Category Electoral bonds

What is the controversy over electoral bonds all about?

As per the HuffPost India articles, the government ignored the objections raised by the RBI and the EC. Only when the EC’s reservations became public knowledge due to an affidavit it field in the Supreme Court in March 2019 did finance minister raised by the EC even before the scheme was passed in the Lok Sabha.

(In 2017, the then RBI Governor wrote to the then Finance Minister that “allowing any entity other than the central bank to issue bearer bonds, which are currency-like instruments, is fraught with considerable risk and unprecedented even with conditions applicable to electoral bonds.” The RBI wanted to be the organisation issuing the bonds. In addition, it wanted the bonds to be digital rather than physical.

The EC wanted that electoral bonds would allow illegal foreign funds to be routed to political parties. Objections by the two independent, constitutional institutions that were consulted on this matter were overruled and the scheme was passed in the Lok Sabha in 2017.)

According to the HuffPost article, the Prime Minister’s Office asked for the rules governing electoral bonds to be bent before the five state Assembly elections in 2018. Electoral bonds were issued outside the stipulated 10-day window that year.

The report states that the PMO forced the banks to accept expired electoral bonds during the special window kept open prior to the elections.

Other sticking points:

Bonds are traceable

While the electoral bonds do not have the name of the donor or the receiving political party, the bond issuing authority, the State Bank of India, says all KYC norms applicable to general bonds will be applicable too electoral bonds too. Besides, it can ask for additional information if needed. The rules allow the information to be given over to investigation agencies or courts if necessary. In turn, the government can easily discover who is buying and donating them. This means there is a possibility of the donor’s anonymity being compromised.

The news website Quint reported that the bonds, the physical papers, carried a secret alphanumeric code visible under ultraviolet light. The Huffing ton Post reports say the State Bank does indeed track who bought the bonds and which party redeems them.

Only encourages black money

Anonymity conferred on the donors would make electoral bonds a convenient channel for black money, say experts. Though the SBI knows the details of the bank accounts from which the electoral bonds are purchased, it is not responsible for looking into the sources of funds of the donor.

Corporate funding

The earlier 7.5% ceiling on political donation by companies has been removed (by amending the Companies Bill 2013). This allows for unlimited donations. Big companies can influence the parties with their huge funding.


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What is the supposed aim of the scheme electoral bonds?

To curb black money: The government claims that electoral bonds are aimed at checking the use of black money for funding parties. Most of the political funding is done in cash often from anonymous sources. But with electoral bonds, as the donations are made through a bank, the money becomes accountable.

To protect the identity of donors: The government claims that electoral bonds allow anonymity, thereby donors from political victimization. This is also important because a central issue in political funding is the question of whether a winning candidate or party will work for the public or for those who have funded them.


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Why is political party funding?

Political party funding is the means which a party raises money for its functioning and campaigns. Party members, individual supporters, organisations which support a party or its ideologies or which could benefit from the party’s victory, contribute to this funding. Political parties can also receive foreign funds.

Parties need money to reach voters, to advertise in print, electronic and social media, to pay party workers and to organise election rallies. (in the 2019 general election, a staggering Rs 55,000-60,000 crore was spent by the political parties on election-related activities, according to a study by the Centre for Media Studies (CMS), a not-for-profit multi-disciplinary development research think-tank. The Bharatiya Janata Party spent about 45% of this total amount!).


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How does Electoral bonds work?

Donors can purchase the bonds from the State Bank of India (SBI) by making payments digitally or through cheque. The SBI is the only bank authorised to issue the bond. An electoral bond can be purchased by any donor with a KTYC-complaint bank account. (KYC: Know Your Customer. It means that the name, address and contact details of the customer are available with the bank.)

The donors are then free to gift/donate the bond to a registered political party.

The political party has to encash the bond only through an account with the authorised bank, which is the SBI. Electoral bonds are essentially like bearer cheques. The issuing bank will remain the custodian of the donar’s funds until the political party redeems the bond.

Political parties which secured at least 1% of the votes in the recent parliamentary or assembly polls are eligible to encash these bonds.

The bonds can be purchased for any value in multiples of Rs. 1000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore.


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