Electoral Bonds - The black hole of untraceable funds in Indian politics

A scheme meant to cleanse the system of dubious political funding in India that ended up in possibly increasing the practice, albeit in a different form.

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Jitesh Surjiani | 09 Nov '21

Politics in India is infamous for being tainted with corruption. Not just within its political class, but corruption in the very practice and conduct of politics. Its ignominy is on shameless display especially during the biggest dance of democracy, the general elections. Even after 75 years of its independence, India yet awaits that silver bullet to rid its political system of this endemic called corruption.

One such endearing attempt was made by the Narendra Modi-led NDA government when the finance minister, Arun Jaitley, announced the introduction of electoral bonds in his 2017 Union Budget Speech. The opening line of its Press release, “The Government has notified the scheme of Electoral Bonds to cleanse the system of political funding in the country” explicitly set the tone of its intent and the accompanying guidelines set the framework of its operation. On 29 January 2018, the government notified the Electoral Bond Scheme 2018.

An electoral bond is like a promissory note that can be bought by any Indian citizen or company incorporated in India with a KYC-compliant account from select branches of the State Bank of India (SBI). The citizen or corporate can then transfer the amount to the electoral account of a political party as a donation. There is no limit on the number of bonds an individual or company can purchase, and the names of the donors are kept confidential.

Political experts called this possibly the first-of-its-kind instrument in the world used for funding political parties. When introduced, the initiative was hailed as revolutionary by the BJP government and its political allies. It was touted as an alternative to cash donations made with black money and one that will now bring transparency in election funding. Just as with any scheme introduced by the government, the devil lies in the details. The Opposition and many citizens groups opposed this move citing it to be even more regressive and one that will instead increase corruption in the system. While the government’s defense was theoretical and aspirational, the Opposition cited many technical arguments to support their claim.

Arguments against Electoral Bonds

  • The primary gripe was the railroading of the Electoral Bond Bill and the unparliamentary method in which it was passed. Given BJP’s lack of majority in Rajya Sabha, where the Electoral Bond was bound to be challenged on technical grounds, the BJP government passed it as a Money Bill which only requires the approval of the Lok Sabha, where they had a majority. The electoral bond scheme was packaged as one that satisfies the criteria of a money bill despite it not fulfilling all conditions. In documents subsequently accessed by HuffPost and transparency activist Saurav Das under RTI, it was found that the Ministry of Law and Justice called the approach of bypassing the Rajya Sabha illegal and unconstitutional but signed off on it as a “one-off exception” and urged the Modi government to “avoid considering this practice as a precedent”. Thus, the defining change to India’s election funding laws was passed without even a debate in the Rajya Sabha, leave alone seeking its consent.
  • The second-most grudging argument against the electoral bonds was the proliferation of unchecked corporate money into Indian politics and elections. Until Jan 2018, only a profit-making firm could donate money to a political party (up to a maximum of 7.5 percent of its average 3-year net profit) which too had to be disclosed in their annual statements of accounts. Along with the introduction of Electoral bonds, changes were simultaneously made to the Companies Act based on which Indian and foreign companies could now donate unlimited amounts to political parties without having to make any public disclosures. This also paved the way for Indian and foreign companies which did no real business (a.k.a. shell companies) to make unlimited and anonymous contributions to political parties. This became another and possibly an even bigger way for black money to be routed into India, commonly referred to as “money laundering”.
  • The printing of the electoral bonds and the State Bank of India’s commission for facilitating the sale and purchase of the bonds is paid by the central government, which in effect is the taxpayer’s money. So, in effect, the honest Indian taxpayers are actually paying for facilitating the funneling of dubious black money into India’s political system that will only help elect corrupt leaders into power.
  • Before the introduction of electoral bonds, political parties had to compulsorily disclose details of all their donors who have donated more than ₹20,000. The experts believe that if the primary objective of the electoral bonds scheme was to bring about greater transparency in the political funding process, the government must not restrain from allowing the donation details to be put in the public domain. Instead, through an amendment to the Finance Act 2017, the government has exempted political parties from disclosing donations received through electoral bonds in their contribution reports filed mandatorily with the Election Commission every year. Since 2018, the voters do not know which individual, company, or organization has funded which party, and to what extent making the political class even more unaccountable.

The anonymity however is only one-sided and limited to non-government entities. There is a secret alphanumeric code on each electoral bond that is visible only under UV light. This code, accessible by the State Bank of India, and thus the government, can easily be traced back to the donor and the political party to which the donation was made. The government, through its investigative agencies such as the Income Tax department (IT), Enforcement Directorate (ED), and Central Bureau of Investigation (CBI) can easily target rival political parties and curtail their political funding.

  • In its defense of maintaining donors’ anonymity, the finance minister, Arun Jaitley on behalf of the government claimed in the Parliament that donors themselves had “expressed reluctance in donating by cheque or other transparent methods as it would disclose their identity and entail political retribution”. Transparency activist Saurav Das filed an RTI application with the Ministry of Corporate Affairs (also headed by Arun Jaitley), asking for the names of the companies which had written to it asking for the changes to be made in the law providing them a secret route to fund political parties. The Ministry of Corporate Affairs replied that it had no records to show that any company had asked for these changes.

Beneficiaries of Electoral Bonds

Electoral Bonds worth ₹5,170 crores were donated to India's 8 national political parties between Apr 2017 and Mar 2020. Of these, 82% were to BJP (₹4,216 crores), 14% to Congress party (₹716 crores), 4% to Trinamool Congress (₹198 crores), and 1% to NCP (₹50 crores).

Also read: Statistical analysis of political party funding in India

Regulatory agencies’ views on electoral bonds

The Election Commission of India (ECI), in its submission to the Standing Committee on Personnel, Public Grievances, Law and Justice in May 2017, had objected to the amendments in the Representation of the People (RP) Act, which exempted political parties from disclosing donations received through electoral bonds. It even described the move as a “retrograde step”. Again, in April 2019, the ECI told the Supreme Court of India that while it was not against the Electoral Bonds Scheme, it did not approve of anonymous donations made to political parties. 

“We are not opposed to electoral bonds, but want full disclosure and transparency. We are opposed to anonymity.”

Senior Advocate Rakesh Dwivedi, appearing for the ECI told the Supreme Court

According to an article published by HuffPost India on November 18, 2019, the Reserve Bank of India (RBI) was critical of the scheme and had even warned the government that the electoral bonds would "undermine the faith in Indian banknotes and encourage money laundering".

These agencies which are either influenced by the government or have no power over policy decisions, could not stop the introduction of electoral bonds. The CBI, under whose watch this was being carried out, too became a mute spectator. No wonder then that the CBI has been described as a “caged parrot” by India’s Supreme Court, working under the instructions of its political masters.

All eyes are now on the Supreme Court of India which is soon expected to hear the pending petitions challenging the government’s Electoral Bond Scheme and amendments to the Finance Act of 2017. In the interim, the Supreme Court has instructed all political parties to submit details of donations received through electoral bonds to the ECI who will safeguard the details in a sealed cover until further orders.

Irrespective of the outcome of the Supreme Court’s decision, we as citizens of India can make our own individual informed choices on participating or staying away from the Electoral Bond scheme.


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Jitesh Surjiani

Jitesh Surjiani

Jitesh Surjiani is passionate about progressive change for India and its citizens. He writes about issues that are roadblocks in improving quality of life and interpersonal interactions as well as areas of public governance that fall short in intent and action.

Electoral Bonds - The black hole of untraceable funds in Indian politics Electoral Bonds - The black hole of untraceable funds in Indian politics
Electoral Bonds - The black hole of untraceable funds in Indian politics
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