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Why India’s Electoral Bond Scheme Must Go

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Why India’s Electoral Bond Scheme Must Go

It was touted as a major electoral reform in poll funding. But the scheme is opaque and shrouded in secrecy.

Why India’s Electoral Bond Scheme Must Go

Indian Prime Minister Narendra Modi throws flowers towards the crowd during a road show to campaign for his Bharatiya Janata Party (BJP) ahead of the elections in Bengaluru, India, Sunday, May 7, 2023.

Credit: AP Photo

On November 3, a five-judge Constitution bench on India’s Supreme Court reserved its judgment on the validity of the controversial electoral bond scheme.

The electoral bonds scheme was introduced by the Narendra Modi-led Bharatiya Janata Party (BJP) government in 2017. It facilitates anonymous donations to political parties.

Describing it as the “most opaque form of political funding,” opposition Congress media department chairperson Pawan Khera demanded transparency and accountability. “Whom did you get this money from and what did you give in return?” Khera asked. “What is the quid pro quo?”

Quoting the latest report of the Association of Democratic Reforms (ADR), Khera said that between 2017 and 2022, the BJP received electoral bonds amounting to $623 million while other parties together got only $213 million i.e., three times the amount seven parties received. Around 52 percent of the BJP’s funding has been received from electoral bonds.

In 2017, ADR and the non-profit Common Cause moved the court to challenge the electoral bond scheme. They alleged that the scheme opens the  “floodgates” to political corruption on a large scale.

The BJP-led government has dismissed such allegations, claiming that electoral bonds bring “transparency in political funding.”

Electoral bonds are like promissory notes issued by select branches of the State Bank of India (SBI). These can be bought by individuals or corporate organizations and are used to make donations to political parties. Political parties can subsequently cash them through a bank account within a stipulated period. Significantly, the name and details of the donor are not disclosed on the bond. This gives scope for electoral bonds to be bought by an individual with a verified bank account and then transferred to an “anonymous” donor.

The ADR case has been pending before the apex court since 2018, despite the petitioner urging the court repeatedly before the 2019 elections and subsequent state assembly elections to halt the scheme. The matter was taken up this year for the final hearing and transferred to a five-judge bench.

During the three-day hearing earlier this month, senior counsel for the petitioners, Prashant Bhushan, argued that instead of bringing transparency in political funding, the scheme gave scope for shell companies to operate. This violates the citizens’ right to information about who funds political parties, how much they donate and whether it impacts policies of the government and political parties, he said.

Interestingly, in a written affidavit, Attorney General R. Venkataramani said that voters, i.e., citizens, do not have the right to know. According to the top legal officer, confidentiality was built into the scheme to benefit donors so that their identities are not revealed to all political parties.

However, the Chief Justice of India, D.Y. Chandrachud, has pointed out that it was “selective anonymity” because the SBI is under the government and the government has access to all information.

Opposition parties have repeatedly accused the BJP government of denying them a level playing field in elections. Not only has the ruling party been cornering the largest share of the funds but it also has a stranglehold over the donations of large business houses, they said.

“The Supreme Court should declare the scheme as unconstitutional and illegal,” Jagdeep Chhokhar of the ADR wrote in The Wire. The electoral bond scheme, he said, “should be struck down.”

Incidentally, within four days of the Supreme Court reserving its order, the government notified another sale of electoral bonds. With assembly elections to five states on the anvil, it sold electoral bonds again.

Meanwhile, the court has directed the Election Commission to submit data on funds received by political parties through electoral bonds. The court wanted details of all electoral bond donations up to September 30 of this year, which was to be submitted in a sealed cover to the court.

It needs to be noted that prior to this route of election funding, all political parties had to make public donations that exceeded 20,000 Indian rupees ($249 at today’s exchange rate). Also, business corporations could not make donations that amounted to more than 10 percent of their total revenue.

To bring in the electoral bond scheme, the Modi government rushed through amendments to several important laws, including the Companies Act 2013, the Income Tax Act 1961, and the Foreign Contributions Regulation Act 2010 (FCRA).

In the process, it enabled foreign companies with subsidiaries in India to fund political parties. It also exempted corporations and companies from disclosing political donations in their profit and loss account. Moreover, by amending the Representation of the People Act 1951, political parties were no longer required to inform the Election Commission (EC) about the contributions made to them through electoral bonds.

What made the government’s amendment of these laws even more controversial was that it chose to pass them in the form of money bills or finance bills, which the Rajya Sabha, the upper house of Parliament, has no power to legislate. This was aimed at circumventing the Rajya Sabha, where the BJP did not have the requisite majority.

Importantly, both the EC and the Reserve Bank of India (RBI) had initially voiced their objections to the electoral bonds scheme. The EC had described the scheme as “opaque” and pointed out that the bonds could be misused by shell companies, opening up space for foreign companies to influence Indian politics. RBI governor Urjit Patel had warned that the scheme could be misused for money laundering. He suggested that the bonds should be sold in digital format and not in physical form. Patel also reminded the government that it was the prerogative of the RBI alone, not of other organizations like the SBI, to issue bonds. The Modi government overruled his objections and went ahead with the scheme. Over the past year, the EC has reversed its stand and supported the scheme.

Civil society activists have been demanding electoral reform. Instead of cleansing India’s murky electoral funding, the Modi government has replaced it with an opaque scheme that virtually gives a carte blanche to the ruling party to corner large sums of money from unknown sources.

India’s general elections are a mammoth and expensive affair. The 2019 election was estimated to have cost more than $7 billion, second only to the U.S. presidential elections. Although parties are mandated to submit their poll expenses, there is no cap on their expenditure. There is a cap of $100,000 on the expenditure of individual candidates for parliamentary polls.  In reality, candidates spend many times more than the limit, the majority of which is through “unaccounted funds.”

The purported rationale for introducing electoral bonds was to provide an alternative to such unaccounted cash flow during elections. However, the way it has been rolled out has disappointed even former election commissioners.

The larger issue that is stake here is the “voters right to know” says former Chief Election Commissioner S.Y. Quraishi. He reiterates that the voters right to information is constitutionally guaranteed and therefore transparency of donor and receiver identities in electoral bond transactions is of utmost importance.

The Supreme Court’s verdict on the constitutionality of electoral bonds, will certainly have a major impact on the upcoming 2024 election and, by extension, on the ruling BJP.