New Delhi: In a significant development, the Supreme Court on Monday constituted a five-judge bench to deliberate on the case pertaining to the highly debated electoral bonds scheme. The court has set 31 October and 1 November for hearing the pleas challenging the bonds scheme. The constitutional bench could conclude the final hearing just weeks before the assembly elections in Madhya Pradesh, Rajasthan, Chhattisgarh, and Mizoram. Mint examines the concerns related to the transparency and accountability of the scheme, as well as its potential for misuse as a political funding source.
An Insight into Electoral Bonds
Electoral bonds were introduced in the 2017 Union Budget to enhance transparency in political funding. Concerns arose due to donor anonymity and lack of disclosure. The cash donation limit was reduced from ₹20,000 to ₹2,000, while mandatory disclosure remained at ₹20,000. Private entities could buy and transfer these bonds to political parties. Amendments removed the cap on corporate donations and disclosure obligations. They are promissory notes in denominations from ₹1,000 to ₹1 crore, available only from the State Bank of India. Donors remain anonymous, known only to the bank. Bonds can be encashed by the political parties with Election Commission-registered bank accounts. The aim is to bring transparency to political funding and prevent fund misuse, amending various legislations for accountability and transparency in political financing. Numerous amendments to various legislations, including the Foreign Contribution Regulation Act, Representation of the People Act, Income Tax Act, and the Companies Act, with the claim of bolstering accountability and transparency in political financing.
Questions raised by critics
The electoral bonds case, initiated in 2017 by the Association for Democratic Reforms (ADR), has seen multiple petitions, including ones from the Communist Party of India (Marxist), Congress leader Jaya Thakur, and concerned individuals. It questions the legitimacy of amendments in the Finance Act of 2017 and the Finance Act of 2016.
The petitioners argue that these changes allow unlimited, unchecked funding for political parties, with a bias toward the ruling government. Electoral bonds, mainly issued in high denominations, raise concerns of corporate dominance over individual donors, and the anonymity for donors further fuels suspicion. Transparency issues exist, as funds transferred to political parties make it challenging to track corporate contributions, infringing upon citizens’ right to information and creating corruption risks, exacerbated by recent changes to the Companies Act.
Absence of RBI and EC consent
Details from an RTI filed by activist Lokesh Batra revealed that the ministry of finance implemented changes to the scheme without consulting the Election Commission, which is responsible for overseeing elections. The Election Commission was merely “informed” about the changes and never gave its consent. Communication with the Election Commission regarding the issuance of electoral bonds in December 2022 was last-minute and led to dissatisfaction.
Additionally, the Reserve Bank of India (RBI) had expressed disagreement with several aspects of the scheme, including concerns about money laundering. The then RBI Governor Urjit R. Patel had warned the government about the potential misuse of electoral bonds but the government did not pay any heed. RBI favoured issuing physical bonds and wanted to be the scheme’s executor, rather than a commercial bank, but these suggestions were rejected by the ministry. The lack of consultation with these critical institutions has raised transparency and accountability concerns in the electoral bonds scheme.
Dominant beneficiaries of the scheme
According to data from the Association of Democratic Reforms (ADR) between March 2018 and April 2021, a total of 13,898 electoral bonds, valued at ₹7,230 crore, were sold. During this period, 13,752 bonds worth ₹7,209 crore were redeemed. Notably, 50.10% of the total value of electoral bonds was purchased during the general elections in March and April 2019. An intriguing trend emerges as 92.47% of the total value of bonds purchased were in the denomination of ₹1 crore, indicating corporate rather than individual buyers.
Geographically, New Delhi dominated the encashment of bonds, with 74.40% redeemed there, reflecting the location of National Parties’ headquarters. In terms of political parties, the ruling party received 60.17% of the electoral bonds contributions between FY2017-18 and 2018-19. The BJP received a significant share, with ₹210 crore in FY 2017-18 and ₹1,450 crore in FY 2018-19, while the Congress received ₹383 crore in the latter year. Electoral bonds have become a cornerstone of political funding, with more than half of the income for both national and regional parties coming from these bonds in FY2018-19. Corporate donations to national parties have surged by 974% between FY2012-13 and 2018-19, with a record ₹881 crore received in FY2018-19. This data sheds light on the critical role played by electoral bonds in sustaining the finances of the political parties.
What lies ahead?
The Supreme Court’s decision to review the electoral bonds scheme just ahead of crucial state elections and the 2024 general election carries significant political ramifications. An unfavourable ruling could potentially disrupt the funding mechanism of political parties in the country. Regardless of the court’s decision, the electoral bonds scheme is likely to continue being a subject of controversy due to its conspicuous lack of transparency, which is fundamental to fair political financing.