Electoral Bonds
Welcome to our deep dive into one of India's most debated political reforms, "Electoral Bonds". In this article, we'll unravel the mysteries of electoral bonds, a financial mechanism introduced to revolutionize political funding. Aimed at enhancing transparency while protecting donor anonymity, these bonds have sparked a nationwide conversation.
We'll explore their journey from inception to implementation, dissecting how they work, the objectives behind their creation, and the controversies that surround them. From the corridors of power in New Delhi to the common voter, understand how electoral bonds impact the very foundation of democracy in India.
Stay tuned as we navigate through the legal battles, the Supreme Court's stance, and what it all means for the future of political financing. Whether you're a political enthusiast, a concerned citizen, or just curious, this article promises to shed light on the complex world of electoral bonds. Don't miss out on this comprehensive guide to one of the most significant political reforms of our time.
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What is Electoral bonds?
Electoral bonds are a financial instrument for donating money to political parties in India. Introduced in 2018 by the Government of India, these bonds aim to ensure transparency in political funding, while maintaining donor anonymity. Here's how it works:
Issuance and Purchase: Electoral bonds are issued by the State Bank of India (SBI) at specified branches, available for purchase by any citizen of India or entities incorporated or established in India. They can be bought at certain times of the year, announced by the Ministry of Finance.
Denominations: The bonds are available in multiple denominations, ranging from INR 1,000, INR 10,000, INR 1,00,000, INR 10,00,000, and INR 1,00,00,000. This allows for donations of various amounts.
Donation to Political Parties: The purchased bonds can then be donated to any registered political party that has secured at least 1% of the votes in the most recent Lok Sabha or State Legislative Assembly election. The political party can encash the bonds through a designated bank account with the authorized bank.
Anonymity: One of the key features of electoral bonds is the anonymity they provide; the identity of the donor is not disclosed to the recipient political party. This is intended to protect donors from any potential backlash due to their political contributions.
Validity: Electoral bonds have a short validity period; they must be encashed by the political party within 15 days from the date of issuance. If not encashed within this period, the amount is directed to the Prime Minister's Relief Fund.
The introduction of electoral bonds represents a significant change in the way political funding can be carried out in India, with ongoing debates about its implications for democracy and transparency.
Electoral bonds Introduction and Purpose
Electoral bonds were introduced in India as a financial instrument to donate money to political parties, aiming to bring greater transparency and accountability to political funding while protecting donor anonymity. Announced by the then Finance Minister Arun Jaitley during the 2017 Union Budget, the scheme represented a significant shift in how political contributions could be made and reported in the country.
Purpose of Electoral Bonds
The primary objectives behind the introduction of electoral bonds were:
Transparency in Political Funding: By channeling donations through an official banking instrument, the scheme aimed to reduce the influx of unaccounted cash through opaque means that had traditionally dominated political donations.
Protecting Donor Anonymity: One of the key features of electoral bonds is the anonymity they provide to donors. This was intended to shield donors from potential political backlash and to encourage more individuals and corporations to contribute to political parties without fear of reprisal.
Encouraging Legal Donations: The scheme was designed to encourage donations through formal and traceable channels, thus reducing reliance on black money in political financing.
Digital Trail and Accountability: Although the identities of donors are not disclosed to the public, the use of a banking instrument ensures a digital trail. This was seen as a step towards ensuring that all political donations are accounted for within the banking system, allowing for some level of regulatory oversight.
Regulating Political Funding: By setting clear guidelines and eligibility criteria for both donors and political parties, the scheme seeks to regulate the flow of funds to ensure that only legitimate, eligible political entities can benefit from these funds.
The introduction of electoral bonds sparked significant debate in India. Proponents argue that it is a step forward in cleaning up the murky waters of political funding. Critics, however, raise concerns about the potential for misuse, emphasizing that the anonymity provided to donors might lead to an increase in influence by wealthy individuals and corporations over political parties and policies, without public scrutiny. The balance between ensuring transparency and protecting donor anonymity continues to be a contentious issue in the discourse surrounding electoral bonds.
How Electoral Bonds Work?
Electoral bonds offer a novel method for financing political parties in India. Designed to enhance transparency while keeping donors anonymous, their operation involves a structured process. Here's a breakdown of how electoral bonds work:1. Purchase:
Where to Buy: Electoral bonds can be purchased by individuals, groups, or corporations from designated branches of the State Bank of India (SBI), the country's largest public sector bank. The Government of India specifies certain windows throughout the year when these bonds can be bought. These periods typically precede major elections and are announced by the Finance Ministry.2. Denominations:
Available Values: Electoral bonds are available in multiple denominations to cater to different levels of donors. The denominations include INR 1,000, INR 10,000, INR 1 lakh, INR 10 lakh, and INR 1 crore. This range allows for small as well as large donations.
3. Donation:
To Political Parties: After purchasing an electoral bond, a donor can donate it to a registered political party of their choice. The political party must be recognized by the Election Commission of India and have secured at least 1% of the votes in the most recent Lok Sabha or State Assembly elections to be eligible to receive donations through electoral bonds.
Redemption: The political party can then deposit the received bond in its verified bank account designated specifically for this purpose. The account details are pre-verified by the Election Commission of India.
4. Anonymity and Transparency:
Anonymity: The identity of the donor is kept anonymous. Neither the political party receiving the donation nor the public gets to know the identity of the donor, which is known only to the bank.
Transparency: Despite the anonymity of donors, the scheme introduces a level of transparency by routing the funds through the banking system, ensuring a traceable transaction trail. However, this feature has been a point of contention, with critics arguing that it might not effectively ensure transparency in political financing.
5. Validity:
Time Limit for Redemption: Electoral bonds have a validity period of 15 days from the date of issue. Political parties must redeem them within this period by depositing them into their designated bank accounts. Bonds not redeemed within this timeframe become invalid.
6. Regulation and Oversight:
Legal Framework: The scheme is regulated by the Government of India, with the Ministry of Finance overseeing its implementation. The Election Commission of India plays a role in verifying the eligibility of political parties to receive donations through electoral bonds.
Eligibility for Electoral Bonds
Eligibility criteria for various stakeholders in the context of electoral bonds in India are designed to ensure that only legitimate entities are involved in the process of political donations through this mechanism. Here are the key eligibility criteria:
For Donors:
Both Indian citizens and companies incorporated or established in India are eligible to purchase electoral bonds. There is no restriction on the amount that an individual or corporate entity can donate using electoral bonds.
Donors are required to comply with the Know Your Customer (KYC) norms laid down by the bank from which they are purchasing the electoral bonds. This is to ensure transparency and traceability of the funds, although the identity of the donors is not disclosed to the political parties.
For Political Parties:
The political party must be registered under Section 29A of the Representation of the People Act, 1951.
The party must have secured not less than 1% of the votes cast in the last general election to the Lok Sabha or a State Legislative Assembly. This criterion is intended to ensure that only parties with a significant level of public support can benefit from electoral bonds.
The political party must have a designated bank account with the State Bank of India (SBI) for the purpose of depositing electoral bonds. This account is verified and recognized by the Election Commission of India (ECI).
For Banks:
The State Bank of India (SBI) is the only bank authorized to issue and encash electoral bonds. This may be subject to change if the government decides to include other banks in the future.
Even, Not all branches of SBI are authorized to sell electoral bonds. The Government of India specifies certain branches that can facilitate the sale of these bonds during the designated windows of sale.
Exclusions:
Foreign individuals and companies are not eligible to purchase electoral bonds. This is to prevent foreign influence on Indian electoral politics through financial contributions.
While the bonds maintain donor anonymity towards the public and the political parties, anonymous purchasing of bonds is not allowed. Donors have to undergo KYC procedures, ensuring a record of transactions at the bank level.
The electoral bond scheme is part of India's efforts to clean up the financing of political parties. By setting these eligibility criteria, the government aims to ensure that the process remains transparent to regulatory authorities while protecting the anonymity of donors against political victimization, thus encouraging more legitimate funding of political parties.
Controversies and Criticisms of Electoral Bonds
The electoral bond scheme, introduced by the Government of India in 2018, aimed at ensuring transparency in political funding, has been surrounded by various controversies and criticisms since its inception. Here are some of the key issues highlighted by critics:
1. Lack of Transparency:
Critics argue that the scheme, while purportedly designed to cleanse the system of political donations, actually reduces transparency because it allows donors to remain anonymous. This anonymity makes it difficult for the public to know which individuals or entities are funding political parties, potentially leading to conflicts of interest and undue influence on policy decisions.
2. Potential for Money Laundering:
The anonymity provided to donors has raised concerns about the possibility of electoral bonds being used for money laundering. Critics fear that the scheme could allow for the infusion of black money into the political system, as it does not require political parties to disclose the identity of the donors who contribute through electoral bonds.
3. Corporate Influence:
The scheme allows corporations to donate without limits and without disclosing their contributions to their shareholders or the general public. This has led to concerns about increased corporate influence on politics and governance, as large donors may seek to sway policy decisions in their favor.
4. Disproportionate Benefit to Ruling Parties:
Data released by the State Bank of India (SBI) and analyses by various watchdog groups suggest that a significant majority of donations through electoral bonds have gone to the ruling party. Critics argue that this could create an uneven playing field, as ruling parties might have an inherent advantage in garnering financial support, further entrenching their position.
5. Legal and Constitutional Concerns:
The scheme has been challenged in the Supreme Court of India on grounds that it might violate certain constitutional provisions related to transparency, equality, and the right to know. Questions have also been raised about the scheme's impact on the democratic principle of free and fair elections.
6. Exclusion of Smaller Political Parties:
Since only political parties registered under Section 29A of the Representation of the People Act, 1951, and which have secured at least 1% of the votes in the last general election are eligible to receive donations through electoral bonds, smaller parties and new entrants may find it difficult to benefit from this scheme. This could potentially limit political competition and innovation.
7. No Cap on Donations:
The absence of a cap on the amount that can be donated via electoral bonds has raised concerns about wealthy individuals and entities being able to exert disproportionate influence on the political process and governance.
Response from the Government:
The government defends the electoral bond scheme as a step towards ensuring cleaner funding of political parties. It argues that the scheme is voluntary and that political parties can choose not to accept donations through electoral bonds if they prefer transparency over anonymity. The government also contends that routing donations through the banking system ensures a level of traceability and checks against illegal fund flows, which were not possible with cash donations.
The Supreme Court of India is yet to make a final judgment on the legality and constitutionality of the electoral bond scheme. The ongoing legal challenge and public debate underscore the complex interplay between the need for political funding, transparency, and the integrity of democratic processes.
Legal Provisions of Electoral Bonds
The legal provision for electoral bonds in India was introduced through the Finance Act, 2017. The electoral bond scheme was announced during the 2017 Union Budget speech by the then Finance Minister, aiming to bring greater transparency and accountability to political funding in India. Below we discussed the key legal provisions and features of the electoral bond scheme as per the notifications and guidelines issued by the Government of India:
To be eligible to receive donations through electoral bonds, a political party must be registered under the Representation of the People Act, 1951, and must have secured not less than one percent of the votes polled in the last general election to the House of the People or a Legislative Assembly.
Donations made through electoral bonds have been made exempt from disclosure under the Income Tax Act, 1961, encouraging donors to use this method for political contributions without the need to disclose the same in their income tax returns.
The introduction of electoral bonds was accompanied by amendments to various laws, including the Reserve Bank of India Act, 1934, the Representation of the People Act, 1951, the Income Tax Act, 1961, and the Companies Act, 2013, to facilitate the implementation of the scheme and address legal and financial aspects related to political donations.
Despite the intention to enhance transparency in political funding, the scheme has faced criticism for allowing anonymous donations, which detractors argue could lead to undisclosed influence on political parties and their policies. The Supreme Court of India, as mentioned earlier, has been looking into the implications of the scheme, particularly concerning transparency and accountability.
Latest Supreme Court Judgment on Electoral Bonds
On 15th February 2024, Chief Justice of India DY Chandrachud said the Electoral Bond Scheme is violative of freedom of speech and expression under Article 19(1)(a) of the Constitution. The court said that the SBI would be submitting details of political parties that received contributions through electoral bonds since April 12, 2019, to date to the Election Commission. Further, the Supreme Court directed the Election Commission to publish all the details on its website by 31 March 2024.
Key Highlights of the Judgment
A five-judge Constitution bench headed by Chief Justice D Y Chandrachud delivered two separate but unanimous verdicts on pleas challenging the scheme.
1. Supreme Court declares electoral bonds scheme unconstitutional: Electoral bonds scheme has to be struck down as unconstitutional. It violates the right to information of citizens, about possible quid pro quo.
2. Alternatives to combat black money in political financing exist: The court highlighted that the limitation on the Right to Information to address black money in political financing was unjustifiable. It emphasized that other measures could achieve the same goal with minimal impact on the right to information, in contrast to the significant effect caused by electoral bonds.
3. Scheme infringes on freedom of speech and expression: The Chief Justice of India, in delivering the judgment, stated that the electoral bond scheme infringes upon the constitutionally protected freedom of speech and expression, as outlined in Article 19(1)(a). The court noted that the right to privacy, which encompasses the right to political privacy and affiliation, is a fundamental right.
4. Electoral Bonds benefit the ruling party: The Constitutional bench determined that the Electoral Bonds scheme inherently favors the party in power. The Supreme Court expressed concerns over potential quid pro quo arrangements, citing the intertwined relationship between financial contributions to political parties and political influence.
5. Immediate cessation of Electoral Bond issuance by SBI: The Supreme Court has mandated the State Bank of India (SBI) to immediately halt the issuance of Electoral Bonds. In addition, the court ordered SBI to provide comprehensive details regarding the political entities that have benefitted from Electoral Bonds since April 12, 2019.
These details, encompassing the date of encashment and the bond denomination, are to be submitted to the Election Commission of India (ECI) by March 6. The Supreme Court also stipulated that by March 13, the ECI is required to disclose this information on its official website, ensuring transparency regarding the financial contributions received by political parties through Electoral Bonds.
Arrest of CM Chandrababu Naidu in Electoral Bonds Case
In 2023, the arrest of former Chief Minister Chandrababu Naidu marked a significant development, as the Andhra Pradesh Criminal Investigation Department (CID) presented evidence to the Anti Corruption Bureau (ACB) Court, highlighting that the Telugu Desam Party (TDP) had received a substantial sum of ₹27 crore in electoral bonds as donations for the fiscal year 2018-19. This amount is purportedly linked to misappropriations in a skill development project.
In response, the TDP denounced these actions as a politically motivated campaign and an abuse of state law enforcement by the ruling YSR Congress Party (YSRCP), led by Chief Minister Y. S. Jagan Mohan Reddy. The TDP pointed out that the YSRCP itself had received a hefty sum through electoral bonds, totaling ₹99.84 crore in 2018-19, ₹74.35 crore in 2019-20, ₹96.25 crore in 2020-21, and ₹60 crore in 2021-22. However, these figures were not disclosed in the party's publication, Saakshi, raising concerns over transparency and accountability in political financing.
Conclusion
The introduction of electoral bonds in India represents a significant attempt to reform political funding, aiming to strike a balance between enhancing transparency and protecting donor anonymity. By enabling donations through a formal banking channel, the scheme seeks to reduce unaccounted cash donations to political parties and bring more transparency to political financing. However, the anonymity provided to donors has sparked a debate about its potential impact on transparency and the possibility of undue influence on the political process.
While electoral bonds have been hailed for their attempt to clean up the electoral financing system, critics argue that the anonymity feature might lead to a lack of accountability, as the public and regulatory bodies remain in the dark about the sources of political funding. This could potentially lead to an increase in corporate influence on politics and policy-making, without public scrutiny.
The Supreme Court of India's ongoing examination of the scheme underscores the need to balance the competing interests of transparency, donor privacy, and the integrity of the electoral process. A comprehensive review and potential adjustments to the scheme may be necessary to ensure it effectively contributes to the goal of cleaner, more transparent political funding while safeguarding the democratic process against undue influence.
In conclusion, electoral bonds represent a novel approach to political funding in India, with the potential to contribute positively to the electoral finance landscape. However, for the scheme to achieve its intended goals fully, it may require further refinement and greater transparency to ensure that it strengthens rather than undermines the democratic process. The ongoing debate and judicial scrutiny of electoral bonds underscore the complexity of reforming political finance in a manner that balances various public interests and democratic principles.
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