What are electoral bonds? Discuss their effectiveness in bringing transparency in electoral funding.

What are electoral bonds? Discuss their effectiveness in bringing transparency in electoral funding.

Introduction:

The Finance Bill, 2017, introduced “electoral bonds”, that are interest free bearer bonds as an instrument to donate money to political parties using banks as an intermediary. The bond is issued in the form of promissory note, in Rs.1000, 10000, 1 lakh, 10 lakh and 1 crore denomination. The bond can be purchased by any individual and corporate, and can be donated to any political party which can encash it. The stated objective of electoral bonds is to reduce opaqueness in political funding in the country.

EFFECTIVENESS OF ELECTORAL BOND
  1. It will encourage political donations of clean money from individuals, companies, religious groups, charities, etc.
  2. It can be purchased only from the State Bank of India by a donor with a KYC-compliant account.
  3. It will bring transparency in political funding as the names of the donors will be maintained by the banks.
  4. It will also preserve anonymity of donors which is essential as they need to be protected against any post-poll intimidation or harassment by political opponents.
  5. It will take India towards digital and cashless economy.
  6. The life of these bonds is only 15 days which limits the scope for misuse.
  7. It will be a step towards bringing reforms in political funding.
  8. Some element of transparency would be introduced as all donors declare in their accounts the amount of bonds that they have purchased and all parties declare the quantum of bonds that they have received.
  9. The face value of the bonds shall be counted as income by way of voluntary contributions received by an eligible political party, for the purpose of exemption from Income-tax under the Income Tax Act, 1961 enhancing transparency.
  10. Political party will have to file returns before the EC as to how much money has come through electoral bonds, which will provide accountability.
CONCERNS
  1. ADR (Association for Democratic Rights) states that 69% of political funding in India comes from unknown sources. In this context, Electoral bonds provide an alternate, transparent route for parties to raise funds but donor remain anonymous.
  2. With electoral bonds there can be a legal channel for companies to round-trip their tax haven cash to a political party. Since these bonds continue to provide anonymity to holders, they can be misused much like the Indira Vikas Patras floated as development bonds in 1987 that fell into disrepute owing to similar reasons.
  • Law Commission in its 255th report pointed out that secrecy and anonymity provide fertile grounds for lobbying and capture of governments by big donors. Internal nexus between corporates and political parties cannot be ruled out.
  • Companies no longer need to declare the names of the parties to which they have donated so shareholders won’t know where their money has gone.
  • They can favour the ruling party. The incumbent government can easily find out donor details using KYC details shared with banks. This could make the instruments unpopular.
WAY FORWARD
  1. The cap of Rs 2000 should be eliminated altogether. The Election Commission has suggested that parties should be made to disclose contributions received in cash for smaller sums in case they exceed 20% of total funds raised. This can be considered.
  2. To prevent parties from flouting expenditure norms, Election commission should permit higher expenditure limit for candidates.
  3. National Electoral Fund, as suggested by former Chief Election Commissioner, to which all donors can contribute is another alternative.
  4. A shorter campaign period to limit expenses incurred by parties.
  5. Simultaneous elections should also be explored for the same reasons.
  6. Indrajit Gupta Committee in 1998 had suggested state funding of elections that can be explored.

Electoral bonds raise concerns but are better than cash and introduce more transparency in electoral finance. The need is to pair them with other reforms needed in the electoral system.

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