How The ‘Electoral Bonds’ Works In A Transparent Process?

KhabarLive outlines the new scheme, recalls past attempts at election funding reform in India.

The idea of electoral bonds, the government has said, is to evolve a transparent system of political funding.
In a Facebook post titled ‘Why Electoral Bonds are Necessary’, Finance Minister Arun Jaitley Sunday defended the scheme for election funding that he announced in his Budget speech last year and spoke about in Lok Sabha last week. Electoral Bonds, he said, would bring “substantial improvement in transparency over the present system of no-transparency” in political funding, which “ensures unclean money (flowing to parties) from unidentifiable sources”.

What are Electoral Bonds?

These are interest-free bearer instruments (like Promissory Notes) that will be available for purchase from the State Bank of India within a designated window of 10 days in every quarter of the financial year. An additional period of a month will be notified in the year of elections to Lok Sabha. “The life of the bond would be only 15 days. (It) can only be encashed in a predeclared account of a political party (which) will have to disclose the amount… to the Election Commission,” Jaitley said in his post.

How will the Bonds help?

The current system of cash donations from “anonymous or pseudonymous” sources is “wholly non-transparent”, and “the donor, the donee, the quantum of donations and the nature of expenditure are all undisclosed”, Jaitley said. The government says the system of Bonds will encourage political donations of “clean money” from individuals, companies, HUF, religious groups, charities, etc. After purchasing the bonds, these entities can hand them to political parties of their choice, which must redeem them within the prescribed time. The idea, the government has said, is to evolve a transparent system of political funding.

So, is this system transparent?

According to Jaitley, “some element of transparency would be introduced in as much as all donors declare in their accounts the amount of bonds that they have purchased and all parties declare the quantum of bonds that they have received”.

But the voting public will not know which individual, company, or organisation has funded which party, and to what extent. At the same time, the fact that the SBI — and by implication, the government — will know who is getting what from whom can open up the possibility of arm twisting or harassment of those seen to be supporting parties or ideologies that are opposed to the government. And this will be possible without the public knowing or being able to see the pattern of such harassment.

In a 2012 paper, economists M V Rajeev Gowda and E Sridharan (‘Reforming India’s Party Financing and Election Expenditure Laws’: Election Law Journal, Vol 11, No. 2) argued that corporates and businesspersons, while availing tax benefits, are wary of political donations because they can’t remain anonymous — a concern that the idea of Bonds appears to address. However, critics argue that such a solution pushes back decades of work to ensure that the electoral process is not captured by just the rich or those who can draw funds —which might then lead to a quid pro quo, a tailoring of government policy to favour these donors.

How has India addressed the issue of election funding so far?

In 1968, corporate funding was banned. In 1974, the Supreme Court ruled that party spending for a candidate must be included in calculating the candidate’s election spend (Kanwar Lal Gupta vs Amar Nath Chawla & Ors), but Parliament legislated against the order the following year. In 1979, political parties were exempted from income- and wealth tax, provided they filed annual returns including audited accounts, listed donations of Rs 10,000 and above, and disclosed the identities of such donors.

An amendment to the Companies Act in 1985 restored corporate funding. Companies could donate up to 5% of their average net profit over the previous three years. More changes came based on Reports on election funding, such as the Dinesh Goswami Committee Report (1990), and the Indrajit Gupta Committee Report (1998), which recommended partial state funding of elections.

In 1996, the Supreme Court ruled that political parties must file returns by February 20, as required by the I-T and Wealth Tax Acts. The court also interpreted Explanation 1 of Section 77(1) of The Representation of the People Act, so that election expenditure by a political party would not be included with that of a candidate for the purpose of determining compliance with the expenditure ceiling, if the party had submitted audited accounts of its spends and incomes.

In 1998, the government provided partial state subsidy in the form of allocation of free time for national and state parties on state TV and radio.

In 2003, the NDA government made individual and company donations fully tax-deductible. However, the cap on how much companies could contribute remained. The government now wants to remove this limit through the Electoral Bonds; individual cash contributions to parties have been capped at Rs 2,000.

Has the Election Commission expressed a view on Electoral Bonds?

Not officially. It has been reported that the Commission feels it might need a year to review and assess the scheme. #KhabarLive