Electoral Bonds

What is an Electoral Bond?

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 the State Bank of India.

• The same can be donated to any eligible political party of his/her choice.
• The bonds are payable to the bearer on demand and are free of interest.
• An individual or party will be allowed to purchase these bonds digitally or through a cheque.

When was the electoral bond introduced?

The electoral bonds were introduced with the Finance Bill (2017).

On January 29, 2018, The Electoral Bond Scheme was notified.

Related Amendments:

The electoral bonds were introduced by amendments made through

• The Finance Act 2016:

It amended the Foreign Contribution Regulation Act, of 2010, to allow foreign companies with subsidiaries in India to fund political parties in India.

• The Finance Act of 2017 has introduced the use of electoral bonds which are exempt from disclosure under the Representation of Peoples Act, of 1951.
• Representation of the Peoples Act,1951: This act exempts electoral bonds from disclosure.
• Companies Act,2005
• Earlier, no foreign company could donate to any political party under the Companies Act.
• The government moved an amendment in the Finance Bill to ensure that this provision would not be applicable to companies in the case of electoral bonds.
• The Reserve Bank of India Act 1934.
• Income Tax Act 1961 and

How to use electoral bonds?

• Using electoral bonds is quite simple. The bonds will be issued in multiples of Rs 1,000, Rs 10,000, Rs 100,000, and Rs 1 crore (the range of a bond is between Rs 1,000 to Rs 1 crore).
• A donor with a KYC-compliant account can purchase the bonds and can then donate them to the party or individual of their choice.
• Now, the receiver can encash the bonds through the party’s verified account. The electoral bond will be valid only for fifteen days.

When are the bonds available for purchase?

• The electoral bonds are available for purchase for 10 days at the beginning of every quarter.
• The first 10 days of January, April, July, and October have been specified by the government for the purchase of electoral bonds.
• An additional period of 30 days shall be specified by the government in the year of the Lok Sabha elections.

Who is eligible to receive the Electoral bonds?

1. Any party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one percent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds.
2. The party will be allotted a verified account by the Election Commission of India (ECI) and the electoral bond transactions can be made only through this account.
3. The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.
4. The donations would be tax deductible. Hence, a donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.

Why were electoral bonds introduced in India?

• 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.
• 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.

Issues

The two issues concern violation of Articles 19, 14 and 21 of the Constitution :

• Legalisation of anonymous donations to political parties
• Violation of citizens’ right to information about the funding of political parties.

Criticism over electoral bond?

1. The concept of donor “anonymity” threatens the very spirit of democracy.
2. May lead to money laundering.
3. Lack of transparency.

Election Commission of India’s view on electoral bonds

The Election Commission told the Supreme Court of India that while it was not against the Electoral Bonds Scheme, it did not approve of anonymous donations made to political parties.

Reserve Bank of India on electoral bonds scheme

It has warned the government that the bonds would “undermine the faith in Indian banknotes and encourage money laundering.”

Supreme Court say on electoral bonds?

• On April 12, 2019, the Supreme Court asked all the political parties to submit details of donations received through electoral bonds to the ECI. It also asked the Finance Ministry to reduce the window for purchasing electoral bonds from 10 days to five days.
• The Supreme Court had in 2021 refused to stay the release of electoral bonds prior to Assembly polls in certain states.
• India’s Supreme Court (Oct 16) referred the petitions challenging the electoral bonds scheme to a Constitution Bench of five judges. “In view of the importance of the issue raised, and with regard to Article 145 (4) of the Constitution of India, the matter will be placed before a bench of at least five judges.”
• But this five-judge Bench may also not wade into the legal question concerning the passage of the electoral bonds scheme as a Money Bill. It may, instead, wait for a seven-judge Bench to deliver an authoritative pronouncement on “when a Bill could be designated a Money Bill”.

Way Forward:

1. Free and fair elections to make the government more accountable.

2. 2nd Administrative Reforms Commission (ARC): State funding was seen as a way to enhance transparency and accountability in the political process.
3. Dinesh Goswami Committee: Provide financial assistance to political parties for their election-related expenses. This assistance was intended to be based on factors like the party’s performance in the previous elections and their adherence to certain norms of transparency.
4. The Right to Information Act can improve transparency by including political parties.
5. Switching to digital transactions is one quick fix that can be used.
6. According to former Chief Election Commissioner S.Y. Quraishi, a National Electoral Fund that accepts donations from all contributors is an alternative worth considering.