What are Electoral bonds (EBs)?

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What are Electoral bonds (EBs)? Blog Image

What’s in today’s article?

  • Why in news?
  • What are Electoral bonds (EBs)?
  • What is the Rationale behind the introduction of EB?
  • Criticisms of Electoral Bond

Why in news?

  • A five-judge bench of the Supreme Court led by CJI will start hearing petitions challenging the constitutional validity of the Centre’s electoral bonds scheme from October 31.
  • In response to these petitions, the Centre's affidavit told the apex Court that citizens' right to know is subject to reasonable restrictions.

What are Electoral bonds (EBs)?

  • About
    • Electoral bonds are a financial instrument introduced by the Government of India in 2018 to facilitate anonymous political donations.
    • 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.
  • Who are eligible to receive electoral bonds?
    • Only registered political parties are eligible to receive electoral bonds.
    • However, there are certain criteria that political parties must meet to be eligible to receive electoral bonds. These are:
      • Recognition: The political party must be registered under Section 29A of the Representation of the People Act, 1951.
      • Recent Election Performance: The party must have secured at least 1% of the votes polled in the most recent Lok Sabha or State Assembly election.
  • Available denominations
    • The Government of India has specified various denominations for electoral bonds, ranging from Rs. 1,000 to Rs. 1 crore.
  • Authorized bank
    • SBI is the only bank authorised to sell these bonds.
  • Working
    • A citizen of India or a body incorporated in India is eligible to purchase the bond.
    • EBs are issued/purchased for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1,00,000, Rs 10,00,000 and Rs 1,00,00,000 from the specified branches of the State Bank of India (SBI).
    • EBs have a life of only 15 days during which it can be used for making donation only to the registered political parties.
    • The bonds shall be available for purchase for a period of 10 days each in the months of January, April, July and October as may be specified by the Central Government.
    • The bond can be encashed by an eligible political party only through a designated bank account with the authorised bank.
    • The political parties have to disclose the amount to the Election Commission.

What is the Rationale behind the introduction of EB?

  • Encouraging Digital Transactions:
    • The electoral bond scheme was intended to promote a shift from cash-based political donations to digital transactions.
    • By facilitating donations through banks, the government aimed to reduce the use of unaccounted or black money in political funding.
  • Anonymity of Donors:
    • It aimed to provide anonymity to donors. The donor's name is not mentioned on the bond.
      • Donors who contribute less than Rs 20,000 to political parties through purchase of electoral bonds need not provide their identity details such as PAN, etc.
    • It was argued that this would protect individuals or entities from potential backlash or reprisals due to their political affiliations.
  • Formalizing Political Contributions:
    • The introduction of electoral bonds aimed to formalize political contributions by channelling donations through the banking system.
    • This move aimed to establish a documented trail of donations, making the process more transparent and accountable.
  • Enhancing Transparency:
    • While the donors' identities remain anonymous, the electoral bond scheme aimed to enhance transparency in political funding.
    • It does so by mandating political parties to disclose the details of electoral bond donations in their financial statements.

Criticisms of Electoral Bond

  • Lack of Transparency:
    • While the scheme requires political parties to disclose the amount of donations received through electoral bonds, the identity of the donors remains anonymous.
  • Potential for Money Laundering:
    • Critics argue that the anonymity provided by electoral bonds can be misused for money laundering or routing black money into the political system.
  • Unequal Advantage to Ruling Parties:
    • The fact that such bonds are sold via a government-owned bank (SBI) leaves the door open for the government to know exactly who is funding its opponents.
    • This, in turn, allows the possibility for the government of the day to either extort money, especially from the big companies, or victimise them for not funding the ruling party.
  • Bypassing Election Commission Scrutiny:
    • Unlike other forms of political funding, electoral bonds do not require ECI approval or verification, which can undermine the ECI's oversight role in regulating political funding and ensuring a level playing field.
  • No upper limit on funding
    • Before the electoral bonds scheme was announced, there was a cap on how much a company could donate to a political party: 7.5 per cent of the average net profits of a company in the preceding three years.
    • However, the government amended the Companies Act 2013 to remove this limit, opening the doors to unlimited funding by corporate India.
  • Concerns raised by RBI and EC
    • RBI and the ECI have raised concerns about electoral bonds. They said that electoral bonds could:
      • Increase black money circulation, money laundering, cross-border counterfeiting, and forgery;
      • Set a bad precedent by encouraging money laundering and undermining faith in Indian banknotes;
      • Erode a core principle of central banking legislation;
      • Legitimize opacity in how elections are funded;
      • Become vehicles for money laundering for shell companies and foreign donations.

Q1) What is Representation of the People Act, 1951?

The Representation of the People Act, 1951 is an important legislation in India that governs the conduct of elections in the country. It was enacted by the Parliament of India and has been amended several times to accommodate changes and reforms in the electoral process.

Q2) What is a bearer instrument?

 A bearer instrument is a type of financial document or security that is owned by whoever physically possesses it, also known as the bearer. In other words, it is a negotiable instrument that is not registered in the name of a specific person or entity.

Source: ‘Citizens right to know subject to reasonable restrictions’: Centre to Supreme Court on electoral bonds | Indian Express