Electoral Bonds Scheme

Author: Devayani Shukla, Symbiosis Law School, Hyderabad


Abstract


In 2018, the Indian government introduced the Electoral Bonds Scheme, which allowed payments through a banking channel while maintaining donor anonymity in an effort to promote transparency in political fundraising. The approach has drawn a lot of criticism, despite its intended goals of lowering black money and promoting legal contributions. Critics argue that it permits unchecked corporate and foreign meddling, disproportionately benefits ruling parties, and diminishes electoral transparency. The method has been accused of creating a legalised scam despite legal changes meant to support it. This essay examines the effects of the Electoral Bonds Scheme on Indian democracy and suggests changes to guarantee equitable and open political financing.

Introduction


In order to streamline political donations and lessen the impact of dark money in elections, the Indian government introduced the Electoral Bonds Scheme in 2018. The program, which is viewed as a step in the right direction, allows individuals and groups to make anonymous bank contributions to political parties. But since then, there has been a great deal of discussion and disagreement to what was first suggested as a reformative tool.
The strategy has been charged with permitting unchecked corporate and foreign involvement in Indian politics, enhancing electoral openness, and favouring ruling parties. Because it exploits legal loopholes to permit dubious techniques that threaten the democratic process, critics call it a “legalised scam.” Although the supporters assert that the idea introduces clean money into politics, its anonymity raises questions about accountability and ethics, challenging the fundamental principles of a just and equitable electoral process.


The Electoral Bond Scheme was introduced by the Indian government in an effort to streamline the nation’s political financing infrastructure. In this idea, eligible Indian political parties will be financed by the issuance of election bonds, which are bearer banking instruments. This project aims to lessen black money’s political influence. This article explores the Electoral Bonds Scheme’s workings, the legislative modifications that made it possible, and the implications for Indian democracy. Is it an essential step in the reform of political fundraising, or has it turned into a tool to justify corruption? Let’s go explore.

What is the Electoral Bond Scheme?
The government implemented the Electoral Bond Scheme in 2018 after introducing it in the Finance Bill of 2017. Under this system, political parties can receive donations through the issuance of electoral bonds, which are securities or instruments. These bonds, like bearer bonds or promissory notes, are retained by the company issuing the bonds (bank) and paid to the bondholder (political party).
Since electoral bonds are bearer instruments, the owner is regarded as the person carrying the document and no ownership information is recorded. Because the instrument does not record the donor’s name or other information, electoral bonds are anonymous.
One way to donate money to political parties is through an electoral bond. In order to support qualified political parties, the general public may also issue electoral bonds. A political party authorised to run campaigns must first register in accordance with Section 29A of the Representation of the People Act of 1951 in order to be eligible to obtain electoral bonds.
Similar to banknotes, electoral bonds are receivable to the bearer upon demand and without interest. These bonds are available for digital purchase by individual parties using a cheque or a DD.  

Why were the bonds introduced?
The purpose of electoral bonds was to make political financing in India more transparent. Since political parties obtain funding through official banking channels that are examined by government representatives, they promote transparency. Due to the donors’ political sympathies, there is less chance of intimidation or retaliation because their identities are kept secret.
Electoral bonds were introduced with the intention of reducing the use of dark money in politics while simultaneously giving people and organisations a legitimate and transparent way to assist political parties. They permit anonymous donations to registered political parties from bondholders, both individuals and organisations.

How does the Scheme work?
The goal of the Electoral Bonds Scheme is to safeguard contributors’ identities while permitting financial contributions to political parties. This is a detailed breakdown of how the process operates:
1. Buying Election Bonds:
Contributors can buy electoral bonds from specific State Bank of India (SBI) branches, whether they are an individual, business, or other entity.
The following denominations of bonds are offered: ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore.
White money, or legally declared funds, must be used to pay for these bonds via financial instruments such demand drafts, cheques, or electronic transfers. To guarantee a traceable money trail during the purchasing procedure, cash transactions are prohibited.
2. Donor Transfers Bonds to Political Parties:
The donor gives the bonds to the political party of their choice after buying them. The transfer is entirely anonymous; neither the donor’s name nor the donation amount are disclosed to the public. Although it is an essential part of the plan, this anonymity has also drawn a lot of criticism.

3. Redemption by Political Parties:
Bonds may be redeemed by political parties by depositing them into bank accounts that are registered with the Election Commission of India (ECI). Unused bonds cannot be kept in circulation indefinitely since they must be repaid within 15 days of issuance.

4. Bank as the Custodian of Records:
SBI acts as an intermediary in the purchase, sale, and redemption of electoral bonds. Although the public cannot identify funders or political parties, the government can obtain this information through SBI, which raises concerns about possible abuse of donor data.

Legal Changes for easier implementation
India’s current laws governing political donations required significant changes in order to implement the Electoral Bonds Scheme. Although these changes contributed to the system’s legalization, they also introduced flaws that detractors say compromise transparency and accountability. Here is a thorough analysis of the primary legal modifications:
1. The 1951 Representation of the People Act.
What Was Modified: Political parties used to be required to include the names and details of donors who gave more than ₹20,000 in their annual reports to the Election Commission of India (ECI). The modification removed the requirement for electoral bond donations.
Consequences: The public cannot know who finances political parties since they are no longer obligated to reveal the identities of their donors. Critics contend that this encourages secrecy in the political funding process and shields large donors, including corporations, from public scrutiny.

2. The 2013 Companies Act.
What Changed: The 7.5% cap on corporate donations from the previous three years’ average net income was removed. Businesses can now donate any amount, regardless of whether they are newly established or losing money.
Consequences: This makes it possible to establish shell companies with the express purpose of providing political parties with limitless funds. The ability of loss-making businesses with low operating income to make large donations raises concerns about the funding’s origin. Additionally, it has given businesses greater sway over political parties, which could tilt policy decisions in their favour.

3. The 2010 Foreign Contribution Regulation Act, or FCRA.
What Changed: The amendment made it possible for foreign companies with subsidiaries doing business in India to make political party donations.
Consequences: The change has raised questions about potential foreign meddling in Indian elections. It goes against the FCRA’s original intent, which was to prohibit foreign entities from meddling in India’s democratic affairs. Opponents contend that this plan will weaken national sovereignty by enabling foreign governments or corporations to indirectly support political parties.

Why These Amendments Are Controversial Reduced Transparency:
The revisions make it more challenging to monitor the flow of funds into political parties by doing away with the need to disclose donor identities.
Increased Corporate Influence: Big businesses can now have a disproportionate amount of influence over elections and laws thanks to the removal of restrictions on corporate donations.
Danger of Foreign Interference: The FCRA amendment gives foreign organisations the ability to influence Indian politics, which may have permanent effects on democracy.
These changes have drawn a lot of criticism for creating a system that puts donor anonymity ahead of public transparency, even though they were justified as necessary to sustain the Electoral Bonds Scheme.

The Controversy
In February 2024, the Supreme Court of India ruled in Association for Democratic Reforms (ADR) & Others vs. Union of India that the Electoral Bonds Scheme was unconstitutional, a landmark decision in the debate over electoral transparency and democracy. The ADR, a transparency watchdog, had challenged the scheme, arguing that it was opaque and could allow for opaque political funding. The Electoral Bonds Scheme has been one of the most controversial issues in Indian political funding.
The Court established that the program was infringing the right to information under Article 19(1)(a) of the Constitution, demonstrating the significance of accountability in political financing for supporters to create instructed democratic opportunities. The Court also affirmed legislative amendments that advocated the scheme, particularly those in the Finance Act and Companies Act, which raised more clarity in political monetary contributions.
The approach, according to critics, allowed political parties—especially the ruling party—to monopolise funding through anonymous contributions. Reports indicate that between 2018 and 2022, the ruling BJP received over 57% of donations through bonds, which disadvantaged opposition parties.
Concerning corporate donations, the Supreme Court stated that they can result in an overabundance of influence over policymaking. Critics believed that the program’s removal of restrictions on corporate political donations compromised democratic integrity by enabling massive commercial influence in politics. Party finance in the run-up to the general elections in 2024 may be impacted by the Court’s order to stop issuing new bonds and reveal the identities of donors. The ruling was praised by activists as a democratic triumph that could lessen dubious fundraising methods.

Case Studies
Funding Disproportion (2018-19)
Over ₹2,600 crores, or 95% of all electoral bond donations, went to the BJP in 2018–19. In sharp contrast, a negligible portion of these contributions went to the Congress Party. Concerns regarding the uneven playing field in Indian politics were raised by this lopsided fundraising, as it seemed that the ruling party benefited greatly from favourable finance flows. Opponents said that by giving the ruling party an unfair edge over its rivals, such financial disparities could compromise the integrity of the election.

Timing of Bond Sales
One of the main points of contention in the electoral bonds discussion was the timing of bond sales, especially before to significant state and federal elections. For instance, the government sold electoral bonds for longer than permitted periods before the 2018 Karnataka elections, which led to allegations that the ruling party was able to raise a sizable sum of money right before important elections. The timing of these transactions appeared to favour the BJP disproportionately, which increased criticism of the plan and led to suspicions of manipulation and favouritism.

Foreign Involvement
Foreign interests in Indian politics became indirectly implicated when amendments to the Foreign Contribution Regulation Act (FCRA) permitted foreign corporations to make contributions to political parties through their Indian subsidiaries. This raised questions about how foreign organisations might affect domestic elections and policies, jeopardising India’s electoral integrity and sovereignty. Critics contend that these regulations could lead to foreign corporations with vested interests exerting an excessive amount of influence over India’s political processes.
Serious concerns regarding the Electoral Bonds Scheme and its potential to jeopardise accountability, justice, and transparency in political spending are brought to light by these case studies and topics.

Suggested Reforms
Complete transparency.
Political parties are required to disclose the identity of donors who make contributions via electoral bonds in order to maintain transparency. By doing this, the public would be able to find out which people and businesses are contributing to political parties, perhaps exposing conflicts of interest or excessive influence on the formulation of public policy. Accountability and confidence in the democratic process would rise with full information.

Donation Cap
Restricting individual and corporate donations may help lessen the power of wealthy donors and businesses in political financing. The government may level the playing field for smaller parties by enacting fair caps, which would stop larger, wealthier organisations from having disproportionate influence over elections.

Prohibition of International Contributions
The Foreign Contribution Regulation Act (FCRA) amendments that permit foreign corporations to donate to political parties through Indian companies ought to be reinstated. The concept of democratic self-government is jeopardised by foreign donations, which raise the possibility of external influence on India’s political process. Limiting these donations would guarantee that political funding stayed in Indian hands only.

Mechanisms for Audits
To ensure that money raised through electoral bonds is used wisely, independent audits ought to be mandated. Frequent scrutiny by impartial organisations would guard against financial abuse, guaranteeing that funds are not misappropriated for illegal activities or utilised to uphold unjust political advantages. These audits would also help to ensure that all relevant requirements are followed and to trace the origins of large donations.

Equal Opportunity for Parties
Ensuring that no party has undue access to donor information or financial resources is essential for preserving the integrity of the election process. To lessen the unfair advantage that the ruling party has in accessing donor information, mechanisms should be put in place. One such mechanism could be the establishment of a centralised donor registry that is open to all parties, guaranteeing equal opportunities for funding regardless of party affiliation.

Conclusion


Launched with the intention of decreasing black money in elections, the Electoral Bonds Scheme has drawn a lot of criticism for its lack of transparency and potential for undue influence over political outcomes. Despite being allowed by law, the initiative exploited weaknesses in the electoral funding system, leading some to call it a “legalised scam.” To guarantee that election money remains fair, clean, and constructive to democracy rather than undermining its roots, extensive reforms are needed. Regaining public trust and making sure that the political process reflects popular opinion require open standards, strict donation caps, and strategies to guarantee equitable access to funds.

FAQS


1. What is India’s Electoral Bond scheme?
The Indian government reformed the political fundraising system in 2018 by implementing the Electoral Bond Scheme. Bearer financial instruments are issued to qualified political parties as part of this program.


2. Is it possible to buy electoral bonds?
Indeed. Electoral bonds can be bought by any Indian citizen, corporation, or artificial person that has been incorporated in India.


3. Can I use any account to redeem these electoral bonds?
No. Only authorised political parties may redeem electoral bonds by depositing them in authorised institutions’ bank accounts.


4. What is problematic about the Electoral Bond Scheme?
Since political parties are exempt from disclosing donor identities, the scheme has drawn criticism for its lack of transparency. It has been charged with supporting the ruling party while permitting foreign and corporate participation in Indian elections.


5. Can an applicant buy electoral bonds more than once?
Indeed. Electoral bonds can be bought by an individual or business indefinitely. Every electoral bond application will be handled as a fresh request, necessitating the provision of fresh KYC paperwork.

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