Electoral Financing

GOVERNANCE/ ELECTIONS

Topic:

• GS-2: Parliament and State legislatures—structure, functioning, conduct of business, powers & privileges and issues arising out of these. 

Electoral Financing

Context: The political system in India has traditionally been hostile to the idea of transparency in electoral financing.

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.

Issues with Electoral Bonds

• Electoral bonds allows donors to anonymously donate unlimited amounts of funds to political parties.
• The scheme allows parties to receive these bonds without the public, the Election Commission or even the Income Tax Department knowing the identity of the donors.
• It has legitimised opacity and opened the floodgates for anonymous donations to parties, dealing a severe blow to voters’ right to know. 
• People’s ability to track donations by big businesses and expose quid pro quo has been undermined. 
• They will have an adverse impact on transparency in political party financing and would make it impossible for the ECI to ascertain whether donations received were in compliance with the statutory framework governing political parties.
• Electoral bonds allow anonymous financing by foreign entities opening Indian elections to the influence of foreign interests.
• Electoral bonds are likely to abet money laundering since the amendments to the Companies Act in 2017 removed the cap of 7.5% on political contributions by a company as a percentage of its average net profits of the preceding three years. 
• This allows for black money to be easily routed through shell companies to purchase electoral bonds, which was flagged by both ECI and RBI.
• As bonds are issued only through the State Bank of India, it would not be difficult for the party in power to access information about the identity of purchasers and details of bonds sold to them, and match those to deposits in political party accounts.

Way Ahead

• To ensure public trust in the electoral process, it is critical that the Supreme Court immediately adjudicates on the matter. 
• If bonds are to be retained as an instrument for contributing to political parties, donations must be made transparent and parties should be obligated to file reports with the Election Commission and other oversight bodies disclosing the names of donors and amounts received. 
• This information must also be placed in the public domain. 
• These steps are necessary to safeguard democracy and ensure that elections do not become a mere formality.

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?