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The Electoral Bond System and Its Transparency

Context

  • In April 2022, the Supreme Court heard a pending petition challenging the Electoral Bond Scheme, 2018, and it is scheduled to hear it again in December 2022.
  • In October 2022, the Supreme Court asked the government whether the electoral bonds system reveals the source of money pumped in to fund political parties, despite the Centre’s repeated assertions that the scheme is “absolutely transparent.”
  • Two non-governmental organisations (NGOs), Common Cause and the Association for Democratic Reforms (ADR), as well as the Communist Party of India (Marxist), have challenged the scheme, claiming that it “distorts democracy.”

Relevance

GS Paper 2: Salient features of the Representation of People’s Act.

Mains question

Discuss the transparency issues surrounding electoral bonds. Do you believe that voters should be aware of the source of political funding? Analyse. (250 words)


Until now, the problem

  • In response to the EC’s affidavit, the Supreme Court directed political parties to provide all details of funds received through electoral bonds to the poll panel in a sealed cover in 2019. Donor identity and bank account information, for example.
  • In January 2021, the Supreme Court refused to grant an interim stay on the scheme and requested responses from the Union government and the European Commission.
  • In 2022, the Supreme Court agreed to hear an urgent petition challenging the funding of political parties through government-issued electoral bonds.

Background

  • Political parties used to receive the majority of their funds through anonymous cash donations.
  • Due to the opaque nature of the transactions, an effort was made to cleanse the system of political funding in India, and electoral bonds were purchased.
  • Furthermore, according to the Centre for Media Studies, the 2019 Lok Sabha election was the “most expensive election ever,” with an estimated Rs 55,000-60,000 crore spent during this course.
  • As a result, when the Finance Act amended four different statutes in 2017, electoral bonds were introduced:
    • The Reserve Bank of India Act of 1934
    • The Representation of the Peoples Act of 1951
  • Income Tax Act of 1961
    • Companies Act of 2013.

Concerning Electoral Bonds

  • Definition: An electoral bond is a bearer instrument, similar to a promissory note, that allows the bearer to donate to political parties on demand.
  • Eligibility: Only political parties registered under Section 29A of the Representation of the People Act, 1951, and which received at least 1% of the votes cast in the most recent general election to the House of People or the Legislative Assembly of the State, are eligible to receive electoral bonds.
  • Donation limits: Anonymous cash donations were limited to Rs 2,000, while Indian citizens could purchase electoral bonds in denominations ranging from Rs 1,000 to Rs 1 crore from the State Bank of India and donate them to any political party of their choice.
  • Timeline: Political parties may choose to cash in such bonds within 15 days of receiving them in order to fund their electoral expenses.
  • So far, more than Rs 10,000 crore in bonds have been issued over the last four years.

The statistics

According to reports compiled by the Association of Democratic Reforms, an NGO working to improve India’s electoral system, approximately 18,780 electoral bonds worth Rs 10,300 crore were sold between March 2018 and July 2022, with the majority of them being encashed by political parties.

Election bonds are being criticised

  • The Election Commission objected to the bonds for the following reasons:
    • Lack of transparency: Because the donor’s name is hidden from the public and other political parties, these bonds do not improve transparency.
    • Political funding opacity: Section 29C(1) of the RPA requires political parties to prepare a Contribution Report on any funding received in excess of Rs 20000.
      • Section 137 of the Finance Act, on the other hand, adds a provision to Section 29C that states that contributions received through electoral bonds do not need to be reported in Contribution Reports.
      • A provision is also added to Section 13A of the Income Tax Act that exempts political parties from keeping a detailed breakdown of contributions received through electoral bonds of any amount.
    • Destroys the fundamental structure: An opaque method of funding political parties through electoral bonds, where it is unclear who is funding whom, undermines the very concept of free and fair elections under Article 324.
    • Anti-democratic characters: The key feature of anonymity in electoral bonds allows for a system in which people have no idea who is giving/donating money to the political parties for which they vote.
      • The public is also unable to determine whether these donations were made out of goodwill or in exchange for something in return.
      • An uninformed electorate can only make rash decisions, which is bad for electoral democracy.
    • Foreign funding risk: Through retrospective amendments to the Finance Act 2017, the definition of foreign source was changed to allow donations from foreign companies with majority stakes in Indian companies.
      • The EC is concerned that this could lead to foreign meddling in elections.
    • Underlying notions: If the public is aware that companies that benefited from tariff protection, state subsidies, or public sector bank loans donated more, they will be able to vote more intelligently.
    • Data conclusion: According to the Association for Democratic Reform, more than 90% of the amounts issued so far are in the Rs 1 crore range, implying that they must have come from extremely wealthy individuals and corporations.

The government’s position on electoral bonds

  • Eliminate unaccounted or black money: Recently, Solicitor General Tushar Mehta told a Supreme Court bench investigating electoral bonds that the mechanisms for receiving funds make it impossible for political parties to receive unaccounted or black money as bond donations.
    • He went on to say that electoral bonds would prevent the inflow of black money through cash donations.
  • Prevent harassment: According to the Finance Ministry, the main purpose of electoral bonds is to prevent political parties from victimising donors.
  • Increase transparency: Previously, political parties recorded donations under Rs 20,000 in order to avoid reporting political donations.
    • However, only individuals or companies with a verified KYC account can purchase electoral bonds.
  • Enough checks: Donations made through banking channels leave an audit trail, which can be used to determine whether a donation should be investigated.
  • Right to privacy: The electoral bond scheme accomplishes the goal of safeguarding a donor’s identity.

Incumbency advantage of electoral bonds

  • The electoral bond has provided incumbent governments, both at the national and state levels, with governing parties as the primary recipients.
  • Usefulness of electoral bond money: The money obtained through electoral bonds is “white,” i.e. legal, and can be used to make payments to the formal sector via cheque. Two additional factors could combine to increase the value of this money, as follows:
    • First, those who use unaccounted cash may be investigated, allowing the ruling party to label them corrupt.
    • Second, the incumbent could use white money to sway what voters read, hear, and see from seemingly unbiased sources.
  • Advertising campaigns: During election season, incumbents can use white funds to fund massive advertising campaigns, whereas others may have much less white money.
    • Because investigative agencies can look into the money trail behind public advertisements, non-incumbent parties may be limited to a small advertising campaign.
  • The role of social media: Media platforms such as Facebook and WhatsApp have transformed into a virtual battleground where sophisticated digital campaigns with well-targeted political messages are rolled out.
    • Any formal sector providers, such as local influencers, data and digital communications firms, and advertising firms, require white resources for creative campaigns, which again favours the incumbent.

Conclusion

  • The obvious problem with electoral bonds is that they make clean payments easier for the incumbent while making them difficult for others.
  • The goal should be for all electoral spending to be clean. While making the list of donors public will help, a comprehensive solution will protect donors from harassment regardless of the party to which they donate

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