The latest new political currency Electoral Bonds are gaining steam in the run-up to the 2019 elections with over Rs 1,000 crore of Bonds being sold within the first week of April alone, as per sector experts. The bonds also take prominence as corporates and individuals can no longer directly contribute to a political party and must route their donations through these. So far over their one year of existence till this March, Rs 2,769 crore worth of these bonds, which are unique to India, have been bought from the 29 designated branches of State Bank of India.
Electoral bonds were first proposed in 2017 when Finance Minister Arun Jaitley said in his budget speech that this would pave the way to cut black money in political funding. A Time magazine estimate pegged spending in the last general election in 2014 at an estimated $5 billion (around Rs 3,500 crore). Cash transactions, on ground payments and other unrecorded expenses not included, cleaning of even the reported funds of this magnitude is a constructive move towards clean elections. It is a bold step for politicians to move such an initiative that could potentially hit close to home.
The Electoral Bond Scheme, 2018 was introduced on January 2, 2018, after amendments were made through the Finance Act of 2017 to Reserve Bank of India Act, 1934, Representations of Peoples Act, 1951, Income Tax Act, 1961 and Companies Act, 2013. It is a first of its kind instrument and while the Clean or Fair Elections Act of several developed nations touches on methods of donations to political parties, none of the major countries has successfully weeded out dubious practices in this space.
The bond has been created keeping in mind the specific Indian conditions. For example, anonymity is a big concern. Big corporate often contribute to multiple parties and prefer to keep these donations opaque between politicians. At the same time, the accountability of where the money came from must also be maintained. The answer lay in letting banks audit the source of funds while allowing the recipient anonymously. The electoral bonds were thus entrusted by the Government of India to State Bank of India, which has been given the task to do a complete ‘Know Your Customer’ or KYC check on each donor. Whether or not the donor is an account holder when buying the bond the bank collects all verification and nationality documents as it would when a new account is opened. Payment for the bonds, for any amount over Rs 2,000 cannot be done in cash and must be done via check, demand draft or digital money transfer, creating an audit trail for the money. Once issued, the bond acts as a promissory note, a little bit like a currency note. Available in denomination ranging from Rs. 1000 to Rs. 1 crore, it is valid only for 15 days from the date of issue. The expiry is a safety feature to prevent forgery or misuse. The money during this period is parked in an interim account to be debited when the bond is redeemed. Any outstanding unredeemed amount is credited to the Prime Minister’s relief fund.
Only a political party which is registered under Section 29A of the Representation of People Act, 1951 and has secured one or more percent of votes polled in the last general election to Lok Sabha or Legislative Assembly is eligible to receive and encash these bonds. The political party redeeming these bonds is eligible for a tax rebate as it would be in the case of an on record donor. The party can present the bond, unmarked by any visible numbering for funds to be transferred into its account. That said, while no records are maintained, a secret number is embedded in each bond, and the amendments provide for this data to be mined in case an Indian Court or investigative authority demands it. As such it protects all stakeholders.
This reform aims to bring about greater transparency and accountability in political funding while preventing the future generation of black money. In 2015, a few disgruntled members of the Aam Admi Party revealed that donors were shell companies repatriating black money to launder during elections. Whether or not this allegation was true, the electoral bond tackles the problem head-on. It throttles the hawala and laundered money entering into political campaigning which often goes unreported and could be utilized in contravention of Election Commission norms.
It is also a tool for companies looking for legitimate, anonymous roots to make political contributions. Around the time of the previous general election, a major India conglomerate was found with Rs 25 crore of cash in its offices. It turned out the cash was meant for political patronage but was misconstrued for other use. The company preferred to keep its contribution anonymous but if it had made a digital transfer, under election commission norms it would need to be recorded. Such organizations can now use the bonds to make donations of any amount.
The electoral bond scheme, however, has been subjected to intense debates and is currently undergoing judicial scrutiny. Certain non-governmental organisations and political parties have filed a petition in the Supreme Court stating the scheme is unconstitutional, illegal and void. The Election Commission is also of the view that electoral bonds will be against the endeavour to have transparency in the funding of political parties. The Central Government, on the other hand, is of the view that the scheme actually promotes transparency.
Other proposed means to bring transparency in electoral funding have been the creation of National Election Fund or state funding of elections, as recommended by the Indrajit Gupta Committee in 1998. These suggestions can only be implemented once there is greater political will and structural reforms with respect to how the political parties are established and managed.
The electoral bond is one more innovative and novel attempt, in a regime that has taken chances with bold actions such as demonetization and Goods and Services Tax through its tenure. The popularity of electoral bonds suggests that it is a step in the right direction and an idea whose time has come in the prevalent political space.
Author is a Partner with a leading law firm.