Electoral Bonds and Transparency: Is Indian Democracy at Risk?

Author: Yashashvi Malik, BBA LLB Chandigarh University

Abstract

Electoral Bonds, which were introduced through the Finance Act of 2017, were presented as tools to purify political funding by institutionalizing electoral contributions. However, their bearer-instrument nature, along with legislative changes that removed disclosure requirements and contribution limits, ushered in a period of state-enabled opacity. This article examines the constitutional, statutory, and jurisprudential foundations of the scheme; summarizes the Supreme Court’s judgment on February 15, 2024, which deemed it unconstitutional and evidently arbitrary; evaluates the political and electoral ramifications of opaque funding that favors the incumbent BJP; and proposes a reform strategy based on transparency, accountability, and political equality. By utilizing principles of active democracy, the right to know (Article 19(1)(a)), equal protection (Article 14), and the doctrine of limited means, it contends that transparency in political financing is essential for a functioning constitutional democracy.

1. Introduction

Political finance in democracies presents a dual challenge. While it is crucial for electoral competition, unchecked funding fosters cronyism, quid-pro-quo arrangements, and democratic dysfunction. The Electoral Bonds Scheme (EBS)—which was first introduced in January 2018—revolutionized this domain by permitting anonymous, unlimited donations from corporations and individuals, channeled through the State Bank of India (SBI). Although the government endorsed it as a strategy to combat illicit cash and protect donor confidentiality, it instead facilitated opaque influence, particularly benefiting the ruling party. This paper examines the potential threat this mechanism poses to the democratic framework of India..

2. Legal and Statutory Genesis

Legislative Architecture
Electoral Bonds were established through the Finance Act of 2017, categorized as a Money Bill, thus circumventing the Rajya Sabha—prompting immediate concerns regarding the undermining of bicameral parliamentary processes. Amendments were enacted to:
Reserve Bank of India Act – Authorized SBI issuance.
Representation of the People Act, 1951 – Eliminated
Companies Act, 2013 (Section 182) – Removed the cap on corporate contributions (7.5% of profits) and established disclosure requirements
Income Tax Act – Exempted bond-based contributions from the need for disclosure and scrutiny

These modifications created a non-transparent financial structure that is at odds with the principles of representative democracy.

Mechanics of the Scheme
Electoral bonds operated similarly to bearer instruments, available in denominations ranging from ₹1,000 to ₹1 crore. Although purchasers underwent KYC verification, the bonds themselves lacked identifying features, thereby ensuring anonymity for the public; only the State Bank of India and the receiving party were aware of the identities. Bonds had a redemption period of 15 days; any unclaimed bonds were redirected to the Prime Minister’s Relief Fund.

3. Constitutional and Legal Contours

Democratic values, openness, and the Electorate’s Right to information:
The lack of disclosure hinders voters from evaluating channels of influence, policy capture, and possible conflicts of interest. The Supreme Court determined that the right to information is inherent in Article 19(1)(a) and is crucial for maintaining an informed electorate.
Equal Protection and Corporate Influence:
Amendments that allow unlimited corporate donations contravene the equality mandate of Article 14. The Court recognized this as evident arbitrariness, especially when compared to the previous cap (7.5% of profits) and the mandatory disclosure framework .
Least-Restrictive Means:
The Court emphasized that transparency could be maintained through less invasive alternatives—such as threshold disclosures, contribution limits, and regular audits—while still preserving donor privacy .

4. Supreme Court Verdict – 15 February 2024

A five-judge Constitution Bench, presided over by CJ Chandrachud, unanimously declared that electoral bonds are unconstitutional and arbitrary also.
Key conclusions:
Failure to uphold Article 19(1)(a) – blanket anonymity obstructs meaningful public oversight .
Imbalance in corporate funding – the elimination of caps and disclosures enables undue influence .
Selective anonymity does not provide authentic privacy protections, as political parties and the SBI have retained the identities of donors.
Breach of the separation of powers – The classification of Money-Bills has bypassed parliamentary oversight.

Orders mandated an immediate halt to bond issuance and instructed the SBI to deliver donor information (post 12 April 2019) to the Election Commission by 6 March 2024, with public disclosure scheduled for 13 March.

5. Political Consequences & Data Revelations

Disclosed Donor Trends:- 
Following the ruling, disclosures revealed:
₹13,791.9 crore allocated through bonds (2018–23), with 94% attributed to ₹1-crore bonds.
The BJP received ₹6,060–6,986 crore (~55–57%).
The opposition received considerably less (Congress ₹1,334–1,421 crore; TMC ₹1,397–1,609 crore).
Major donors included Future Gaming & Hotels (₹1,368 crore) and Megha Engineering (₹966 crore).

Connections with Enforcement Actions:-
Data indicated that 14 of the top 30 donor companies were under investigation (ED, IT, CBI) at the time of their donations. This highlights the risk of quid-pro-quo arrangements.

BJP’s Funding Advantage:-
Journalistic estimates suggest that approximately 50% of the total bond value was directed to the BJP, bolstering its campaign operations—WhatsApp outreach, media campaigns, and targeted lobbying.

6. Identified Democratic Risks

Information asymmetry – citizens are unaware of who shapes policy and campaign narratives.
Crony capitalism – contributions aligned with government actions raise suspicions of policy manipulation.
Institutional misuse – the government’s reliance on SBI as a custodian of donation data raises concerns about institutional misuse and erodes the trust of the public .
Diminution of political equality – resources are disproportionately allocated to well-funded, incumbent parties.

The Court identified these as threats to constitutional democracy, which necessitates transparency for legitimacy.

7. Comparative Jurisprudence

If we see globally, we can analyze that the transparency of political funding is a norm:
USA: Strict limits on contributions, with disclosures made to the FEC.

UK/CAN: Required identification of donors exceeding certain thresholds, along with audited financial statements.

Germany/Canada: Public funding initiatives aimed at diminishing the influence of private donors.

No significant democracy supports complete anonymity or unlimited corporate influence, underscoring how EBS diverged from international standards.

8. Reform Blueprint

Statutory Re-engineering
Reinstate disclosure thresholds of ₹20,000 and above.
Limit corporate donations—e.g., to 7.5% of net profits.
Set annual limits on total funding from individuals and corporations.
Restore the applicability of RTI to political contributions.

Institutional Transparency
There must be a system where the ECI promptly publishes information about large-scale contributions..
Implement audit measures with oversight from civil society.
Criminalize quid pro quo financing under the PMLA and the Prevention of Corruption Act.

Public Financing Models
Implement matching grants – allocating state funds in proportion to electoral vote share to lessen reliance on corporate funding.

9. Judicial Limitations & Future Risks

Some critics contend that the Court’s ratio allows for the potential establishment of a similarly opaque system through refined structures. Vigilant legislative drafting is essential to avert loopholes that maintain state-mediated opacity.

10. Political Watershed and Urgency

The ruling came just before the 2024 Lok Sabha elections (April–June), intensifying electoral discussions regarding integrity. The resurgence of constitutional citizenship placed political finance reform at the center of electoral discourse.

Conclusion

The Electoral Bonds Scheme, instead of eliminating black money, has established a parallel dark funding system supported by the state. Its judicial reversal is constitutionally beneficial, reaffirming that transparency, political equality, and public trust are essential to constitutional democracy. Nevertheless, for systemic resilience, legislative measures are necessary: strong disclosure requirements, enforceable limits on contributions, public funding systems, and diligent auditing by the ECI and civil certifiers.

Without such reforms, India faces the danger of reverting to non-transparent political financing practices—threatening the very pillars of electoral democracy. The interim represents a constitutional victory; the future hinges on whether Parliament, political parties, and citizens can convert legal principles into meaningful reform.

FAQS

Q1. What do you mean by Electoral Bonds ?
Ans. Electoral Bonds are tools introduced by the Finance Act, 2017 to purify political funding by electoral contributions.

Q2. How does Electoral bond work ?
Ans. Electoral bonds are available in denominations ranging from ₹1,000 to ₹1 crore. Purchasers had to undergo KYC verification, the bonds themselves lacked identifying features, thereby ensuring anonymity for the public; only the State Bank of India and the receiving party were aware of the identities. Bonds had a redemption period of 15 days; any unclaimed bonds were redirected to the Prime Minister’s Relief Fund.