The Aakhya Weekly #74 | Political Funding: A Tussle Between Autonomy and Transparency

In Focus: Electoral bonds scheme: What’s at Stake?

By Aradhana Gupta

In the annals of democratic governance, the question of how political parties are financed serves as a compass, guiding the course of fair representation and accountability.

The introduction of the electoral bonds scheme was hailed as a transformative instrument to inject transparency into political funding. This ignited a discourse that transcends financial considerations. As we explore this intersection between finance and democracy, one is prompted to reflect on what's truly at stake.

In the words of political philosopher John Stuart Mill, "The worth of a state in the long run is the worth of the individuals composing it." This sentiment encapsulates the essence of democracy, where the actions of a government are expected to reflect the will and interests of its citizens. However, the introduction of electoral bonds raises pivotal questions about the potential divergence between financial transparency and the democratic ideals upon which nations are built. The very nature of democracy, with its emphasis on transparency, accountability, and the will of the people, prompts us to scrutinize the stakes involved in the adoption of electoral bonds as a financial instrument.

Delving into this nuanced landscape, we draw inspiration from the pages of "The Federalist Papers," a collection of essays by Alexander Hamilton, James Madison, and John Jay. In Federalist 10, Madison reflects on the dangers of factionalism and the need for structures to guard against the potential tyranny of the majority. Against this backdrop, we inquire into whether the anonymity afforded by electoral bonds empowers citizens or, conversely, creates an avenue for unchecked influence.

In the recent Supreme Court hearings on electoral bonds, it was akin to witnessing a narrative unfold with two distinct actors. On one side, there were conscientious citizens, the backbone of our democratic process, whose influence is curtailed by the opacity introduced through electoral bonds. Conversely, there stood corporate entities whose ties to power and governance were once openly displayed but now find refuge in the anonymity provided by electoral bonds, citing concerns about potential repercussions from rival parties. This unfolding dichotomy sheds light on the intricate dynamics of political funding.

Introduction of the Electoral Bonds

In an attempt to establish a system for transparent funding of political funding, the electoral bond scheme was introduced through amendments to four key legislations—the Foreign Contribution Regulation Act, 2010 (FCRA), Representation of the People Act, 1951 (RoPA), Income Tax Act, 1961, and the Companies Act, 2013. Within this framework, political parties are afforded the opportunity to receive contributions anonymously, thereby absolving them of the necessity to disclose the origin and quantum of such funds.

According to a report by The Hindu in October 2023, electoral bonds worth ₹11,699.84 crore were sold between March 2018 and December 2022.

What are electoral bonds?

An electoral bond functions like a promissory note, introduced through a notification on 2 January 2018. Notably, it does not carry the name of the buyer or payee, ensuring donor anonymity. Any Indian citizen or entity incorporated in India can purchase these bonds either individually or jointly with others. Only authorized branches of the State Bank of India (SBI) can issue electoral bonds and applications for purchase can be made in person at an authorized SBI branch or online.

Electoral bonds, available in denominations of ₹1000, ₹10,000, ₹1,00,000, ₹10,00,000, and ₹1,00,00,000, are sold for 10 days in January, April, July, and October each year under the 2018 scheme.

To encash an electoral bond, a political party must be registered under RoPA and should have secured more than 1 percent of votes in the last general election. If not encashed within 15 days, the State Bank of India will donate the sum to the Prime Minister Relief Fund.

Legal Alterations Enabling the Implementation of the Electoral Bonds Scheme

The Finance Act, 2016, brought changes to the FCRA, allowing foreign companies with a majority share in Indian companies to donate to political parties. The Finance Act, 2017, exempted political parties from keeping detailed records of contributions received through electoral bonds under the Income Tax Act, 1961.

Additionally, amendments to the Reserve Bank of India Act, 1934, in 2017 allowed the Union government to authorize scheduled banks to issue electoral bonds. Changes to RoPA in the same year exempted political parties from the obligation to publish "Contribution Reports" for contributions received through electoral bonds.

The Companies Act, 2013, was amended to remove the upper limit on company donations to political parties.

Supreme Court in Action: PILs Contest the Scheme

Following the introduction of the Finance Acts of 2016 and 2017, two NGOs—the Association for Democratic Reforms and Common Cause—along with the Communist Party of India (Marxist), filed a Public Interest Litigation case against the scheme. They argued that the Finance Acts were unlawfully passed as money bills thereby violating the Constitution. They also argued that exempting political parties from disclosing the source of funding violated voters' right to information.

The petitioners contended that the electoral bonds scheme contradicted the goals outlined in the Union Budget thereby fostering opacity in election funding and facilitating corruption and external interference in India’s elections.

A step by the Election Commission

On 25 March 2019, the Election Commission of India (ECI) filed an affidavit strongly objecting to the electoral bonds scheme. The ECI had previously warned the Ministry of Law and Justice in May 2017 about the adverse impact on transparency in political finance due to certain provisions of the Finance Act, 2017.

The ECI raised concerns about the lack of a mandate to submit Contribution Reports, making it impossible to ascertain whether a party had received donations from companies and foreign sources. They cautioned against allowing foreign companies with majority shares in Indian companies to influence Indian policies through unchecked funding of political parties.

The Union government, in response, argued that the electoral bonds scheme was introduced to enhance accountability and maintain donor anonymity. They emphasized that only the State Bank of India, the authorized bank, could issue such bonds, ensuring no use of black money, and KYC details provided accountability.

Six years and now!

In April 2019, the Supreme Court contemplated whether to stay the scheme during hearings. Instead, it directed political parties receiving funds through electoral bonds to submit detailed donor particulars to the ECI, to be kept sealed until further notice.

In January 2020, the Court heard another plea but did not issue any directions. In 2021, an application sought a stay before the commencement of a new round of bond sales. The Court, led by Chief Justice Bobde, noted the incorporation of suggested safeguards by the Reserve Bank of India and saw no justification for a stay.

On 10 October 2023, petitioners approached the Court to expedite the case before the 2024 General Elections. On 16 October 2023, a three-judge Bench referred the case to a five-judge Constitution Bench, citing its importance.

In November 2023 a Constitution bench comprising five judges, led by Chief Justice of India Dhananjaya Y Chandrachud, directed the Election Commission of India (ECI) to provide comprehensive information on all donors and contributions received by political parties through Electoral Bonds (EBs) until September 30. This directive came as the bench reserved its judgment on the petitions challenging the scheme's validity.

What’s Next?

It is essential to reflect on its impact, controversies, and the broader implications it holds for the democratic fabric of a nation. Introduced as a tool to bring transparency and streamline political funding in India, the Electoral Bonds Scheme has been a subject of intense debate and scrutiny since its inception.

Electoral bonds envisioned to enhance transparency in political funding, have come under scrutiny due to inherent features that compromise openness and accountability. The provision for anonymous donations stands as a primary concern, allowing contributors to remain undisclosed, thereby undermining the fundamental principle of transparency. The absence of comprehensive disclosure requirements further exacerbates the issue, impeding the public's ability to track the flow of money into political campaigns and hold parties accountable for their funding sources.

Moreover, electoral bonds operate outside established regulatory mechanisms, creating a parallel financial system that lacks the necessary oversight. This circumvention raises the risk of potential money laundering, as the source of funds remains obscured. The unequal access to electoral bonds among political parties also tilts the playing field, potentially consolidating the influence of larger parties while hindering the democratic participation of smaller entities. The complexities of the electoral bonds system, coupled with limited public awareness, underscore the pressing need for a reevaluation to ensure a more transparent and equitable electoral financing framework.

In Conclusion…

The journey of electoral bonds reveals the delicate balance between innovation and the preservation of democratic principles. As the nation grapples with evolving political landscapes, it becomes imperative for policymakers to address the identified shortcomings. Revisiting the electoral bonds framework, ensuring a more equitable distribution among political parties, and implementing robust disclosure mechanisms are essential steps towards reinforcing the democratic ideals that underpin India's electoral process. The resolution of these challenges is not merely a matter of financial regulation but a commitment to upholding the core values of transparency, accountability, and equal democratic participation for the collective well-being of the nation.

Regardless, it will be intriguing to witness the "Lights, Camera, Action" for Electoral Bonds as the 2024 general elections draw near in just a few months.

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Top Stories of the Week

Cabinet Sanctions 15,000 Drones for Women SHGs

The Union Cabinet has approved a Central Sector Scheme to supply drones to 15,000 selected Women Self-Help Groups (SHGs) from FY24-25 to FY25-26, with an outlay of Rs. 1,261 Cr.

This initiative, which PM Modi had announced during his Independence Day address, aims to establish a sustainable business model for women SHGs and seamlessly integrate drone technology into agriculture. The SHGs will be able to offer these drones on rent to farmers for agricultural activities, such as application of pesticides and nano-fertilizers.

A total of 89 lakh SHG have been formed under the Deendayal Antyodaya Yojana, from which SHGs located in economically viable zones for drone usage will be identified for this scheme.

The cost of each drone and its accessories is about Rs. 10 lakh, of which up to 80 percent (Rs. 8 lakh) would be provided through Central financial assistance. SHGs can raise the balance amount as loans under the National Agriculture Infra Financing Facility, with a 3% interest subvention. According to I&B Minister Anurag Thakur, about 500 drones will be sourced from fertiliser companies with the remaining 14,500 units to be made available through Central assistance over the next two years.

One qualified member aged 18 and above from each selected SHG will be required to attend a 15-day training programme, which will include five days of drone pilot training and ten days of agriculture-focused training. Another member from each SHG will be selected for training as technician or assistant.

The initiative foresees women SHGs having the potential to secure an additional annual income of at least Rs.1 lakh each, thereby providing a sustainable livelihood option. For farmers, it envisions the advancement of agriculture through technology to enhance efficiency, increase output, and reduce operational costs.

Cabinet approves free food grains under one of the world’s largest food security schemes

The Union Cabinet has announced its decision to continue providing free food grains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for 5 years, effective from 1st January 2024. Launched amid the COVID-19 outbreak, the scheme aimed to guarantee food and nutrition security for more than 80 crore citizens of India.

Under the scheme, Priority Households and Antyodaya Anna Yojana families benefit from the free monthly provision of food grains - rice, wheat, and millets - of 5 kg/ person and 35 kg/ family respectively. Last active under its Phase VII until 31st December 2022, the scheme will enable an Antyodaya family to save an estimated Rs. 1371 for 35 kg of rice or Rs. 946 for 35 kg of wheat, resulting in significant monthly savings.

While the scheme was previously intended as a 3-month short-term relief to the poor affected by COVID-induced economic disruptions, it has now turned into a longer-term measure to alleviate the financial hardships of the poor and vulnerable citizens of India. It is supported by the presence of 5 lakh+ fair-price shops across India. The One Nation One Ration Card scheme, strengthened during COVID-19, also enables ease of access as it allows migrants to receive their quota of free food grain from any fair-price shop in the country.

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