Electoral Bond Scheme

NOV 17

Mains   > Polity   >   Election   >   Electoral reforms


  • Recently, weeks ahead of general elections in certain states, the Central Government amended the Electoral Bond Scheme.


  • The Central Government amended the Electoral Bond Scheme to grant itself the power to spell out an extra fortnight of electoral bond sales in years when States and Union Territories with a legislature have polls.
  • The Finance Ministry notified changes to the Scheme on November 7, 2022, to introduce a new para that stated: "An additional period of fifteen days shall be specified by the Central Government in the year of general elections to the Legislative Assembly of States and Union territories with Legislature."
  • The Central Government has approved the issuance of the 23rd tranche of electoral bonds for sale from November 9-15 following the amendment.
  • In 2018, when the Electoral Bond Scheme was introduced, the Finance Ministry said that these bonds would be available for a period of 10 days each in January, April, July, and October, as may be specified by the central government. It has also been said that an additional period of 30 days shall be specified by the central government in the year of the general election to the House of People.


  • The government, on January 2, 2018, notified the Electoral Bond Scheme, 2018 to establish and cleanse the system of political funding in the country.
  • Electoral bonds were introduced through amendments to the Reserve Bank of India Act 1934, Representation of Peoples Act 1951, Income Tax Act 1961 and Companies Act.


  • Bearer Instrument: 
    • An electoral bond is designed to be a bearer instrument like a Promissory Note. It will be similar to a bank note that is payable to the bearer on demand and free of interest.
  • Accessibility: 
    • It can be purchased by any citizen of India or a body incorporated in India with a KYC-compliant account.
  • Diverse denominations: 
    • The bonds will be issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore and will be available at specified branches of State Bank of India for a certain number of days in the year.
  • Stipulated timelines for purchase: 
    • The bonds will be available for purchase for a period of 10 days each in the beginning of every quarter, i.e. in January, April, July and October as specified by the Central Government. An additional period of 30 days shall be specified by the Central Government in the year of Lok Sabha elections.
    • Recent amendment (November 2022) says that an additional period of fifteen days shall be specified by the Central Government in the year of general elections to the Legislative Assembly of States and Union territories with Legislature
  • Adequate scope for monitoring: 
    • The donor purchases the bonds, and then transfers them to the account of the political party in question. It can then be cashed in via the party's verified account within 15 days.
  • Protect donor’s identity: 
    • The bonds will not bear the name of the donor. The intention is to ensure that all the donations made to a party will be accounted for in the balance sheets without exposing the donor details to the public.
  • Eligibility:
    • Only the political parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than one percent of the votes polled in the last general election to the house of the people or the legislative assembly of the state shall be eligible to receive the electoral bonds.
  • Encourages participation: 
    • A donor will get a tax deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party


  • Transparency:
    • The scheme envisages building a transparent system of acquiring bonds with validated KYC and an audit trail.
    • The electoral bonds will prompt donors to take the banking route to donate, with their identity captured by the issuing authority.
    • Encourage political donations of clean money from individuals, companies, HUF, religious groups, charities, etc. and breaches the nexus between business and politics.
  • Reduce black money:
    • A limited window and a very short maturity period would make misuse improbable and eliminate its use as a parallel currency
    • Political parties will have to submit details regarding the quantum of money received through electoral bonds.
  • Donor privacy:
    • Some element of secrecy introduced will ensure that donors are not affected by vindictive politics, i.e. from being harassed by one party for donating to its rivals.
  • Reduces tax evasion:
    • Stringent eligibility clauses will discourage the tendency to form political parties on the pretext of tax evasion.


  • Violates right to know: 
    • Neither the donor nor the political party is obligated to reveal from whom the donation comes.
    • The Supreme Court held that the right to freedom of expression (Article 19) is complemented by the "right to know,", particularly in relation to elections.
    • The public doesn't get any information from electoral bonds because the scheme lacks transparency in election funding due to the anonymity of donors. It impacts the idea of free and fair elections.
  • Anonymity: 
    • An amendment to income tax legislation removes the need to reveal the identity of the donor.
    • Also, companies which donate to political parties no longer have to disclose this in their financial statements. This paves the way for anonymous donations.
  • Asymmetrically opaque:
    • As the bonds are purchased through the SBI, the government is always in a position to know who the donor is.
    • This asymmetry of information threatens to skew the process in favour of whichever political party is ruling at the time.
  • Fear of crony capitalism:
    • The maximum limit of 7.5% on the proportion of the profits a company can donate to a political party has been lifted by the 2017 Finance Bill, thus opening up the possibility of fly-by-night shell companies being set up specifically to fund parties.


  • Balancing between opacity and Privacy:
    • The present structure of electoral bond scheme is not conducive to clean up the funding process. The government’s argument that opacity is necessary to protect privacy of the donor is indefensible. Privacy in political funding can only breed corruption.
    • One immediate measure that can be adopted is switching to digital transactions. This ensures adequate transparency with reasonable privacy to the donor.
  • State funding of elections:
    • 2nd ARC, Dinesh Goswami committee, and several others have also recommended state funding of elections.
    • In state funding of election, government gives funds to political parties or candidates for contesting elections. State funding ensures principles of parity and there is not too great a resource gap between the ruling party and the opposition. For extra reading on State Funding: https://ilearncana.com/details/State-Funding-Of-Elections/2747
    • Further, until the elections are publicly funded, there can be caps or limits on financial contributions to political parties.
  • Bring political parties under RTI
    • Bringing parties under the Right to Information act can enhance transparency. But without pressure from the citizenry, it is unlikely to interest a political class hell-bent on insulating itself from public accountability.
  • Prospect alternatives:
    • Former Chief Election Commissioner S.Y. Quraishi has suggested an alternative worth exploring: a National Electoral Fund to which all donors can contribute.
    • The funds would be allocated to political parties in proportion to the votes they get. Not only would this protect the identity of donors, it would also weed out black money from political funding.
  • Role of voters:
    • India has been working well as a democracy for nearly 75 years. Now in order to make the government more accountable, the voters should become self-aware and reject candidates and parties that violate the principle of free and fair elections.


Q. “The electoral bond has its merits, but the present structure of the scheme is not conducive to clean up the political funding process in India”. Discuss?