Understanding the Electoral Bonds System in India

India introduced the electoral bonds scheme as a mechanism aimed at cleaning the financial contributions to political parties. This innovative approach, operational since 2018, represents a significant shift in how political donations are made and reported in the country. Here, we delve into the intricacies of electoral bonds, their operational framework, the eligibility criteria for receiving funds through these bonds, and the ongoing debate surrounding their impact on the political financing landscape.

What are Electoral Bonds?

Electoral bonds are financial instruments akin to promissory notes or bearer bonds, designed exclusively to fund registered political parties in India. These bonds are issued by the State Bank of India (SBI), the country’s largest public sector bank. They can be purchased by individuals or corporations wishing to donate to political parties. Available in denominations of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore, these bonds offer a formal channel for political donations, ensuring a layer of anonymity for the donors.

Key Features and Operational Mechanisms of Electoral Bonds

To purchase an electoral bond, donors must fulfil Know Your Customer (KYC) requirements through a compliant bank account, underscoring the scheme’s emphasis on traceability at the purchase stage. However, the identity of the donor is kept confidential, and safeguarded both by the issuing bank and the recipient’s political party. This anonymity feature has been one of the most controversial aspects of the electoral bonds scheme.

Once purchased, political parties have a specific timeframe to encash these bonds, ensuring that the funds are utilized promptly. Notably, there is no cap on the number of bonds an individual or entity can buy, allowing for significant financial contributions to the political ecosystem.

Eligibility for Receiving Funds of Electoral Bonds

Only political parties registered under Section 29A of the Representation of the People Act, 1951, and having secured at least 1% of the votes polled in the last Lok Sabha or State Legislative Assembly elections, are eligible to receive donations through electoral bonds. This criterion ensures that only parties with minimum electoral support can benefit from this funding mechanism.

The Genesis and Legal Framework of Electoral Bonds

The electoral bonds scheme was introduced by the then Finance Minister, Arun Jaitley, during the 2017 Budget Session, with the aim of enhancing transparency in political donations. The scheme was later operationalized in January 2018 through amendments to several key legislations, including the Finance Act, the Representation of the People Act, the Companies Act, the Income Tax Act, and the Foreign Contribution Regulation Act (FCRA), along with adjustments to the Reserve Bank of India Act.

Controversies and Legal Scrutiny of Electoral Bonds

Despite its intention to streamline political donations, the electoral bonds scheme has been mired in controversy, primarily due to concerns over donor anonymity and the potential for misuse by political parties. Critics argue that the scheme undermines the right to information, facilitates the flow of unaccounted money through shell companies, and could inadvertently foster a culture of quid pro quo in political contributions.

Several petitions challenging the constitutional validity of the scheme have been filed in the Supreme Court by political entities and NGOs. These petitions highlight concerns about the legality of the scheme and its implications for democracy and governance in India. The central government, however, defends the scheme as a step towards greater transparency and a deterrent against the use of black money in elections.