Clean It up More

Why in News?

• The Supreme Court in April 2022 took up for hearing a pending plea challenging the Electoral Bond Scheme, 2018 and is scheduled to take it up further in December 2022.
• The apex court in October 2022 asked the government whether the electoral bonds system reveals the source of money pumped in, to fund political parties even as the Centre repeatedly maintained that the scheme is "absolutely transparent”.
• Two NGOs namely, Common Cause and Association for Democratic Reforms (ADR) along with the Communist Party of India (Marxist) have challenged the scheme, alleging that it is “distorting democracy”.

 

Issue till now

• In 2019, the Supreme Court directed the political parties to furnish all details of funds received through electoral bonds to the poll panel in a sealed cover in response to EC’s affidavit. E.g. donors’ identity and bank account details etc.
• In January 2021, the apex court had refused to grant an interim stay on the scheme and sought responses from the Union government and the EC.
• In 2022, the Supreme Court agreed to urgently hear a petition challenging the funding of political parties through electoral bonds issued by the government.

 

Background

• Political parties used to receive most of their funds through anonymous donations which were shown in cash.
• Owing to opaque nature of the transactions, an effort was made to cleanse the system of political funding in India & electoral bonds were bought in.
• Also, Centre for Media Studies reported the 2019 Lok Sabha election as the “most expensive election ever, as an estimated Rs 55,000-60,000 crore was spent during this course.
• Hence, electoral bonds were introduced in 2017 when the Finance Act amended four different statues as follows:
  • Reserve Bank of India Act, 1934
  • Representation of Peoples Act, 1951
  • Income Tax Act, 1961
  • Companies Act, 2013

 

About Electoral Bonds

• Description: An electoral bond is a bearer instrument, like a promissory note, that is payable to the bearer on demand to donate their contributions to political parties.
• Eligibility: Only political parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than 1% of votes polled in the last general election to the House of the People or the Legislative Assembly of the State, are eligible to receive electoral bonds.
• Capping donations: Anonymous cash donations were capped at Rs 2,000, while electoral bonds in denominations ranging from Rs 1,000 to Rs 1 crore could be bought by Indian citizens from the State Bank of India and donated to any political party of their choice.
• Timeline: The political parties can choose to encash such bonds within 15 days of receiving them and fund their electoral expenses.
• Progress till now: Over the past four years, more than Rs 10,000 crore worth of bonds have been issued.

 

Statistics

• According to reports compiled by the Association of Democratic Reforms, a NGO working for improvement in India’s electoral system, between March 2018 and July 2022, approximately 18,780 electoral bonds worth Rs 10,300 crore were sold, and most of it were encashed by political parties.

 

Criticism of electoral bonds

The Election Commission had objected to the bonds owing to the following observations:

• Lack transparency: These bonds do not improve transparency as the name of the donor is hidden from the public and other political parties.
• Opaqueness in political funding: Section 29C(1) of the RPA requires political parties to prepare a Contribution Report on any funding received by them in excess of Rs 20000.
  • However, Section 137 of the Finance Act introduces a provision to Section 29C, which says that contributions received through electoral bonds, need not be reported in Contribution Reports.
  • Also amendment to Section 13A of the Income Tax Act adds a provision, which exempts political parties from maintaining a detailed breakdown of contributions received through electoral bonds of any amount.
• Destroys basic structure: An opaque way of funding political parties by electoral bonds where there is anonymity regarding who is funding whom destroys the very concept of free and fair elections under Article 324.
• Anti-democratic characters: The key feature of anonymity in electoral bonds enables a system where people do not know who is giving/donating money to the political parties they are voting for.
  • The public also cannot judge whether these donations were made out of goodwill or whether there was a quid pro quo
  • An under-informed electorate thus can only make haphazard decisions which are a bad sign for electoral democracy.
• Foreign funding risk: By making retrospective amendments through Finance Act 2017, the definition of foreign source was changed in a manner that it allows donations to be received from foreign companies who have majority stakes in Indian Companies.
  • EC fears that this might lead to the foreign influencing of elections.
• Underlying notions: If the public know that companies from sectors that benefited from tariff protection/ state subsidies/public sector bank loans, donated more, they could then vote in a more informed way.
• Data conclusion: According to the Association for Democratic Reform, over 90% of the amounts issued so far are in the Rs 1 crore slab, which must come from very rich individuals and corporations.

 

Government’s stand on electoral bonds

• Eliminate illegal money: Recently the Solicitor General Tushar Mehta told the SC bench examining electoral bonds that the mechanisms for receiving monies make it impossible for political parties to get unaccounted or black money as bond donation.
  • He further emphasized that electoral bonds would check the inflow of black money flowing through cash donations.
• Prevent harassment: The Finance Ministry has maintained that the main purpose behind electoral bonds is to prevent the victimization of donors by political parties.
• Enhance transparency: Earlier, the political parties recorded donations under Rs 20,000 to circumvent reporting of political donations.
  • But with electoral bonds, only individuals or companies with a verified KYC account can purchase them.
• Sufficient checks: Donation made through banking channel leave an audit trail, if any donation merits investigation.
• Right to privacy: The electoral bond scheme achieves the purpose of protecting a donor’s identity.

 

Incumbency advantage of electoral bonds

• The electoral bond has offered incumbent governments, both at the Centre and in states, governing parties as the leading recipients.
• Utility of electoral bond money: The money obtained from electoral bonds is “white” i.e. legal and can be used to make payments by cheque to the formal sector. Two factors could further combine to increase the value of this money as follows:
  • First, those using unaccounted cash could come under investigation, allowing the governing party to label them corrupt.
  • Second, the incumbent could use its white money to influence what voters read, hear, and see from apparently independent sources.
• Advertising campaigns: At election time, incumbents can pay for massive advertising campaigns with white funds, while others may have much less white money
  • Since investigative agencies can scrutinise the payment trail behind the public advertisements, non-incumbent parties may be restricted to a modest advertising campaign.
• Social media role: The media platforms like Facebook and WhatsApp have become a virtual battleground where sophisticated digital campaigns, with well-targeted political messages are rolled out.
  • Any formal sector providers e.g. local influencers, data and digital communications firms, and advertising companies for creative campaigns require white resources, which again skews the advantage to the incumbent.

 

Conclusion

• The visible problem with electoral bonds is they make clean payments easier for the incumbent and hard for others.
• The objective should indeed be that all electoral spending is clean. While making the list of donors public will help, a complete solution would protect donors from harassment irrespective of the party they donate to.

 

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Source: Clean It up More