Electoral Bond Scheme

The Central Government has modified the Electoral Bond Scheme weeks before general elections in some states. What are election bonds? What are their features? What are the concerns over electoral bonds? Scroll down the page to learn more about the Electoral Bond Scheme.

The Central Government revised the Electoral Bond Scheme to provide itself with the authority to specify an additional fortnight of electoral bond sales in years when States and Union Territories with a legislature hold elections.

A new paragraph that read: “An additional period of fifteen days shall be specified by the Central Government in the year of general elections to the Legislative Assembly of States and Union Territories with Legislature” was added to the Scheme by the Finance Ministry on November 7, 2022. Following the revision, the Central Government has approved the issue of the 23rd tranche of electoral bonds for sale from November 9–15.

What are electoral bonds?

Election Bonds

• To develop and purge the nation’s political fundraising system, the government announced the Electoral Bond Scheme,  on January 2, 2018.
• The Reserve Bank of India Act of 1934, the Representation of Peoples Act of 1951, the Income Tax Act of 1961, and the Companies Act were all amended to include electoral bonds.

The main features of electoral bonds are the following.

Features of Electoral bond

• Election-related bonds are made to be bearer instruments, much like promissory notes. It will resemble a banknote that is interest-free and receivable to the bearer upon demand.
• Any Indian individual or organisation with an Indian corporation that has a KYC-compliant account may purchase it.
• The bonds will be accessible at specific State Bank of India branches for a predetermined period of time each year in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh, and Rs. 1 crore.
• In accordance with the Central Government’s instructions, the bonds will be on sale for 10 days at the beginning of each quarter, that is, in January, April, July, and October. The Central Government shall specify a further period of thirty days during the Lok Sabha election year.
• The Central Government should specify an additional term of fifteen days in the year of general elections to the Legislative Assembly of States and Union Territories with the Legislature, according to a recent revision (November 2022).
• The donor buys the bonds, transfers them to the political party’s account, and then sells them again. After that, it can be withdrawn using the party’s confirmed account within 15 days.
• The bonds will not bear the donor’s name to protect their privacy. The goal is to make sure that any donations made to a party are recorded in the balance sheets without disclosing the donors’ personal information.
• The only political parties eligible to receive electoral bonds are those that are registered under Section 29A of the Representation of the People Act, 1951, and that received at least 1% of the votes cast in the most recent general election for the state’s legislative assembly or house of representatives.
• If returns are submitted by the political party, the donor will receive a tax deduction and the beneficiary, or the political party will receive a tax exemption.

Electoral Bond Scheme benefits

• Transparency: The plan calls for developing a transparent bond-purchasing system with verified KYC and an audit trail. The electoral bonds will encourage contributors to make donations through banking, allowing the issuing authorities to collect their identities. Encourage clean political donations from individuals, businesses, HUFs, nonprofit organisations, and other entities, breaking the link between business and politics.
• Get rid of black money: Its employment as a counter currency would be rendered impossible by a small window and a brief maturity period. Details about the amount of money political parties obtained through electoral bonds must be submitted.
• Donor privacy: By introducing some measure of confidentiality, contributors will be protected from vengeful politics, such as harassment by one party for supporting its rivals.
• Reduces tax evasion: Strict eligibility requirements will deter attempts to create political parties under the guise of tax avoidance.

As every coin has a head and tail electoral bonds also have certain concerns too.

Concerns over Electoral Bond

• Neither the donor nor the political party is required to disclose the source of the donation. So it infringes on the right to know. The Supreme Court ruled that the “right to know,”, particularly in regard to elections, is a complement to the freedom of expression (Article 19) right.
• Due to the anonymity of donors, electoral bonds don’t provide any information to the public about how elections are funded. It affects the notion of impartial and free elections.
• An update has removed the requirement to identify the donor’s identity to income tax law.
• Additionally, businesses no longer need to disclose in their financial accounts the donations they make to political parties. This makes anonymous donations possible.
• The government is always able to identify the donor because the bonds are bought through the SBI. The procedure could potentially be skewed in favour of the political party in power as a result of the knowledge imbalance.
•  It is an aversion to crony capitalism. The 2017 Finance Bill removed the upper restriction of 7.5% on the percentage of profits a corporation might donate to a political party, opening the door for fly-by-night shell companies to be formed particularly to support parties.

Also read: Sovereign Green Bonds

Latest Update – Electoral Bonds Unconstitutional: Supreme Court

The Supreme Court on 15-02-2024 held that anonymous electoral bonds are violative of the right to information under Article 19(1)(a) of the Constitution.

Accordingly, the scheme has been struck down as unconstitutional.

Way forward

• The electoral bond scheme’s current form makes it difficult to streamline the funding procedure. The government’s justification that opacity is required to safeguard the donor’s privacy is unpersuasive. Political funding secrecy only encourages corruption.
• Switching to digital transactions is one quick fix that can be used. This guarantees the donor acceptable privacy and adequate transparency.
• Election funding by the state has also been advised by the 2nd ARC, the Dinesh Goswami committee, and numerous other groups.
• Government grants to political parties or candidates for running in elections are known as state funding of elections. Parity is guaranteed by state support, and the difference in resources between the ruling party and the opposition is kept to a minimum.
• The Right to Information Act can improve transparency by including political parties. It is unlikely to pique the interest of a political class hell-bent on shielding itself from public accountability, though, in the absence of pressure from the populace.
• According to former Chief Election Commissioner S.Y. Quraishi, a National Electoral Fund that accepts donations from all contributors is an alternative worth considering.
• The money would be distributed to political parties in accordance with the number of votes they receive. This will safeguard contributors’ privacy and eliminate dark money from political donations.
•  India’s democracy has operated successfully for close to 75 years. Voters must now become self-aware and disavow politicians and parties that flout the fundamentals of free and fair elections in order to hold the government more accountable.

Read: Electoral bonds vs Electoral Trusts

Article Written By: Atheena Fathima Riyas