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Indian Polity

Electoral Bonds

  • 26 Mar 2021
  • 5 min read

Why in News

The Supreme Court flagged the possibility of misuse of money received by political parties through electoral bonds for ulterior objects like funding terror or violent protests.

  • The court also asked the government whether there is any “control” over how these donations were used by political parties.

Electoral Bond

  • Electoral Bond is a financial instrument for making donations to political parties.
  • The bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore without any maximum limit.
  • State Bank of India is authorised to issue and encash these bonds, which are valid for fifteen days from the date of issuance.
  • These bonds are redeemable in the designated account of a registered political party.
  • The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
    • A person being an individual can buy bonds, either singly or jointly with other individuals.
    • Donor’s name is not mentioned on the bond.

Key Points

  • Background: The Electoral Bond Scheme acts as a check against traditional under-the-table donations as it insists on cheque and digital paper trails of transactions, however, several key provisions of the scheme make it highly controversial.
  • Misuse of Electoral Bonds as Pointed Out in the Supreme Court:
    • Anonymity: Neither the donor (who could be an individual or a corporate) nor the political party is obligated to reveal whom the donation comes from.
    • Asymmetrically Opaque: Because the bonds are purchased through the State Bank of India (SBI), the government is always in a position to know who the donor is.
      • This asymmetry of information threatens to colour the process in favour of whichever political party is ruling at the time.
    • Chanel of Blackmoney: Elimination of a cap of 7.5% on corporate donations, elimination of requirement to reveal political contributions in profit and loss statements and also the elimination of the provision that a corporation must be three years in existence, undercuts the intent of the scheme.
      • A shell company can donate an unlimited amount anonymously to a political party giving it a convenient channel for business to round-trip its cash parked in tax havens for a favour or advantage granted in return for something.
  • Government’s Defence:
    • Conditions for Electoral Bonds: Only parties registered under the Representation of the People Act 1951 could receive donations through electoral bonds, and they also should not have secured less than 1% of the votes polled in the previous elections.
    • To Take on the Menace of Black Money in Politics: Only white money is involved in the Bonds as the amounts are paid only through cheque or demand draft.
      • KYC norms are also followed.
    • Election Commision of India’s Support: ECI was not opposed to the bonds but was only concerned about the aspect of anonymity.
      • It also urged the court not to stay the bonds and said the scheme is one step forward compared to the old system of cash funding, which was unaccountable.

Way Forward

  • There is a need for effective regulation of political financing along with bold reforms to break the vicious cycle of corruption and erosion of quality of democratic polity.
  • It is crucial to plug the loopholes in the current laws to make the entire governance machinery more accountable and transparent.
  • Voters can also help bring in substantial changes by demanding awareness campaigns. If voters reject candidates and parties that overspend or bribe them, democracy would move a step higher.


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