in India.