Electoral Bonds

  • IASbaba
  • January 22, 2020
  • 0
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Governance: Elections

Topic:General Studies 2:

  • Parliament and State legislatures—structure, functioning, conduct of business, powers & privileges and issues arising out of these.

Electoral Bonds


The Supreme Court declined to stay the electoral bond scheme of the government. 

Also, a fresh window for purchase of bonds is set to open, coinciding with the Delhi Assembly election.

What is Electoral Bond Scheme?

  • An electoral bond is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of State Bank of India. 
  • An individual or party will be allowed to purchase these bonds digitally or through cheque after disclosing their identity through know your customer (KYC) norms
  • The citizen or corporate can then donate the same to any eligible political party of his/her choice.
  • The bonds are similar to bank notes that are payable to the bearer on demand and are free of interest. It has to be redeemed by Political parties within 15 days only in their specified account.
  • The electoral bonds were introduced with the Finance Bill (2017). On January 29, 2018 the NDA government notified the Electoral Bond Scheme 2018.

Electoral bonds: Conditions

  • Any party that is registered and has secured at least one per cent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds
  • The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.

Why were electoral bonds introduced in India?

  • The government said that electoral bonds would keep a tab on the use of black money for funding elections. In the absence of electoral bonds, donors would have no option but to donate by cash after siphoning off money from their businesses
  • Electoral bonds were being introduced to ensure that all the donations made to a party would be accounted for in the balance sheets without exposing the donor details to the public

Restrictions that were done away with after the introduction of the electoral bond scheme

  • Earlier, no foreign company could donate to any political party under the Companies Act. 
  • A firm could donate a maximum of 7.5 per cent of its average three year net profit as political donations according to Section 182 of the Companies Act
  • Also, companies had to disclose details of their political donations in their annual statement of accounts.

Criticisms of EBS

Legalising Political Corruption: Since neither the purchaser of the bond nor the political party receiving the donation is required to disclose the donor’s identity, the shareholders of a corporation will remain unaware of the company’s contribution. Voters, too, will have no idea of how, and through whom, a political party has been funded.

Possibility of Money Laundering: Since the identity of the donor has been kept anonymous, it could lead to an influx of black money. With doing away with all the safeguard that were present in Corporate donations to Political parties (through Companies Act), Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.

Large Corporations and not common man is utilizing this route: Nearly 91.76% (Rs 5,624 crore) of the total number of bonds purchased during the 12 phases were in the denomination Rs 1 crore. Thus, there is possibility of unholy nexus developing between Corporates and Political parties for favourable policies which comes at the cost of public welfare

Against Smaller Regional Parties: 80.5% of the total Electoral Bonds redeemed between March 2018 and October 2019 were encashed in New Delhi (while maximum value of bonds was purchased in Mumbai) where national parties’ headquarters are located 

New sale windows during State elections: The government’s scheme was meant for Lok Sabha elections, but the sale window for bonds had been opened before State Assembly elections repeatedly, which is beneficial for Central ruling party.

Non Transparency: The SBI has refused to divulge the names of those who purchased the electoral bonds under the RTI Act. The scheme infringes the citizens’ fundamental ‘Right to Know’ by withholding crucial information regarding electoral funding

Election Commission of India’s view on electoral bonds

ECI, in its response filed in the court, said the provisions would enable the creation of shell companies for the sole purpose of making political donations.

It also stated that the amendments to the law on foreign contributions would mean that there would be unchecked foreign funding of political parties, leading to foreign influence on India’s policy-making. 

Reserve Bank of India on electoral bonds scheme

The central bank had warned the government that the bonds would “undermine the faith in Indian banknotes and encourage money laundering.”

Supreme Court’s View on Electoral Bonds

In an order in April 2019, SC had asked political parties to disclose to the Election Commission of India (ECI), in sealed covers, details of the donations they had received through the anonymous bond. However, it had refused to stay the scheme on the grounds of “limited time” available then (impending General Elections to Lok Sabha) and “the weighty issues” involved in the matter.

Way Forward

  • According to ADR, political parties redeemed 12,173 electoral bonds worth Rs 6,108.47 crore between March 2018 and October 2019 in 12 phases. Clear Judicial pronouncement on such matter is of urgent concern
  • The concept of donor “anonymity” threatens the very spirit of democracy, the anonymity should be removed by amending the legislation

Connecting the dots:

  • Cash donations to Political Parties also capped at Rs 2000 through Finance Act of 2017. Why cash donations are still allowed?
  • Do Political Parties come under the ambit of RTI?

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