On Tuesday, the 5-Judge Constitutional Panel of Supreme Court of India begins hearing the petitions challenging the constitutional validity of electoral bonds used to finance political parties.
Source: Photo credit to Livelaw Hindi
Electoral bonds were introduced to reduce the influence of black money in politics while these are offering anonymity to the donors. However, the bonds are being blamed for adding transparency to the political fundraising system.
The voters do not have a right to know how political parties are funded according to the constitution, the Central Government informed the Supreme Court on Monday.
In order to comprehend the entire debate, we must first clarify a few basic questions. What are electoral bonds? Why were they introduced? Why and how are electoral bonds issued? Who can buy them? What part of funds do political parties get from these electoral bonds? And lastly, did electoral bonds ultimately result in a more transparent political party finance system?
Electoral Bonds
Topics Explained: 5 W
What are Electoral Bonds?
When and Why were Electoral Bond introduced?
Why are Electoral Bonds issued?
How are Electoral Bonds issued?
Who can Buy Electoral Bond?
Validity of Electoral Bond?
Recent Controversy
Conclusion
What are Electoral Bonds?
Electoral bond is a unique financial instrument that allows individuals and corporations to make anonymous donations to political parties. Electoral Bond is a type of instrument that functions like a Promissory Note and an interest-free banking tool. They were introduced in India to reform political funding.
Authorized banks such as State Bank of India can issue these bonds in the form of paper which can be purchased by any individual or corporate (called donors) using a valid KYC document. The unique feature of electoral bonds is the anonymity they provide to donors, as they do not carry any identifying information. They were issued with a specific validity period, and political parties must deposit them into their designated bank accounts.
When and Why were Electoral Bond introduced?
Political fundraising in the largest democracy in the world has long been a divisive topic, rife with opacity, corruption, and unreported financial flows. Electoral bonds are financial instruments introduced in India in order to bring transparency to political funding. It was the then Finance Minister Arun Jaitley who had first introduced the Electoral Bond Scheme in the Finance Bill 2017 in the Union Budget of 2017-18. Although introduced in early 2017, the Department of Economic Affairs in Ministry of Finance notified the Electoral Bond Scheme 2018 in a Gazette on 2 January 2018.
The Electoral Bond scheme was amended on November 7, 2022, to extend the number of sale days from 70 to 85 during a year in which an assembly election may be held.
According to India Today’s Report, a total estimated value of ₹13,000 crore, have been successfully sold between March 2018 and July 2023.
Why Electoral Bonds issued?
Electoral bonds are issued in India as a financial instrument to facilitate political donations to political parties while aiming to enhance transparency in the process. The issuance of electoral bonds involves a specific process:
Providing Transparency in Political Funding: The primary goal of bringing electoral bonds is to provide more transparency in political funding system. A sizable amount of unreported, or "black" money can enter in the India's political system through traditional cash donation system. To lessen this opacity and increase the legitimacy and traceability of political donations, electoral bonds were introduced.
Providing Anonymity to Donors: Donors can remain anonymous while endorsing political parties with electoral bonds. It is believed that this will shield donors from potential negative publicity or undue influence from political parties while encouraging more people and businesses to take part in the political funding process.
How are Electoral Bonds Issued?
Authorized Banks: Electoral bonds are being issued by authorized banks in India. State Bank of India (SBI) was the only authorized bank for issuing electoral bonds.
Purchased by Donors: Any Indian citizen, company, or eligible entity can purchase electoral bonds from these authorized banks. To do so, they are required to provide a valid KYC (Know Your Customer) document, which helps verify their identity.
Denominations: Electoral bonds are available in multiple denominations, ranging from Rs 1,000 rupees to Rs 1 crore in specified branches of the State Bank of India (SBI).
Donor Anonymity: One of the most unique features of electoral bonds is the anonymity they provide to donors. When purchasing electoral bonds, the donor's identity is not recorded on the bond itself, ensuring confidentiality and protection from evils.
Validity Period: Typically, electoral bonds are valid for a period of 15 days. This implies that contributions to political parties using the bonds must be made within this time period. They expire if they are not used within the allotted time.
Donations to Political Parties: These electoral bonds are available for donation to any political party that is registered in India. Political parties must deposit the bonds into the designated bank accounts in order to redeem them.
Disclosure by Political Parties: Political parties are required to disclose the entire amount received through electoral bonds in their income statements, even though the donors' identities are kept anonymous. This measure adds another level of accountability by requiring political parties to disclose their funding sources in a more open and transparent manner.
The goal of issuing electoral bonds is (i) to give protecting donor privacy and (ii) promoting transparency in political funding. It aims to minimize the potential for black money to enter the political system and to encourage legitimate, traceable contributions to political parties while.
Who can Buy Electoral Bond?
Any Indian citizen, company, or eligible entity can purchase electoral bonds from these authorized banks. To do so, they are required to provide a valid KYC (Know Your Customer) document, which helps verify their identity.
Validity of Electoral Bond?
Typically, electoral bonds are valid for a period of 15 days. This implies that contributions to political parties using the bonds must be made within this time period.
They expire if they are not used within the allotted time. This means that if the bond is not utilized within this validity period of 15 days, it becomes invalid and cannot be used to make contributions to political parties.
Neither the donor nor the political party receiving the electoral bonds will be reimbursed for the bonds if the 15-day deadline is missed. Instead, the fund value of electoral bond is remitted to the Prime Minister Relief Fund.
The Controversy Surrounding Electoral Bonds
Electoral bonds have been used in India since their introduction to varying degrees of success. Electoral bonds are intended to reduce the amount of unreported or "black" money used in political financing while offering a more open and authorized means of contributing to political parties.
However, anonymity of donors has been a subject of controversy and criticism since it can be challenging to identify the sources of political funding and their potential impact on electoral integrity.
Proponents argue that they can encourage legal and transparent donations to political parties, while critics express concerns about the lack of transparency regarding the sources of funds and the potential for misuse.
The effectiveness and impact of electoral bonds continue to be a matter of debate and discussion in Indian politics.
Here are some of the notable controversies and concerns related to electoral bonds up to that point:
Anonymity of Donors: One of the main criticisms of electoral bonds is the anonymity they provide to donors. Critics argue that anonymity allows for "black money" to flow into political parties without proper and adequate transparency or accountability. The lack of disclosure regarding the identity of donors has raised concerns about potential misuse, including the possibility of illegal or unaccounted funds entering the political system.
Lack of Transparency: While political parties are required to declare the total amount of electoral bonds they receive in their income statements, the specific identity of donors remains confidential. This lack of transparency makes it difficult to trace the sources of political funding, which goes against the principles of transparency and accountability in political finance.
Allegations of Favoritism: Some opposition parties have alleged that the electoral bond system disproportionately benefits the ruling political party by facilitating the cash inflow from corporations and wealthy individuals who may have vested interests. They argue that this system allows for potential quid pro quo arrangements, where donors may expect favors in return for their contributions.
Impact on Electoral Integrity: Critics express concerns about the impact of electoral bonds on the integrity of elections. They argue that the lack of transparency and accountability in political funding may undermine the democratic process by potentially enabling the use of illegal or unaccounted funds to influence election outcomes.
Legal Challenges: There have been legal challenges to electoral bonds. Organizations and individuals have filed petitions in the Indian courts, questioning the constitutional validity and transparency of the electoral bond scheme. Some of these cases were pending in the courts, and the outcomes could potentially have far-reaching implications for the use of electoral bonds.
Conclusion and Reform Proposals
Several political and civil society organizations have called for reforms in the electoral bond system to enhance transparency and accountability. These proposals include disclosing the identity of donors and ensuring that only Indian entities, rather than foreign corporations or entities, can purchase electoral bonds.
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