Why electoral bonds are a bad idea in India
Election Commission told the Supreme Court that they can wreck transparency in political funding.
The Election Commission of India (EC) has told the Supreme Court that electoral bonds can wreck transparency in political funding. This stand is contrary to claims by the Bharatiya Janata Party (BJP)-led central government, which has pushed for electoral bonds to be allowed. They have introduced amendments to exclude reporting of donations received by political parties via electoral bonds.
In an affidavit, the EC told the apex court that if donations made through electoral bonds are not to be reported, it would render mute the stringent reporting norms laid down in the Income Tax Act and the Representation of People Act. “In a situation where contributions received through electoral bonds are not reported, on perusal of contribution report of political parties, it cannot be ascertained whether the political party has taken any donation in violation of section 29 B of the Representation of People Act, 1951, which prohibits the political parties from taking donations from government companies and foreign sources,” they said in the affidavit, as reported by the media.
This came after a number of petitions were filed by the Association of Democratic Reforms, Communist Party of India (Marxist) and others on the issue of electoral bonds, unlimited corporate funding and transparency in political funding. So, how did this situation come about and why is there an issue with transparency and electoral bonds?
Changes in funding laws
Electoral bonds were introduced in 2017 when the Finance Act was amended. Four different statues: the Reserve Bank of India Act, 1934; the Representation of Peoples Act, 1951; the Income Tax Act, 1961; and the Companies Act, 2013, were all affected by this amendment. The argument put forward by the government was that the use of bank routes would likely reduce under-the-table cash transactions, i.e. ‘black money’. They said it would also promote transparency in election funding, arguing that transactions through banks would incentivise the use of white money, and Know Your Customer requirements of banks would ensure paper trails.
The Union Budget of 2017 devoted a full section on political funding reforms and introduced an Electoral Bond Scheme (EBS) to check “rampant under-the-table cash transactions”. This was further built upon on January 2 when the government issued a notification of enforcement to the EBS. It attracted considerable attention, from political parties to civil society, who have legally challenged the scheme.
An electoral bond, as the name suggests, is a bearer note like a promissory bank note and interest free banking instrument for citizens and, more importantly, corporate bodies. Under the scheme, it can be purchased through cheque or digital payments from notified branches of public sector banks, such as the State Bank of India. The electoral bonds can be purchased for specified denominations and the payee can then bestow it upon a registered political party as donation. The key highlight of the scheme is that the bonds stay valid for 15 days and don’t carry the donor's name. Further, no report is required to be submitted by receiving parties. Thus, both the purchaser of the bond and the political party are within their rights to withhold the identity of the donor.
The policy ‘dismantles’ restrictions that were in place to check illegal corporate sponsoring. The process also makes it simple for foreign companies to donate to political parties, thereby raising the spectre of foreign intervention. Under that law, any company that wanted to contribute to political parties had to be around for at least three years before they could be allowed to do so. This policy, however, provides a way around it. This also raises the possibility that black money could make its way into the system through shell corporations.
Understandably, it has caused a ton of controversy. The EC told the apex court that it allows the possibility of outside interference. “This is a change from the existing law which barred donations from all foreign sources as defined under the Foreign Contribution Regulation Act. This would allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies,” it said. The Opposition also alleges that the government will use it to pump massive amounts of money to try winning the election unfairly.
Allowing anonymous donations to political parties in India will set a dangerous precedent. Not only will it allow the possibility of outside interference tainting the elections, it will encourage unfair practices by political parties. India is the world’s largest democracy and has a reputation to uphold. The right to vote is the most basic guarantee provided by the Constitution and it needs to be safeguarded.