Electoral Bonds: An Analysis

Ever wondered how political parties raise funds? They are clearly not business organizations that perform their regular operations (selling goods or providing services) to earn revenue. Neither do they receive funds from the Government of India, say on grounds of public service. However, what remains in public eyes and even dominates is the extravagant expenditure that every political party in the country makes- be it for the Rajya Sabha elections, the elections for State Legislative Assemblies, or the magnum opus-the Lok Sabha elections. The question remains unanswered! 

Electoral Bonds are one of the instruments devised by various political parties to raise funds. The scheme of Electoral Bonds was introduced in the Finance Bill, of 2017. These bonds function like a Promissory Note and an interest-free banking tool. Electoral bonds possess anonymity since they do not bear the identification of the donor or the political party to which they have been issued.

Any Indian citizen or organization registered in India can buy these bonds after fulfilling the KYC norms laid down by the Reserve Bank of India. They can be procured by a donor through cash not more than Rs. 2000 or through the means of cheque or digital payments in various denominations, such as one thousand, ten thousand, one lakh, ten lakh, and one crore from specific branches of the State Bank of India (SBI). Within 15 days of issuance, these electoral bonds can be redeemed in the designated account of a legally registered political party under the Representation of the People Act, 1951, and have secured not less than 1% of the votes polled in the last general election. If the 15-day deadline is not met, neither the donor nor the receiving political party receives a refund for the issued electoral bonds. Rather, the fund value of the electoral bond is remitted to the Prime Minister Relief Fund. 

Electoral Bonds were in the news recently. This was because of the report by the Association of Democratic Reforms (ADR) that identified  Electoral Bonds as the primary source of donations for political parties in India. One startling figure that came out was that between 2016-17 and 2021-22, the seven national parties and 24 regional parties received a total donation of ₹9,188.35 crore from Electoral Bonds! Another reason for the discourse over Electoral Bonds is that a five-judge bench of the Supreme Court headed by the Chief Justice of India DY Chandrachud was to hear a batch of petitions challenging the constitutional validity of the Centre’s electoral bonds scheme. 

The electoral bonds scheme offers plenty of benefits. The scheme aims to bring transparency to political funding by requiring political parties to file income tax returns and disclose donation utilization. This can enhance accountability in fund management. By limiting cash donations to Rs. 2000, the scheme discourages cash transactions in political funding. This aligns with the broader economic goal of reducing the influence of unaccounted or black money in the system. While controversial, the preservation of donor anonymity in electoral bonds can be viewed as a measure to protect individuals or entities from potential reprisals, fostering an environment where diverse economic interests can contribute to the political process without fear.

Despite the attempts to improve transparency and accountability of political funds, loopholes do exist in the system. The anonymity feature compromises the Right to Know(part of the Right to Freedom of Expression under Article 19), impacting the transparency necessary for a well-functioning democracy. In the economic context, this lack of information can lead to distorted market dynamics, especially if the economic policies are influenced by undisclosed interests. The scheme raises concerns about crony capitalism, where the close relationship between business and government officials might lead to favorable economic policies. Additionally, the risk of infusion of black money poses economic threats by undermining the integrity of financial transactions. The removal of the clause restricting political contributions based on a company's net average profit raises questions about transparency in corporate entities. This lack of restriction may facilitate the channeling of funds through shell companies, potentially contributing to an economic environment susceptible to misuse.

What lies ahead for the Electoral Bonds Scheme? This idea of political funding seems to be an impressive one. It aims at improving transparency and accountability in political funding. However, like every other government policy, this one, too, has certain loopholes.  Implementing stricter regulations on political parties to disclose the use of donations and ensuring compliance with existing laws, such as the Companies Act, can contribute to a more transparent and accountable economic landscape. Besides, bringing the Electoral Bonds Scheme under the ambit of income tax could provide an additional layer of scrutiny, ensuring that funds are accounted for and used in a manner consistent with economic and legal standards.  Regular judicial reviews and public engagement in the monitoring of the scheme can help address emerging economic challenges. This approach ensures adaptability to the dynamic economic and political landscape, fostering a system that aligns with evolving economic goals.