Electoral Bonds in recent Assembly Elections

• 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 donor, but only against cheque 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 it can be used for making donation 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 favoring the ruling party. As in 2017-18, 94.6% of bonds given to 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 donor from political victimization as they remain anonymous.
• 3 National Parties received 1931 crore in FY 19 through Electoral Bond scheme which allows anonymous donations to political parties. BJP got the highest. Both EC and RBI are against it.

Electoral bonds worth 695 cr. sold during the recent elections

• The Electoral bond scheme allows any Indian citizen or company to purchase the bonds sold by the SBI in denominations of 1,000, ?10,000, 1 lakh, ?10 lakh and 1 crore and give them to political parties anonymously.
• The State Bank of India (SBI) sold electoral bonds worth 695.34 crores from April 1 to 10, when the Tamil Nadu, Puducherry, West Bengal, Assam and Kerala polls were in full swing, says an RTI reply by the bank.
• The amount sold was the highest ever for any Assembly elections since the scheme started in 2018, according to the numbers provided in the reply.
• All but 2,000 of the bonds sold in the 16th phase of the scheme were encashed. Predictably, the sale shot up during the elections in comparison to the previous tranche in January when bonds worth 42.1 crores were sold, it said.
• The highest amounts were sold at the Kolkata branch (?176.1 crores), followed by New Delhi (167.5 crores) and Chennai (?141.5 crore).
• The Hyderabad and Mumbai branches sold 91.5 crores worth of bonds each, while 15 crores worth of bonds were sold at the Gandhinagar branch, 5 crores in Jaipur, ?4.15 crore in Guwahati and 3 crores in Panaji.
• In the 16th phase of the scheme, 972 out of the 974 electoral bonds were encashed, with over half the amount — 351 crore — being encashed at the New Delhi branch. The rest were encashed at Bhubaneshwar (116 crores), Chennai (106 crores), Hyderabad (63.5 crores), Kolkata (55 crores) and Mumbai (3.8 crores).
• In its May 14 reply to a query filed by Bihar-based RTI activist Kanhaiya Kumar on April 16, the SBI declined to name the political parties that encashed the bonds, saying it was “third party personal information” that was exempted under the RTI Act.
• The bank also declined to share the details of how much commission it had earned from the sale of bonds since the scheme started in 2018, saying the information was of “commercial confidence in nature” and its disclosure would “harm the competitive position of the bank”. Mr. Kumar, however, pointed out that the SBI was the only bank authorised to sell electoral bonds by the government.

For analysis on Electoral Bonds: click here