INTRODUCTION
An electoral bond is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of the State Bank of India. The citizen or corporate can then donate the same to any eligible political party of his/her choice. The bonds are similar to banknotes that are payable to the bearer on demand and are free of interest. An individual or party will be allowed to purchase these bonds digitally or through a cheque.
The electoral bonds were introduced with the Finance Bill (2017). On January 29, 2018, the Narendra Modi-led NDA government notified the Electoral Bond Scheme 2018.
A donor with a KYC-compliant account can purchase the bonds and can then donate them to the party or individual of their choice. Now, the receiver can encash the bonds through the party’s verified account. The electoral bond will be valid only for fifteen days.
The 29 specified SBI branches are in cities such as New Delhi, Gandhinagar, Chandigarh, Bengaluru, Bhopal, Mumbai, Jaipur, Lucknow, Chennai, Kolkata, and Guwahati.
The electoral bonds are available for purchase for 10 days at the beginning of every quarter. The first 10 days of January, April, July, and October has been specified by the government for the purchase of electoral bonds. An additional period of 30 days shall be specified by the government in the year of the Lok Sabha elections.
CONDITIONS OF ELECTORAL BONDS
- Any party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one percent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds.
The party will be allotted a verified account by the Election Commission of India (ECI) and the electoral bond transactions can be made only through this account.
- The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.
Are electoral bonds taxable?
In February 2017, the then finance minister Arun Jaitley said that the donations would be tax-deductible. Hence, a donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.
Why were electoral bonds introduced in India?
According to the led government, electoral bonds were being introduced to ensure that all the donations made to a party would be accounted for in the balance sheets without exposing the donor details to the public.
The government said that electoral bonds would keep a tab on the use of black money for funding elections. In the absence of electoral bonds, donors would have no option but to donate by cash after siphoning off money from their businesses.
Supreme Court on electoral bonds
On April 12, 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 apex court is yet to fix a date for hearing other pleas against the electoral bonds.
ELECTION COMMISSION’S VIEW ON ELECTORAL BONDS
The Election Commission on April 10, 2019, 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.
“We are not opposed to electoral bonds…but want full disclosure and transparency. We are opposed to anonymity,” Senior Advocate Rakesh Dwivedi, appearing for the poll panel told the apex court. The poll panel’s submissions came during a hearing on a bunch of pleas challenging the validity of electoral bonds in the apex court.
Reserve Bank of India on electoral bonds scheme
According to an article published by HuffPost India on November 18, 2019, the RBI was critical of the scheme. The central bank had warned the government that the bonds would “undermine the faith in Indian banknotes and encourage money laundering.”
TRANSPARENCY OF ELECTORAL BONDS SCHEME
Political finance has long served as the wellspring of corruption in India. For the average Indian, it is hardly breaking news to learn that the murky flow of funds that fuels politicians and political parties largely explains why corruption remains endemic in India.
As the costs of elections have soared, politicians and the bureaucrats under their sway have mastered the art of skillfully manipulating the regulatory and policy levers at their disposal in exchange for easy campaign cash. And if an aspiring candidate is so lucky as to win higher office, the quest to rebuild one’s coffers for re-election start afresh.
Campaign spending is an investment that pays back with interest once you are in office. While these realities are well known, the dark currents of political funding largely flow out of public view.
The donations made through electoral bonds were equivalent to money laundering.
Companies will no longer have to declare the names of the political parties to which they have donated, so shareholders won’t know where their money has gone.
- There are possibilities of making electoral bonds a convenient channel for black money. The following provisions are controversial in that sense
- Doing away with the 7.5% cap for corporate donations.
- No need for companies to reveal their political contributions in their profit and loss statements.
- The requirement that companies should be in existence for 3 years before making political contributions undermines the scheme’s intent. This makes it easy for dying, troubled, or shell companies to make an unlimited donation anonymously.
- Since the bonds are bought through the State Bank of India (SBI), the government is always in a position to know who the donor is. This asymmetry of information threatens to favor whichever political party is ruling at the time.
- The Election Commission of India had asked that the limit for reporting the donations (which is Rs 20000) should be brought down to Rs 2000, but instead, the government has reduced the maximum contribution by cash to Rs 2000.
- It could become a convenient channel for businesses to round-trip their cash parked in tax havens to political parties for a favor or advantage granted in return for something.
Restrictions that were done away with after the introduction of the electoral bond scheme
- Earlier, no foreign company could donate to any political party under the Companies Act
- A firm could donate a maximum of 7.5 percent of its average three-year net profit as political donations according to Section 182 of the Companies Act
- As per the same section of the Act, companies had to disclose details of their political donations in their annual statement of accounts.
The government moved an amendment in the Finance Bill to ensure that this proviso would not be applicable to companies in the case of electoral bonds.
Thus, Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.
WAY FORWARD
Experts are of the view that if the electoral bonds scheme had been introduced to bring about greater transparency, the government must not restrain from allowing details of such donations to be made public.
Experts and several politicians say that since neither the purchaser of the bond nor the political party receiving the donation is required to disclose the donor’s identity, the shareholders of a corporation will remain unaware of the company’s contribution. Voters, too, will have no idea of how, and through whom, a political party has been funded.
Opponents of the electoral bond scheme argue that since the identity of the donor has been kept anonymous, it could lead to an influx of black money. Some others allege that the scheme was designed to help big corporate houses donate money without their identity being revealed. According to civil rights societies, the concept of donor “anonymity” threatens the very spirit of democracy.
