ELECTORAL BONDS

CONTEXT:

• In the wake of the upcoming State elections, the Association of Democratic Reforms (ADR) has filed a petition in the Supreme Court, seeking a stay in the electoral bond. The Supreme Court recently flagged its concern that political parties could misuse crores of rupees received as donations through electoral bonds to bankroll violent protests or even terror.

 ABOUT ELECTORAL BONDS :                                                                                                                                                                                         

• Electoral Bond is a financial instrument for making donations to political parties.
• The bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore without any maximum limit.
• State Bank of India is authorised to issue and encash these bonds, which are valid for fifteen days from the date of issuance.
• These bonds are redeemable in the designated account of a registered political party.
• The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
• A person being an individual can buy bonds, either singly or jointly with other individuals. Donor’s name is not mentioned on the bond.

 PREVIOUS SYSTEM OF FUNDING:

• Before the budget of 2017, if a political party got a donation of less than Rs. 20,000 from a donor, then it was not mandatory to reveal the source of fund.
• This rule was misused and near about all the political parties said that they received 90% of their political fund in the denomination of less than Rs. 20000.
• So a huge amount of black money was generated and used in the election campaigning.
• On the basis of the recommendation of the Election Commission, in Budget 2017 the government reduced the limit of anonymous donation to Rs. 2000 only.
• The concept of Electoral bonds was introduced in the Finance Bill 2017, and was facilitated through multiple amendments in the Finance Act 2017.

 EXAMPLES FROM AROUND THE WORLD:

• While there have been electoral trusts in India, the concept of electoral bonds is new for India and the world.
• United States has Political Action Committees which receives money from individual and corporate donors, and manages them. They do not have any scheme that allows the citizen to directly purchase a bond and donate the same to a political party.

CRITICISM:

• Anonymity: Neither the donor (who could be an individual or a corporate) nor the political party is obligated to reveal whom the donation comes from.
• Asymmetry of information: Because the bonds are purchased through the SBI (Central PSU), the government is always in a position to know who the donor is. This asymmetry of information threatens to favour the scheme towards the political party that is ruling at the time.
• Control Over usage: The court asked the government whether there is any “control” over how these donations were used by political parties.
• Scheme facilitates kickbacks: Though the original purchase of bonds could be done using white money, somebody could anonymously re-purchase the bonds from the original buyer and drop it at a political party office. Nobody will know who purchased the bonds from the original buyer. The scheme facilitates kickbacks
• Possibility of Money Laundering: With doing away with all the safeguard that were present in Corporate donations to Political parties (through Companies Act), Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.
• Question on procedure followed: The scheme was brought in through amendments to finance bill as the government of the day did not have majority in the Rajya Sabha (that has less powers w.r.t finance bill)

GOVERNMENT DEFENCE:

• Conditions for electoral bonds: Only parties registered under the Representation of the People Act could receive donations through electoral bonds, and that they should not have secured less than 1% of the votes polled in the previous elections.
• Tackles Menace of Black Money in Politics: The Electoral Bond Scheme promotes white money into political funding (thus disincentivising black money) as it insists on cheque and digital paper trails of transactions
• Election Commission of India’s Support: ECI was not opposed to the bonds but was only concerned about the aspect of anonymity. It also urged the court not to stay the bonds and said the scheme is one step forward compared to the old system of cash funding, which was unaccountable.

CONCLUSION:

• It can be said that the release of electoral bonds will restrict the generation of black money up to some extent. But the rule that identity of the donors will be kept confidential may make futile the exercise to eliminate black money, as it may just end up making Black money White.