Electoral bonds: A scam made legal?
A series of exposè has revealed that the government ignored objections from RBI, Election Commission and officials of Finance Ministry to ‘push through’ with the contentious electoral bonds. It also shows that unfairness is built into the anonymity of electoral bonds: the government can know who issued the bonds, making the transparency-talk redundant.
In today's age of easily available information, there are news-stories which don't always create an immediate impact. Instead their ripples keep getting bigger and they keep coming back to the news-cycle with a new revelation, until the populace understands that enormity of that small article pasted on the corner of an e-paper.
That's exactly what has happened to the issue of electoral bonds. On Thursday, the opposition staged protests over the new revelations that have surfaced regarding electoral bonds. Congress's leader in the Lok Sabha, Adhir Ranjan Chowdhury called the issue 'a big scam'. Members of his party later walked out of proceedings raising this issue. Meanwhile, in the Rajya Sabha, Congress leaders had filed a notice to discuss electoral bonds with reference to the Reserve Bank of India's reservations. Rajya Sabha Chairperson Venkaiah Naidu said the issue did not warrant suspension of scheduled items and, with the opposition refusing to relent, he adjourned the house.
What are electoral bonds?
It is like a promissory note that any Indian citizen or company incorporated can buy from 11 select branches of State Bank of India. The person can then donate the same to any eligible political party of his/her choice. Issued in multiple values of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore, these bonds can only be encashed by political parties, which had secured at least 1 percent of the votes polled in the most recent Lok Sabha or state election. Monies received from electoral bonds are deposited in a specific bank account. All the transactions for electoral bonds can be done only through that account.
In his speech on February 1, 2017, Arun Jaitley, India’s finance minister at the time, planned to unveil this: a controversial, legally-sanctioned instrument that would allow corporations and other legal entities to anonymously funnel unlimited amounts of money to political parties.
The argument to bring this about was that, it will stop the huge amount of unaccounted-for cash that would dominate Indian politics and bring greater transparency and accountability in political funding. Under this, the donor could buy the election bonds only through cheques and digital transactions, supposedly stopping the inflow of black money into the pockets of political parties. The donor would not need to divulge the source of funds and the political party would not need to disclose who it got the funds from. Another change, implemented at the same time, removed limits on election funding by corporations—meaning they could now funnel as much money as they wanted to the parties of their choice.
Though the donor is supposed to remain anonymous to the political parties, for the government of the day it is easy to find out from SBI who bought which electoral bond and donated to which political party. Which meant that it was hardly the level playing field Jaitley talked about. In fact, it potentially became a deterrent for any big corporate to donate money to the opposition parties through electoral bonds. With the fear of Enforcement Directorate or the CBDT knocking on your door, if the government of the day wasn't pleased with you, hardly any big corporation would risk donating money to opposition parties. Making unfairness, built into the supposed anonymity clause.
Which showed in the numbers; Association for Democratic Reforms (ADR) data tells that 85%-95% of the 6,128 crores worth of electoral bonds sold since March 2018 went to the ruling BJP. To introduce electoral bonds, 3 laws, namely Income Tax Act of 1961, RBI Act of 1934 & Companies Act of 2013, were amended. And the Parliament, which also had the opposition, approved of these amendments.
So what makes the opposition take up the issue and call it "political bribery scheme" and eventually stage a walkout from Parliament?
It's a series of articles by Nithin Sethi for Huffington Post India which has revealed that as many as 3 government-run institutions objected to electoral bonds. Along with RBI and Election Commission, officials of Finance Ministry also objected to this. Sethi claims that the government showed 'undue haste' in pushing through electoral bonds despite fervent objections from the RBI.
The first of his articles says just four days before Budget Day in 2017, an official noted that legalising these anonymous donations would need amendments to the RBI Act and sent it up the ranks for the finance minister’s approval. That very same day, another official of finance ministry shot a mail to RBI officials “requesting early comments”.
The RBI's reply, voicing unequivocal opposition, was in by the next working day. The RBI said that electoral bonds and the amendment to the RBI Act would set a “bad precedent” by encouraging money laundering and undermining faith in Indian banknotes, and would erode a core principle of central banking legislation.
According to the letters accessed by RTI activist Anjali Bharadwaj, the erstwhile RBI Governor Urjit Patel himself wrote two letters to the finance minister, and said “You would kindly agree that allowing any other entity other than the central bank to issue bearer bonds, which are currency like instruments, is fraught with considerable risk and unprecedented even with conditions applicable to electoral bonds,”
“Such exception will have adverse impact on public perception about the Scheme, as also the credibility of India’s financial system in general and the central bank in particular.”
Patel had also said the scheme could be misused through shell companies. “This can subject the RBI to a serious reputational risk of facilitating money laundering transactions.” Patel argued that instead of in physical form, “issuing EBs in digital form will be a superior method”. When the finance ministry dismissed his concerns and the suggestion, Patel wrote another letter to the ministry saying that the Committee of the Central Board (of RBI) in its fiduciary capacity would advise the government to reconsider the scheme in its proposed form.
But even then a letter from finance secretary Subhash Garg once again dismissed the concerns raised by the RBI and said while the government has duly considered the RBI’s inputs, it is the “final decision” of the government to go ahead with EBs in physical form.
Sethi in his piece says that ignoring such strong opposition from RBI shows that the top echelons of the Modi government had already made up their mind. Another exchange of letters between the finance ministry and the RBI shows how former revenue secretary Hasmukh Adhia dismissed RBI's concerns and wrote back saying that "this advice has come quite late at a time when the Finance Bill is already printed. We may, therefore, go ahead with our proposal". A note which was also signed by Arun Jaitley.
By June 2017, Economic Affairs Secretary Tapan Ray and his office came up with a note on how the bonds would work in practice. “The records of the purchaser are always available in the banking channel and may be retrieved as and when required by enforcement agencies,”stated the note, contradicting the government’s claims in public of complete anonymity for donors. This meant that only the government would know exactly who had bought these bonds.
Sethi's second article reveals how in May 2017, the Election Commission of India wrote to the Union Ministry of Law and Justice, warning that electoral bonds would help political parties hide illegal donations from foreign sources. Dubious donors could now set up shell companies to funnel black money to politicians and mask the true source of the money.
The commission wanted electoral bonds and other legal changes made by the government to be rolled back. On July 3, 2017, the Law Ministry forwarded the Election Commission’s concerns to the Department of Economic Affairs of the finance ministry; but the finance ministry simply pretended it had never heard from the Commission.
Rather than responding to the Commission’s concerns in writing to the law ministry, then finance minister Arun Jaitley ordered for a meeting with both RBI and Election Commission to “finalise the structure of the Electoral Bonds”. In the face of such strident opposition from the EC, the government chose to steamroll ahead, rather than revisit its insistence on a secrecy-laden funding route for political parties.
Even after that meeting, Sethi says Election Commission was not convinced. This was followed by a series of exchanges between the EC and the ministries. When Asiaville spoke to former Chief Election Commissioner SY Quraishi called EBs to be a 'grave mistake' .
Finance ministry notes
The next big turn in the story came in 2018. Following the budget-day announcement of EBs, in January 2018 the government specified four 10-day windows in January, April, July and October each year when the State Bank of India (SBI) would sell these bonds to donors. The rules also allowed for an additional 30 days sale of electoral bonds in years when a general election was scheduled.
Documents obtained by transparency activist Commodore Lokesh Batra (Retd.) and reviewed by Sethi reveals how the Prime Minister’s Office (PMO) directed the finance ministry to break its own rules to approve the "unscheduled and illegal" sale of electoral bonds for state assembly elections on two separate occasions.
SBI was supposed to sell the first tranche in April 2018, but the first round was opened a month earlier in March 2018 instead. Rs 222 crore worth of bonds were bought in this round, with 95% going to the BJP. The following month, in April 2018, SBI opened another window for political donation — in this, bonds worth another Rs 114.90 crore were purchased and donated. But the government was still not satisfied.
With the Karnataka state elections due in May 2018, the PMO instructed the finance ministry to open a special and extra window of another 10 days.
"To be sure, the PMO did not explicitly link its request to impending polls in Karnataka, but the finance ministry officials caught on to the link," says Sethi.
An officer in the finance ministry noted that the extra window period was being asked by the PMO in the run-up to the assembly elections. He drew attention to the fact that this was not allowed under the current rules. Vijay Kumar, deputy director in the department of economic affairs handling the electoral bond scheme, wrote in internal file notings on April 3, 2018. “This would imply that additional issuance of Electoral Bearer Bonds cannot be meant for state assembly election.”
His suggestion was shot down by S.C. Garg, secretary for economic affairs, the topmost bureaucrat in the department, saying that the observation was incorrect.
“This special issue was meant only for Lok Sabha. If we were to open a special window for assembly elections as well, there will be several special windows, sometimes, in a year. No need for amendment,” Garg wrote on April 4, 2018.
Another note of Kumar's from a week later explicitly mentioned how it is the Prime Minister's Office which wanted to open a special 10-day window for issuance of electoral bonds, contradicting the existing laws.
Nevertheless, the sale of electoral bonds just before Karnataka assembly elections, on the instructions of the PMO, was approved as an exceptional case by the finance ministry.
The same 'exception' was repeated ahead of the major assembly elections in Chhattisgarh, Madhya Pradesh, Mizoram, Rajasthan and Telangana. This time Kumar moved a proposal to his seniors for another special window to sell electoral bonds in November 2018 citing "the analogy adopted at the previous occasion of issuance of electoral bonds through special window during May 1-10, 2018".
These revealtions have shaken the polity. Several political commentators have expressed their astonishment over the craftiness with which the government amended several laws to 'fix the pitch' for themselves while claiming to be increasing transperancy. Several others have called it a 'scam', but perfectly legal one. Even Supreme Court, dealing with this issue, gave a unsatisfactory and incomplete judgment. So while we wait for Supreme Court's final decision, these revelations have made the electoral bonds issue bigger than ever before.