What is Electoral Bonds Scheme?

• As per the scheme, Electoral bonds mean a bond issued in the nature of a promissory note which is a bearer banking instrument not carrying the name of the buyer or payee. They are used for making donations to political parties. Govt launched it on 2 Jan 2018.
• They are issued by Scheduled Commercial Banks upon authorisation from Central Govt (not RBI) to the donor, but only against cheques and digital payments (not cash). They are redeemable in a registered political party.
• Amendments to RBI Act, 1934 and RPA, 1951 were made through Finance Bill, 2017.
• It is an interest free banking instrument issued on a non-refundable basis and is not available for trading. Further, no loan would be provided against these bonds. Purchases need to have fulfilled KYC norms.
• Electoral Bonds would have a life of only 15 days during which they can be used for making donations only to the political parties registered under Section 29A of RPA, 1951. It will be encashed by them only through a designated bank account with the authorised bank.
• No payment shall be made to any payee political party if the bond is deposited after the expiry of the validity period and the bond deposited by any political party to its account shall be credited on the same day.
• The information furnished by the buyer shall be treated confidentially. No commission, brokerage or any charges for the issue of the bond shall be payable.
• The maximum amount of cash donation that a political party can receive is stipulated at Rs. 2000/- from 1 person. Political parties are exempted from Income tax.
• As per Section 29C (1) of RPA, 1951, the political party needs to disclose the details of Non-governmental corporations and persons who donate > 20000 to it.
• Issues:
  1. Donors are left anonymous. So Electoral bonds cannot be identified or associated with any particular buyer or political party.
  2. Election Commission argues that it does not allow to check violations of RPA.
  3. Declaration of sources of funding for political parties is given in Section 29 of RPA, 1951. Before 2017, they had to declare all donations made > 20000 but now they are out of this purview.
  4. Electoral Bods are exempt from Income Tax Act.
  5. Issue of corporate funding misuse to Political parties and lobbying.
  6. Issue of favouring the ruling party. As in 2017-18, 94.6% of bonds were given to the BJP.
  7. Foreign companies with a majority stake in Indian companies can invest in Electoral bonds. This allows unchecked foreign funding.
• Benefits
  1. It limits the use of cash in political funding.
  2. It curbs Black money as the payments are made only by Cash, DD, NEFT, RTGS.
  3. It protects donors from political victimization as they remain anonymous.
• 3 National Parties received 1931 crore in FY 19 through the Electoral Bond scheme which allows anonymous donations to political parties. BJP got the highest. Both EC and RBI are against it.

For analysis on Electoral Bonds: click here