What are Electoral bonds (EBs) and their Features. Discuss with its Criticism?

Electoral bonds

• Electoral bonds are a financial instrument introduced by the Government of India in 2018 to facilitate anonymous political donations.
• An electoral bond is a bearer instrument, like a promissory note, that is payable to the bearer on demand to donate their contributions to political parties.

Eligible to receive electoral bonds

• Only registered political parties are eligible to receive electoral bonds. 
• However, there are certain criteria that political parties must meet to be eligible to receive electoral bonds. These are:
• Recognition: The political party must be registered under Section 29A of the Representation of the People Act, 1951.
• Recent Election Performance: The party must have secured at least 1% of the votes polled in the most recent Lok Sabha or State Assembly election.

Available denominations:

• The Government of India has specified various denominations for electoral bonds, ranging from Rs. 1,000 to Rs. 1 crore.
• Authorized bank: SBI is the only bank authorised to sell these bonds.

Key Features of Electoral Bonds

Anonymity:

• Electoral bonds provide anonymity to the donor by not revealing the identity of the donor to the public or the recipient political party.

Purchase and Redemption: 

• Electoral bonds can be purchased from authorized banks using legal tender. 
• They are available in fixed denominations, and the minimum value of an electoral bond is set by the government. 
• These bonds can be redeemed only by registered political parties within a specified time frame.

Validity: 

• Electoral bonds are valid for a limited period, typically 15 days, during which they can be used for making donations to eligible political parties.

Exclusivity: 

• Only political parties that have secured at least 1% of the votes in the most recent Lok Sabha or State Assembly election are eligible to receive electoral bond donations.

Transparency: 

• While the names of donors remain anonymous, the political parties receiving the electoral bond donations are required to disclose details of the donations in their financial statements to the Election Commission of India.

Rationale behind the introduction of EB

Encouraging Digital Transactions: 

• The electoral bond scheme was intended to promote a shift from cash-based political donations to digital transactions. 
• By facilitating donations through banks, the government aimed to reduce the use of unaccounted or black money in political funding.

Anonymity of Donors: 

• It aimed to provide anonymity to donors. The donor’s name is not mentioned on the bond.
• Donors who contribute less than Rs 20,000 to political parties through purchase of electoral bonds need not provide their identity details such as PAN, etc.
• It was argued that this would protect individuals or entities from potential backlash or reprisals due to their political affiliations. 

Formalizing Political Contributions:

• The introduction of electoral bonds aimed to formalize political contributions by channelling donations through the banking system. 
• This move aimed to establish a documented trail of donations, making the process more transparent and accountable.

Enhancing Transparency: 

• While the donors’ identities remain anonymous, the electoral bond scheme aimed to enhance transparency in political funding.
• It does so by mandating political parties to disclose the details of electoral bond donations in their financial statements.

Criticisms of Electoral Bond

Lack of Transparency:

• While the scheme requires political parties to disclose the amount of donations received through electoral bonds, the identity of the donors remains anonymous. 

Potential for Money Laundering: 

• Critics argue that the anonymity provided by electoral bonds can be misused for money laundering or routing black money into the political system. 

Unequal Advantage to Ruling Parties: 

• The fact that such bonds are sold via a government-owned bank (SBI) leaves the door open for the government to know exactly who is funding its opponents.
• This, in turn, allows the possibility for the government of the day to either extort money, especially from the big companies, or victimise them for not funding the ruling party.

Bypassing Election Commission Scrutiny: 

• Unlike other forms of political funding, electoral bonds do not require ECI approval or verification, which can undermine the ECI’s oversight role in regulating political funding and ensuring a level playing field.

No upper limit on funding

• Before the electoral bonds scheme was announced, there was a cap on how much a company could donate to a political party: 7.5 per cent of the average net profits of a company in the preceding three years. 
• However, the government amended the Companies Act 2013 to remove this limit, opening the doors to unlimited funding by corporate India.

Concerns raised by RBI and EC

• RBI and the ECI have raised concerns about electoral bonds. They said that electoral bonds could:
• Increase black money circulation, money laundering, cross-border counterfeiting, and forgery;
• Set a bad precedent by encouraging money laundering and undermining faith in Indian banknotes;
• Erode a core principle of central banking legislation;
• Legitimize opacity in how elections are funded;
• Become vehicles for money laundering for shell companies and foreign donations.