India is the world's largest and most vibrant democracy, here elections keep
on happening to range from General elections to Panchayat level elections. As a
multiparty nation, various political parties do campaigning which requires
funds, earlier the voters could know who is funding their parties and what is
the amount of donations but after the introduction of the Finance Bill in 2017
the scenario changed and the details about the funding of parties was made
opaque from transparent. Since then there has been several instances of uproar
by the opposition about the legality of electoral bonds and how the voters are
being snatched of their right.
Let's dive deep and see how this measure alters the transparency regime of
electoral funding and also check whether it is transparent as claimed or opaque.
What are Electoral Bonds? How anyone can acquire it and which political party
can receive it?
As stated in the Finance Bill 2017, these are interest-free bearer instruments,
which can be purchased from the State Bank of India, within a designated window
of 10 days in every quarter of a financial year. These bonds are issued in
multiples denomination of 1000, 10,000, 1 lakh, 10 Lakh, and 1 Crore. The
donors have to give it to their respective political party and then these
parties can encash them within 15 days.
To acquire a bond, the buyer has to submit full know-your-customer (KYC) details
while buying but the political party is not required to reveal the identity of
the entity that has given it the bond.
The Representation of People's Act 1951
, mandates every party under section 29A
and has secured at least one percent of the vote in the most recent Lok Sabha
election will be allotted a verified account by the Election Commission and can
use it to collect the funds.
The electoral bonds were introduced with a vision to restrict the unknown
sources of funding which would account for 70-80% of a political party's wealth.
In the Association for Democratic Reform report, it was sighted that 69% of the
income of six national parties and 51 regional parties was from
unknown sources. When political parties get funding from unknown sources,
difficulty arises in assessing if someone is influencing a policy or not also we
cannot determine who is involved.
The then (2017) Finance Minister quoted "Transparency in the funding of
political parties is needed to guard against the above issue." He titled his
speech as Transparency in Electoral Funding. But then he decided to ensure
The other issue at hand is the removal of the cap which barred companies to
donate more than 7.5% of their average net profit in the past three financial
years to political parties also corporate bodies needed to disclose the name of
the beneficiary parties in the profit and loss of statement, but after the Bonds
came in force this process was changed and the corporate houses could donate any
amount of money without disclosing their name.
This raises the possibility that a company could be given a contract to build a
road or a railroad bridge, and that company could then pay a donation to the
party in power that placed the order with it. "An infrastructure firm could
theoretically pay up to 50% of its net profits to a single party as a donation
without anyone learning which party has been paid."
The bill of 2017 gave a major blow to Democracy by amending the finance act 2017
by exempting political parties from disclosing the donation received via an
electoral bonds. The voter would not get to know which individual, organization,
or company has funded which party and to what extent.
The bill was framed in such a way that it legitimizes corruption and no question
can be asked even in parliament or any court.
The scheme compromises the "right to know" which was held by the Supreme Court
as an integral part of the right to freedom of expression (Article 19 ) under
the Indian Constitution.
The scheme also favors crony capitalism by bypassing Income Tax Law "As per
Section 80GGB of the Income Tax Act, 1961, any Indian company or enterprise that
donates to a political party or an electoral trust registered in India can claim
a deduction for the amount contributed."This law was amended in 2017 and donated
to political parties by bonds undisclosed.
Talking about the economic cost of the issuing of bonds, a request made under
the Right to Information Act to the finance ministry revealed that, the
transaction cost of electoral bonds used to make anonymous contributions to
political parties will be covered by the Indian government, the bonds also come
at a cost to the tax payer's money. As per the RTI replies, the State Bank of
India has charged 5.5 paise per Rs 100 worth of bond money.
The Catenation Between Bond And Ruling Party
The recent report of ADR showed that BJP In 2019�2021, got donations totaling Rs
2,642.63 crore from unknown sources and its earnings were 3.5 times greater than
the combined money from unidentified sources that six other national parties had
In the year 2017, the party in power ignored the contention raised by the RBI.
The finance ministry at that time asked RBI about Its view on bringing Electoral
bonds, as the fund's parties collected had to be stored in a bank. The reply
that the Revenue Secretary received was " electoral bonds and the amendment to
the RBI Act would set a "bad precedent" by encouraging money laundering and
undermining faith in Indian banknotes, and would erode a core principle of
central banking legislation."
On the same day the finance ministry got the central bank's letter, Hasmukh
Adhia, who was then the revenue secretary, immediately and summarily disregarded
RBI's worries in one brief paragraph. This shows that the government was never
serious about the feedback of the RBI and went ahead.
The political parties in India, especially the ruling Bharatiya Janata Party,
benefited from this seemingly harmless change to the RBI Act and other revisions
that were rushed through with minimal debate, which question the legality of the
bond as there were so many lies sold to the general public and propaganda
regarding bonds were on its peak that, there will be more transparency in the
electoral system once the bonds were enforced, but it made the system more
opaque and unaccountable.
Companies are not required to disclose their beneficiaries. Political parties
are not obligated to disclose their funding sources either.
The issuer bank would keep the identities of the buyer and payee a secret. These
details cannot be even asked via RTI filling too.
Electoral bonds, which are supposed to increase system transparency, instead
increase system opaqueness, but only for the general public. Parties are not
required to disclose the recipients of corporate donations or the sources of
funds received by them. Additionally, because of the other developments
involving foreign businesses and profitable businesses, shell businesses with no
actual operations or profits can use electoral bonds as a means of funding
To lessen the Election Commission's objection to the electoral bond system, the
memo discloses that officials from the finance ministry purposefully misled the
The Supreme Court approved the hearing about the legality of the electoral bond
which was due for nearly 6 years. In a hearing, the SC directed the Election
Commission to submit its viewpoint about the scheme.
In reply to the Supreme Court, the Election Commission submitted an affidavit
stating that the introduction would have a serious impact on the election
process and that fairness of elections will get compromised. The Association for
Democratic Reform filed a petition challenging the validity of the electoral
It can be seen from the reports of ADR that the elections in India are getting
expensive with each passing year, and the benefit is with the party which has
the maximum funds. The election conducted in 5 states in 2022 revealed that the
share of the BJP was highest than any other political party in terms of expenses
concerning the election.
The System Of Political Funding In Different Countries
United Kingdom - Political parties are allowed to accept an unlimited number of
donations; however, rules are limiting who is allowed to contribute and spending
caps for political parties on campaign expenses. The goal of the law is to
control political donations through transparency, as political parties are
required to publish their financial information.
United States of America - The amount that different people and organizations
can contribute to a decision is limited. Foreign nationals are prohibited from
making direct or indirect contributions or donations to elections. Entities like
corporations and labor unions are likewise forbidden from contributing to or
spending in federal elections. Political committees, on the other hand, are
authorized to donate to Hybrid PACs' non-contribution accounts and to form
distinct, distinct funds from the autonomous spending on funds.
The government considered electoral bonds to strengthen democratic values and to
make elections more transparent. Still, the current scenario and process have
made it opaque, leading to political corruption and creating an impediment to
the smooth functioning of democracy because there is no limit on donations. The
names of the donors remain anonymous as there are more chances that the
government will fulfill the needs and desire of the donors' instead of working
for the welfare of the states.
The amendments made to various legislations, particularly the Companies Act of
2013, show an increasing trend of corporates contributing to political parties
in exchange for something in return, which can have serious ramifications for
the concept of free and fair elections.
In India, political donors are required to register with the appropriate
authorities to ensure donation transparency. RTI should apply to political
parties, and they should be brought within the scope of RTI due to their
influence and importance in a democracy. Corporate donations should also be
prohibited because those who are unable to vote should not be allowed to create
imbalance and influence the electoral process.
The voters have every right to know about the donation as they are a fundamental
part of democracy.
Additionally, the donors' anonymity substantially impairs the citizens' right to
access information, and it withholds sensitive data that is harmful to
accountability and transparency. The Center asserts that donor "victimization"
is prevented by anonymity. However, to protect the donors' identities, greater
public interest cannot be undermined.
- Dristi IAS:
- Clear Tax: https://cleartax.in/s/section-80ggb
- Author: Kaushik Deka ( India Today)
- Author: Jenny Anderson (Quartz)
- Newspaper clipping of The Hindu and Indian Express.