Electoral Bonds

SYLLABUS

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REFERENCE NEWS

• In a landmark judgment, the Supreme Court of India has declared the electoral bonds scheme as unconstitutional and violative of the right to information under Article 19(1)(a) of the Constitution.
• The court has also struck down the amendments made to the Companies Act, the Income Tax Act, and the Representation of Peoples Act that enabled the scheme.
• The court has directed the State Bank of India (SBI) to furnish the details of electoral bonds encashed by the political parties to the Election Commission of India (ECI) by March 31, 2024. The ECI will publish such details on its website for public scrutiny.

ELECTORAL BONDS

• 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.

FEATURES OF ELECTORAL BONDS:

BENEFITS OF ELECTORAL BOND SCHEME:

• Transparency:Earlier, massive amounts of political donations were being made in cash, using illicit means of funding and identity of the donors was not known.Now, Electoral bonds   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.
• 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:The bonds will not bear the name of the donor. This 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.

CONCERNS OVER ELECTORAL BOND:

• Violates right to know: 
• Neither the donor nor the political party is obligated to reveal from whom the donation comes.
• Parties donot have to submit records of electoral bonds to the Election Commission for scrutiny and as they have been exempted from IT Act, they need not maintain records of names, addresses of all donors.
• This violates Article 19 as the Supreme Court in Raj Narain vs State of UP case held that the right to freedom of expression is complemented by the "right to know,", particularly in relation to elections.
• Anonymity breeding corruption: Terming electoral bonds ‘opaque financial instruments’, the RBI pointed out that since the bonds are transferable any number of times like currency, their inherent anonymity can be exploited for money laundering.Association of Democratic Reforms’ (ADR) annual reports show that the share of “unknown sources of income” has only increased after the introduction of the electoral bonds, the opposite of what the scheme was intended for.
• 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.For eg: Between FY18 and FY22, the ruling party has received 5,271 crores through electoral bonds, which is over 57% of income received by all parties through the scheme.
• Fear of crony capitalism:Big corporations can donate large sums of money anonymously, leading to concerns about quid pro quo arrangements.In India, 91.7% of the donations were made through bonds of the highest denomination (INR 1 crore) as per the ADR, suggesting potential dominance by big donors or corporations.
• Prominence of Shell companies: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.(Election Commission of India SC Affidavit,2019)
• Allows unchecked foreign funding-An amendment to the Foreign Contribution Regulation Act (FCRA) allow political parties to receive funding from foreign companies with a majority stake in Indian companies. It can lead to Indian policies being influenced by foreign companies

WAY FORWARD:

• Balancing between opacity and privacy:
  • As the current electoral bond scheme lacks transparency and breeds corruption through donor privacy, 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
• 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.

PRACTICE QUESTION:

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.(15M,250W)