November 23 2019
GS Paper II
The opacity around electoral bonds (EDITORIAL)
The author gives the reader an insight towards the electoral bonds and how big money entirely funds the elections in a secretive way that will be one of the main reasons why the essence of democracy will be tarnished and cease to exist eventually.
First, let us know about the electoral bonds..
What are electoral bonds?
In 2017, the government unveiled a new method of funding for political parties and claimed it would bring about ‘greater transparency and accountability’ in the elections and are seen as the best alternative to cash donations to political funding. These electoral bonds function as gift vouchers and anyone can buy them from the State Bank of India and then hand-over to a political party of their choice, without having to attach a name to them; i.e anonymous transaction. The parties can later encash those for money.
In January 2018, the government notified the Electoral Bond Scheme. As per the scheme, electoral bonds may be purchased by a person who is a citizen of India or an entity incorporated or established in India. A person can buy electoral bonds, either single or jointly or even with other individuals.
Electoral bonds will allow donors to pay political parties using banks as an intermediary. However, these banking instruments that function as promissory notes do not bear any interest value and can be donated in the multiples of Rs 100, Rs 1000 and further.
Some rules around the system
- Bonds are only supposed to be available in four 10-day windows through the year, and they can only be bought with a cheque or digital transfer.
- There was another alteration to the law that gave a free pass for the foreign firms to also make donations to political parties, and not just the domestic profitable companies.
Exclusive Issuer: State Bank of India (SBI) is the only authorized central bank to issue electoral bonds. (In The 11th tranche of electoral bonds sale, SBI had been authorised to issue and encash electoral bonds through its 29 authorised branches with effect from 1 to 10 July; the first after the formation of a new government after 17th Lok Sabha general elections)
Eligibility: Those registered political parties that secured not less than 1% of votes polled in former election of Lok Sabha or legislative assembly will be eligible to receive electoral bonds.
Validity: Electoral bonds are valid for 15 calendar days from date of issuance and no payment is made to any payee political party if bonds are deposited after expiry of the validity period. Electoral bond deposited by an eligible political party in its account will be credited on the very same day.
What does the Election Commission say?
In an affidavit filed before the Supreme Court, the Election Commission of India has made the following observations:
- Electoral bonds, contrary to the government claims wreck transparency in political funding.
- Electoral bonds coupled with the removal of the cap on foreign funding invites foreign corporate powers to impact Indian politics.
- Electoral bonds would cause a “serious impact” on the already thin democracy.
- The Election Commission of India further criticizes amendments made to various key statutes through the two consecutive Finance Acts of 2016 and 2017.
Finance Act of 2017 amends various laws, including the Representation of the People Act of 1951 by allowing political parties to skip recording donations received by them through electoral bonds in their contribution reports to the ECI, the Income Tax Act and the Companies Act by allowing anonymous donations. Donors to political parties are not required to provide their names, address or PAN if they have contributed less than Rs. 20,000. The Finance Act of 2016 makes changes in the Foreign Contribution (Regulation) Act of 2010 by allowing donations to be received from foreign companies having a majority stake in Indian companies.
From the above observations, we can conclude that;
- All these above observations bring us to conclude that the ECI become crippled with its inability to ascertain whether the donations were illegally by the political party from government companies or foreign sources. This shall make the transactions more opaque.
- There have been reports that political parties claim to have received only major portions of donations in lesser amounts than the prescribed amount capped at Rs 20,000.
- Concerns that the amendments would potentially provide a hoarding edge for shell companies and other unchecked foreign companies to pump in black money in the name of political funding. This would ultimately cause a political menace and disturb the democratic structure of Indian politics.
- Even loss-making companies can legally donate unlimited trunks of money on paper as the removal of 7.5% cap for corporate companies is the updated norm.
- The shareholders of the company will not be aware of where the company’s money has gone as the companies no longer need to declare their names.
- The bonds could be a safe tax haven to businessmen or companies that is empowered to legally accrue the money to political parties and lobby on a change in the government policy and later funnel a chunk of the profit to the politician or the political party that brought about the change. Again, illegal trophies in the name of honest policymaking.
- There are more than cent per cent possibilities that the ruling government at the Centre will know about the cash transfers as the banks need to report to the RBI, and RBI in turn to the Central Government. Therefore, chances are high that the ruling party shall eventually hoard more donations in its name. That, per say, is illegal in all its forms.
- Recently both the Election Commission (EC) and the Reserve Bank of India (RBI) expressed worry and reservations about the Electoral Bonds scheme by stating that allowing any other entity other than the central bank to issue bearer bonds, that are currency-like instruments, is ubiquitously a risk to the usage of electoral bonds.
- It is still a shock that such a system does not exist in any other country. The author feels that the government had then passed this scheme in the Lok Sabha to bypass the pressure of getting a ‘yay’ from the Rajya Sabha by merging it into the Finance Bill as they lacked a majority in the Upper House.
- Indian funding for election campaign and for political parties to reach the general public, with its per capita GDP being 3% of the US today, spend more than the US.
- Significantly, it is explicit that, in the 21st century, money plays a grandeur role in determining a political party’s chance of winning or losing.
- The receipts that the political parties show with respect to the expenditure to reach voters using hoardings, advertisements, electronic and social media campaigns for populism, alongside holding election rallies, travel expenses, payments to the party workers, etc. In India, there is the added expenditure of buying votes through distribution of gifts, money, liquor and so on.
- Some countries work on public funding of elections. Here campaign funding laws and reforms are a constantly evolving subject internationally and hence they focus on public funding, limits on expenditure, limits on donations, transparency in funding and penalties for non-compliance.
So in India, will the winning political party work for the public betterment in general or only to those who funded them?
- There is a gap between the scheme and the real performance of the law. The voter does not know who is funding who through electoral bonds and this is supposed to protect the donors from harassment from the public authorities like the police, the Central Bureau of Investigation, the Intelligence Bureau, the Enforcement Directorate and so on, who are always the puppet officers under the party in power.
The author opines that there are a zillion chances for the bank to know the purchaser of the bonds as well as the party that cashed it. The law agencies can obtain this information whenever they want. Can the ruling party use this to demand donations for itself, prevent donations to others, and use the law enforcement agencies to harass those who donate to rival parties?
And there is nothing in any dictum that could prevent this eventuality.
Equally worrisome feature is the donation limits uncapped, i.e, in theory, a large corporate could buy the government using electoral bonds.
It is not that India does not have spending limits, the question is who or which party is sticking by the law?
- Black money cannot be used to buy electoral bonds, but can definitely be used outside the scheme during the campaign and elections. Thus, electoral bonds cannot eliminate black money. Period. Mere reductions in cash donations from Rs 20,000 to Rs 2,000 will not strike any change; there are parties who still claim that all their funds are through small cash donations of Rs 100 or less; (highly unlikely, right?)
- There is always a political ruckus when the political party does not get the money, but sheer silence when they do. This just underscores the lack of credibility of the political rhetoric. Is there any law that prescribes a penalty for a politician or a party that discloses its funds or sources? Still, we find none walk up to that honor in our country.
Remedies suggested by the author to check the long-term implications
There is a setback to democracy, as nearly all the funds are owned by the ruling party. The ‘public authorities’ sans ‘public’ know about the source and recipient beneficiaries. This secrecy in democracy is in itself a blot. If it is the big money that entirely funds the elections in an opaque way, the democracy that we know will cease to exist. Many commissions, EC included, have given many remedies in ‘paper’. Unless acted upon, we are destined to witness no tangible change.
- NGOs and other civil societies should be given full freedom of free speech and public dissent, especially against the powerful.
- We need to benchmark our public policies and the administration against the best international practices and laws on campaign funding.
- Ensure complete transparency in all funding.
- Political parties need to be under the Right to Information Act.
- The Central Information Commission ruled that they were under the RIA, but the parties refuse to follow its directions.
- There must be spending limits as well as donation limits, especially in a highly unequal society like ours, and strict penalties for flouting rules and the law.
- Public funding needs to be examined and introduced with proper checks and balances.
- Voters need to demand changes and we need voter awareness campaigns. This can be done by a simple gesture of ‘denial of gifts’ and by a common understanding of public funding in small individual donations.
- The scrapping of the electoral bond scheme, which the Supreme Court is currently hearing a petition on.
With one dutiful change in a voter’s attitude, we would have stepped up our democracy by one level. This is however, a good ideal imagination on paper for a democratic nation, but a hard and long-drawn empiric. Let us hope Indian democracy survives without going through another crisis.