23/11/2019 : The Hindu Editorials Notes: Mains Sure Shot 

Question – Transparency in electoral funding is key to a vibrant democracy . Critically analyze the merits and limitation of electoral bonds mechanism of political funding. Recent disclosure related to electoral bonds raise troubling questions over the political financing in India. There is need to review entire political funding mechanism in India. Suggest measures to improve the transparency and accountability in India. 


Context: Recent disclosures that  Election commission and RBI has expressed their reservation against the electoral bonds. 


Meaning and features of electoral bonds:

  1. Finance bill 2007 introduced electoral bonds which is a bearer Banking Instrument to be used for funding eligible Political Parties. An eligible Political Party is the one registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and secured not less than one per cent of the votes polled in the last General Election to the House of the People or the Legislative Assembly .
  2. Valid for 15 days from the date of issue
  3. Redeemable only by the designated political parties in authorized bank account of that party. 
  4. Purchaser may be a citizen of India or person established in India. Proof will be attached to prove citizenship of India. 
  5. All payment for purchase will be made in Indian Rupees. 
  6. SBI as sole authorized bank. SBI will do KYC. 
  7. Can not be pledged or can not be used as collateral for  
  8. Non refundable once issued.

Reservation raised:

  1. In 2017, the then RBI  Governor wrote to the then Finance Minister that “allowing any entity other than the central bank to issue bearer bonds, which are currency like instruments, is fraught with considerable risk and unprecedented even with conditions applicable to electoral bonds.”
  2. The EC warned that this would allow illegal foreign funds to be routed to political parties. This is possible after amendment  RPA act and companies act allowing political parties to receive contributions from foreign companies, which would “allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies”.
  3. EC in affidavit submitted on March 25 in Supreme court said that “any donation received by a political party through an electoral bond has been taken out of the ambit of reporting under the Contribution Report”, and if the information on the money received through such bonds is not reported, “it cannot be ascertained whether the political party has taken any donation in violation of provisions” of the Representation of the People Act, which “prohibits the political parties from taking donations from government companies and foreign sources”.

Petition in the Supreme Court – Grounds for petition by ADR 

  1. Ordinary citizens will not be able to know who is donating how much money to which political party, and the bonds “increase the anonymity of political donations”.
  2. The requirement to disclose in the profit and loss account the name of the political party to which a donation has been made, has also been removed.
  3. With the removal of the 7.5% cap on the net profits of the last three years of a company, corporate funding has increased manifold, as there is now no limit to how much a company, including loss-making ones, can donate. This opens up the possibility of companies being brought into existence by unscrupulous elements primarily for routing funds to political parties through anonymous and opaque instruments like electoral bonds.
  4. The contribution received by any eligible political party in the form of electoral bonds will be exempt from income-tax as per Section 13A of the Income Tax Act.

SC interim orders:

  1. The Supreme Court on Friday ordered all political parties to disclose to the Election Commission of India the details of every donation they receive through electoral bonds and also refused to stay electoral bond scheme. 

Merits of electoral bonds:

  1. Reduction in flow of black money to election 
  2. Increase in transparency and accountability.
  3. Prevent harassment of donors by maintaining anonymity. 

Issues in electoral bonds:

  1. Lack of participation of stakeholders in scheme formulation:- It is revealed in official file noting accessed under RTI act by Anjali Bharadwaj of the National Campaign for People’s Right to Information that Initially  government suggested the possibility and then dropped the idea of seeking comments from national and state political parties of India and the general public on the structure of electoral bonds
  2. Electoral bonds utterly fails in reducing the anonymity related to donor. Voters don’t have information regarding the funding of political parties.  An argument can be made that anonymity shields donors from future retribution. But, in a democracy, in which transparency should be the guiding principle, voters should be aware of the contributions to parties by various entities. No public purpose is served by protecting the confidentiality of donors.
  3. SBI is sole authorized bank. Law enforcement agencies can get information related to donor to rival parties and can be used for harassment for such donors by ruling political parties. There is nothing in the existing legal framework to prevent this.
  4. After removing the limit on political donation by company , electoral bond may facilitate the purchase of political parties by any company through  unlimited and untraceable corporate donations, including by foreign companies, by mechanism of shell companies. 
  5. Reduction in limit of anonymous cash donation to political parties from Rs. 20,000 to 2,000 has not effectively curbed the flow of black money into the election and political parties. In many newspaper reports , hoarding of Rs. 2,000 is reported.   
  6. Transparency and accountability does not require any sort of incentive. No party has come forward to disclose voluntarily details regarding its funds and sources. 
  7. Electoral bonds put the ruling party in more favorable position and thus endanger the spirit of true and fair elections. This is proved by the data compiled by the Association for Democratic Reforms shows that the BJP garnered 95 per cent of the Rs 222 crore bonds issued in the first tranche.
  8. It reduces the accountability of government and political parties towards the common citizen as big corporation funds the election. In long term it undermine the internal democracy at party level. 
  9. Rich love electoral bonds :- Electoral bonds with denominations of Rs 1 crore accounted for more than 91 per cent of the Rs 5,896 crore raised in the first 11 phases over which the bonds were sold. It shows that entire money comes from the wealthy society. 
  10. Not popular in rural areas :- The RTI documents also show that over the 12 phases, just four cities accounted for 83 per cent of all electoral bonds by value.

Way forward:

  1. Complete transparency in all funding.
  2. Political parties need to be under the Right to Information Act. 
  3. There must be spending limits as well as donation limits, especially in a highly unequal society like ours, and strict penalties for flouting rules and the law.
  4. Public funding needs to be examined and introduced with proper checks and balances.
  5. Voters need to demand changes and we need voter awareness campaigns.


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