Transparency of electoral bonds

By Isaac Gomes

Kolkata, Feb 11, 2023: For more than six years, the Supreme Court of India has been contending with a case on electoral bonds – basically the fundraising practices of political parties. The importance of the case has gained momentum in view of the imminent Lok Sabha election.

While presenting the budget for 2017-2018, the then finance minister Arun Jaitley said that despite seventy years of India’s independence, no system or law had been created to allow political parties to collect funds for their parties in a transparent manner. After this, Electoral Bonds were introduced in 2018 to address this lacuna.

Before Electoral Bonds were launched, necessary changes in various laws were made. As soon as these were done, two non-governmental organizations (NGOs) called ‘Association for Democratic Reforms’ and ‘Common Cause’ and CPIM Party filed a case in the Supreme Court challenging them.

The case is now pending before a five-judge constitution bench.

The bonds are sold by specified branches of State Bank of India for a period of 10 days each in January, April, July and October, as specified by the federal government. In the election year, the government can specify an additional period of 30 days.

Only Indian citizens and commercial entities incorporated in India can buy these bonds in multiples of rupees one thousand, ten thousand, 100,000, I million and 10 million from the specified branches. There is no upper limit. After buying the bonds, the buyer hands them over to a political party of his choice within 15 days of purchase.

The recipient (political party) deposits them with the State Bank and gets from the bank an amount equal to the purchase price.

In these transactions no one except the State Bank, Income Tax Department and the recipient political party knows the identity of the buyer.

Political parties need huge money to contest elections in our country. Proponents of electoral bonds say that prior to the launch of these bonds in the market, political parties used to fund their polls mainly from cash donations, much of which was black money.

In the new system, the parties can transparently collect money to contest in elections. They can also transparently spend the money received from electoral bonds, because, the income tax department has an account of purchase and sale of each electoral bond from State Bank of India.

Secondly, since no one except the recipient and the financial authorities know the donor’s identity, the donors (mostly corporate houses) can freely donate funds to the party of their choice. They don’t have to worry about the wrath of the political party to which they haven’t given the money. In a democracy, this freedom is very precious.

There are also some strong arguments against Electoral Bonds. Critics assert that electoral bonds are tilted towards the party in power. Past experience has shown that they are mainly procured by corporate houses. One might argue that these corporate houses buy these bonds more for their gain and much less for any political ideology.

As per the current rules, neither the general voters nor the opposition parties are able to know about the bond transactions. So whether any particular corporate house is getting any unfair advantage from the political party which has received its donation, remains unknown.

It is the easiest for the ruling party to go in for a quid pro quo arrangement with a corporate house for donation of funds through electoral bonds. If the party in power wants, it can easily procure for its favored corporate house low-interest loans from nationalized banks, provide tax exemptions and also reduce import duties.

If the ordinary voters know how a political party is giving unfair advantage to a corporate house / corporate houses as a return favor for their cash donations, they can take a well-informed decision and vote accordingly. Also, on the strength of this knowledge, opposition parties can raise a hue and cry and mobilize public opinion.

This would have been good for democracy. But this is not happening due to the secrecy of the electoral bonds. The secrecy which the proponents of electoral bonds are pedaling as a virtue is actually its weakness— a legal cover to camouflage unscrupulous exchanges between the party-in-power and the donor (corporate houses).

There are more reasons for donations being unfairly tilted in favor of the ruling party. If a corporate donates to the opposition party through electoral bonds, some say, it will not remain a secret from the ruling party. Whether it is the State Bank or the Income Tax Department, all are under the Ministry of Finance.

If the ruling party wants, it can get all the information from the finance ministry on donations made through electoral bonds. If this fear is true, then how many corporate houses will dare to donate to opposition parties under the pain of incurring the Ruler’s wrath?

Because of this possibility, opposition parties have to depend on illegal cash for elections. Raghuram Rajan (renowned Economist and former Governor of Reserve Bank of India) and his colleague Rohit Lamba, both critics of electoral bonds, say that the ruling party can indulge in big-budget advertisements on television, newspapers, social media, and claim it is spending legitimate money received through electoral bonds; whereas opposition political parties which have to be heavily dependent on cash from sources other than electoral bonds, don’t have this luxury.

The party in power enjoys another unfair advantage. It is well-known that many business houses can have shell companies. electoral bonds can easily be bought with a part of the money from these shell companies. If electoral bonds are bought by using this route and the money donated to the ruling party, it will not be possible for the common person and opposition parties to identify whether the donor is a shell company.

But if the same money is donated to an opposition party, then the ruling party will be able to find this out through various central agencies and go all out to expose the shell company and its illegal money.

It’s difficult to know what the Supreme Court judges will decide about Electoral Bonds, for the decision-making process will not be easy. How will political parties get funds transparently if the electoral bonds are completely done away with? On the other hand, the donor’s secrecy condition can be modified in two ways, neither of which is without problems.

The first option is to totally do away with the donor’s secrecy. Once this system is in place, everyone will know who is paying whom through electoral bonds and how much. But if there is no secrecy on this count, then why would corporate houses donate funds to political parties?

They are donating money primarily to get some benefits. If the quantum of their donation becomes public knowledge, the political parties will hesitate to give them special favors. And if the corporate houses do not get any benefits for their donations (Return On Investment = ROI), they are very unlikely to be willing to donate funds to the political parties.

The second option can be extreme secrecy. Under this system no one will know the identity of the donor, not even the recipient. The money will be deposited in a special fund for the party and will go to the party. There is a problem in this case too. If the person who is giving money cannot identify himself, then what is the use of giving money? And it seems highly unlikely that many corporate bodies will be willing to make political contributions if there is no commensurate (or more) ROI.

It’s difficult to say whether there is an easy way to collect party funds in a transparent and honest manner. But it can be easily said that the real problem isn’t fundraising — it’s the desperate political race to spend huge sums of money before the polls. In the 2019 Lok Sabha elections in India, fifty to sixty thousand crore rupees were spent by political parties.

According to the Centre for Media Studies, this has been the highest election expenses, not seen anywhere in the world. In India, the chances of winning an election go up manifold by increased spending of money. If not, why would political parties in India spend so much? As long as the general public is not able to judge political parties only by their performance, this trend will continue.