Why is it in the News?

• Electoral Bonds Case Referred to 5-Judge Constitution Bench for Hearing on October 31 by Supreme Court.
• Two NGOs, Common Cause and Association for Democratic Reforms (ADR), have filed petitions challenging the electoral bonds scheme.
• The petitioners argue that anonymous funding through these bonds promotes corruption and infringes on citizens' right to a corruption-free nation.

What Are Electoral Bonds (EBs)?

• Electoral bonds, introduced by the Government of India in 2018, serve as a financial instrument to facilitate anonymous political donations.

Key Points:

• An electoral bond is a bearer instrument, akin to a promissory note, allowing the bearer to make contributions to political parties.
• Eligibility to Receive Electoral Bonds: Only registered political parties qualify to receive electoral bonds. Specific criteria apply:
• Recognition: The party must be registered under Section 29A of the Representation of the People Act, 1951.
• Recent Election Performance: The party must have secured at least 1% of the votes polled in the most recent Lok Sabha or State Assembly election.
• Available Denominations: The Government has specified various denominations for electoral bonds, ranging from Rs. 1,000 to Rs. 1 crore.
• Authorized Bank: The State Bank of India (SBI) is the sole authorized institution for the sale of electoral bonds.

How They Work:

• Eligibility to Purchase: Indian citizens or entities incorporated in India are eligible to buy these bonds.
• Denominations: Electoral bonds are available in various denominations, such as Rs. 1,000, Rs. 10,000, Rs. 1,00,000, Rs. 10,00,000, and Rs. 1,00,00,000.
• Lifespan: These bonds have a short life of 15 days, during which they can be used solely for making donations to registered political parties.
• Availability: Electoral bonds can be purchased during specific periods, typically 10 days in the months of January, April, July, and October as specified by the Central Government.
• Encashment: Eligible political parties can encash these bonds through a designated bank account with the authorized bank.
• Disclosure: Political parties are required to disclose the amount received from electoral bonds to the Election Commission.

Key Features of Electoral Bonds:

• Anonymity: Electoral bonds ensure donor anonymity by keeping the identity of the donor confidential, both to the public and the recipient’s political party.
• Purchase and Redemption: These bonds can be purchased from authorized banks using legal tender.
• They are available in fixed denominations, with the minimum value set by the government.
• Redemption is exclusive to registered political parties within a specified time frame.
• Validity: Electoral bonds have limited validity, typically 15 days, during which they can be utilized for making donations to eligible political parties.
• Exclusivity: Only political parties that have garnered at least 1% of the votes in the most recent Lok Sabha or State Assembly election are qualified to receive electoral bond donations.
• Transparency: While donor identities are kept confidential, political parties receiving electoral bond donations are obligated to disclose donation details in their financial statements submitted to the Election Commission of India.

What are the Reasons for Introducing Electoral Bonds?

• Promoting Digital Transactions: The electoral bond scheme was introduced to encourage the transition from cash-based political donations to digital transactions.
• This shift aimed to reduce the use of unaccounted or black money in political funding.
• Ensuring Donor Anonymity: The scheme's objective was to safeguard donor anonymity.
• The donor's name is not disclosed on the bond. Donors contributing less than Rs 20,000 to political parties through the purchase of electoral bonds are not required to provide identity details like PAN, enhancing protection against potential backlash due to their political affiliations.
• Formalizing Political Contributions: Electoral bonds aimed to formalize political contributions by routing donations through the banking system.
• This formalization establishes a documented record of donations, making the process more transparent and accountable.
• Enhancing Transparency: While donor identities are shielded, the electoral bond scheme sought to enhance transparency in political funding.
• This is achieved by mandating political parties to disclose the details of electoral bond donations in their financial statements.

Criticisms of Electoral Bonds:

• Lack of Transparency: While political parties must disclose the amount of donations received through electoral bonds, the identity of donors remains confidential.
• Potential for Money Laundering: Critics argue that the anonymity provided by electoral bonds can be exploited for money laundering or funneling black money into the political system.
• Unequal Advantage to Ruling Parties: The sale of such bonds via a government-owned bank (SBI) raises concerns that the government could discern who is funding its opponents.
• This may create opportunities for extortion or victimization of companies that don't support the ruling party.
• Bypassing Election Commission Scrutiny: Unlike other forms of political funding, electoral bonds do not necessitate approval or verification by the Election Commission of India (ECI), potentially undermining the ECI's oversight role in regulating political funding and ensuring a level playing field.
• No Upper Limit on Funding: The removal of the cap on corporate donations to political parties has raised concerns about unlimited corporate funding.
• Concerns by RBI and EC: Both the Reserve Bank of India (RBI) and the ECI have expressed concerns about electoral bonds, highlighting the potential for increased black money circulation, money laundering, counterfeiting, and forgery.
• They also worry about setting a precedent for money laundering, eroding trust in Indian banknotes, undermining central banking legislation, legitimizing opacity in election funding, and facilitating money laundering for shell companies and foreign donations.

What are the Challenges Associated with Electoral Bonds?

• Compromising the Right to Know: Electoral bonds, by concealing the identities of donors and recipients, may pose challenges to the right to know, which is a component of the right to freedom of expression under Article 19 of the Constitution.
• Government Access to Donor Data: The risk of anonymity compromise arises from government access to donor data, enabling the government in power to exploit this information, potentially impacting the fairness of elections.
• Unauthorized Donations Violating Regulations: There is a risk of unauthorized donations violating existing regulations and guidelines.
• Crony Capitalism and Black Money: Electoral bonds may create a risk of crony capitalism, which entails mutually beneficial relationships between business leaders and government officials. It also opens the door to the infusion of black money into political funding.
• Loopholes in Corporate Transparency and Donation Limits: Concerns arise from loopholes regarding transparency for corporate entities and the removal of the 7.5% clause in the Companies Act 2013. This change raises concerns about the potential use of shell companies for political funding, including the circulation of black money.

Way forward

• Enhance Transparency: Take steps to improve transparency within the Electoral Bond Scheme.
• Stricter Regulation and Disclosure: Enforce more stringent regulations for political parties, mandating full disclosure and permitting the Election Commission of India (ECI) to scrutinize donations, both in terms of bonds and expenditure.
• Address Loopholes: Identify and rectify any existing loopholes in the Electoral Bond system to mitigate the potential for misuse, violation of donation limits, and risks like crony capitalism and the infusion of black money.
• Ongoing Monitoring and Review: Establish a system for continuous monitoring and review of the Electoral Bond Scheme.
• This can be achieved through judicial oversight, periodic assessments, and engagement with the public.
• This approach will help address emerging concerns and adapt to evolving political landscapes, ultimately promoting a more inclusive decision-making process.

Key Findings from the Association of Democratic Reforms (ADR) Report:

Donations and Funding Sources Analysis:

• The highest donations from Electoral Bonds, amounting to ?3,438.8237 crore, were received in the year 2019-20, coinciding with the general elections.
• In 2021-22, a year with 11 Assembly elections, donations through Electoral Bonds reached ?2,664.2725 crore.
• Out of the total donations of ?16,437.635 crore received by the 31 political parties analyzed, 55.90% came from Electoral Bonds, 28.07% from the corporate sector, and 16.03% from other sources.

National Parties:

• National parties experienced a significant surge in donations through Electoral Bonds, with a 743% increase from FY 2017-18 to FY 2021-22.
• In contrast, corporate donations to national parties increased by only 48% during the same period.

Regional Parties and Electoral Bond Contributions:

• Regional parties also witnessed a substantial proportion of their donations coming from Electoral Bonds.

Power-Biased Donations via Electoral Bonds:

• The BJP, as the ruling party, received the highest donation among national political parties, with more than 52% of its total donations sourced from Electoral Bonds, totaling ?5,271.9751 crore.
• The Congress secured the second-highest Electoral Bond donations, with ?952.2955 crore, constituting 61.54% of its total donations.
• The Trinamool Congress received ?767.8876 crore through Electoral Bonds, accounting for 93.27% of its total donations.