Electoral Bonds

Syllabus subtopic: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Prelims and Mains focus: Key features of Electoral Bonds Scheme and its significance; merits and demerits of electoral bonds

News: The State Bank of India (SBI) has been authorised to sell and encash electoral bonds, the 13th such sale since the scheme started in 2018, from January 13 to 22, a Finance Ministry statement said on Thursday.

• The bonds will be sold through 29 authorised SBI branches and the parties can encash them through an account with the SBI.

About Electoral bonds:

Electoral bonds allow donors to pay political parties using banks as an intermediary.

Key features: Although called a bond, the banking instrument resembling promissory notes will not carry any interest. The electoral bond, which will be a bearer instrument, will not carry the name of the payee and can be bought for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore.

Eligibility: As per provisions of the Scheme, electoral bonds may be purchased by a citizen of India, or entities incorporated or established in India. A person being an individual can buy electoral bonds, either singly or jointly with other individuals. Only the registered Political Parties which have secured not less than one per cent of the votes polled in the last Lok Sabha elections or the State Legislative Assembly are eligible to receive the Electoral Bonds.

Need: The electoral bonds are aimed at rooting out the current system of largely anonymous cash donations made to political parties which lead to the generation of black money in the economy.

Merits of electoral bonds

• The previous system of cash donations from anonymous sources is wholly non-transparent. The donor, the donee, the quantum of donations and the nature of expenditure are all undisclosed
• According to government 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.
• 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.

Related Concerns

• The bonds could be misused, given the lack of disclosure requirements for individuals purchasing electoral bonds.
• Electoral bonds make electoral funding even more opaque. It will bring more and more black money into the political system.
• With electoral bonds there can be a legal channel for companies to round-trip their tax haven cash to a political party. If this could be arranged, then a businessman could lobby for a change in policy, and legally funnel a part of the profits accruing from this policy change to the politician or party that brought it about.
• Electoral bonds eliminate the 7.5% cap on company donations which means even loss-making companies can make unlimited donations.
• Companies no longer need to declare the names of the parties to which they have donated so shareholders won’t know where their money has gone.
• They have potential to load the dice heavily in favour of the ruling party as the donor bank and the receiver bank know the identity of the person. But both the banks report to the RBI which, in turn, is subject to the Central government’s will to know.