Electoral Bonds: Meaning, Functions, Issues and Analysis

Scheme of Electoral bonds was first released in Budget-2017 to reform political funding. On January 2, 2018, the central government has outlined the contours of this scheme.

Electoral Bonds: Salient Features

Electoral Bonds are like promissory notes (not themselves are PNs)
  • The Electoral Bonds are kind of promissory notes that can be bought by any Indian citizen or body incorporated in India to make a donation to a political party.
  • Technically, the electoral bonds are not promissory notes themselves, because the latter are Negotiable instruments governed by NI Act.
A donor can purchase them from SBI and hand over to Political Parties
  • The electoral bonds are purchasable from “Specified Branches of the State Bank of India (SBI)”. They would be available for any value, in multiples of Rs. 1 thousand, 10 thousand, 1 Lakh, 10 Lakh and 1 Crore.
  • The donors, while purchasing the electoral bonds, will need to comply with the KYC norms.
  • In select SBI branches, they can be purchased on 10 days each in months of January, April, July and October. An additional period of 30 days shall be specified by the central government in the year of Lok Sabha elections.
They have a life of 15 days
  • An electoral bond has a life of 15 days. During this period, it will be handed over to a registered political party, which shall get it redeemed in its bank account.
The political parties need to comply some eligibility conditions
  • The donation via electoral bonds can be given to only those political parties, which:
    • Are registered under section 29-A of the Representation of the Peoples Act, 1951 (43 of 1951).
    • Have secured not less than one per cent of the votes polled in the last general election to the Lok Sabha or State Assembly.

To get the scheme enforced it requires amendments to the Reserve Bank of India Act, 1934  and the Representation of People Act, 1951.

Background to Electoral Bonds

The stated objective of electoral bonds is to reduce opaqueness in political funding in the country. The information on how much a political party gets funding and how does it spend it – has never been in public domain. Some efforts like making donations via cheques have not resulted into desired outcomes and the share of anonymous funding of political parties is still in vogue.

The electoral bonds scheme is meant to change this. First,it will bring transparency in political funding as the names of the donors will be maintained by the banks. Second, secrecy of the donors will help more people to take this route which otherwise make them wary of attack by the opposition parties. Third and most importantly it will take India towards digital and cashless economy. Fourth, it will be a step towards bringing reforms in political funding.

What are the concerns raised by the critics?

Experts have raised the following concerns:

Lack of Transparency

The scheme defeats the purpose for which it was envisaged. The name of the donor will not be revealed either to the party or to the public. So, the problem to replace anonymous donations and bring about transparency and accountability towards voters will remain the same. It only promotes the culture of opacity that pervades India’s current political finance regime.

Generation of Black money

Opacity will lead to generation of more and more black money into the political system.

Politico corporate nexus

Government removal of cap on donations of money to political parties by corporations in march 2017 and the current rule of maintaining anonymity of the donor will further increase the corporate and politicians nexus to work towards the fulfilment of their own selfish aims. It will hamper democracy and making it less answerable to the individual voter and more responsive to deep-pocket special interest groups.

Backlash in implementation

Given that the State Bank of India is owned by the Union government, this raises the spectre that data on donors could be made available to the ruling party to be used to its benefit. So the electoral bonds scheme may not work at all. Most private donors prefer anonymity for fear of reprisals from political parties. They would continue with cash donations under the Rs 2,000 slab and via electoral trusts where anonymity is better maintained.

How can the Electoral Bond system be improved?

  • Creation of National Election Fund-It is suggested that this fund should be created like any other fund dealing with a particular cause and political parties can request for funds from this NEF. This will ensure greater transparency as a record of the amount going to each political party will be maintained. An authority should be appointed to keep this record.
  • State funding of elections– The Indrajit Gupta Committee in 1998 had suggested state funding of elections. This will create an equal level playing field for all parties. The current statistics shows that most of the popular national parties have undisclosed funding of almost upto 70 per cent. This can be curbed to a great extent by state funding, where funds going to every political party can be recorded easily and every candidate will get a fair representation.

Way Forward

Introduction of Electoral Bonds shows the intention of the government to move towards transparency in political funding but the scheme hardly empowers anyone. The government’s rationale of maintaining anonymity is well understood but the amount of money received by political parties is important to be disclosed to voters to ensure free and fair democracy. Even the global evidence suggests much of the transparency and accountability in well-functioning democracies have come through strong records of disclosures and strict scrutiny of accounts of parties and candidates receiving funds.


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