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Electoral Bonds

Why is it in the news?

  • Recently, the Indian government has announced the 28th tranche of electoral bond sales, which will take place from October 4 to October 13, 2023.
  • Under the original scheme, electoral bonds are sold in four windows each year: January, April, July, and October. An additional 30-day period is provided in the year of the Lok Sabha elections.

About Electoral Bonds

  • Introduced in 2017 via a Finance Bill, implemented in 2018.
  • Facilitates donations to registered political parties while ensuring donor anonymity.
  • State Bank of India (SBI) exclusively issues Electoral Bonds in various denominations: Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.
  • Can be purchased by Indian citizens or entities established in India.
  • Can be bought individually or jointly with other individuals.
  • Valid for 15 calendar days from the date of issue.
  • Only political parties registered under Section 29A of the Representation of the People Act, 1951, and securing at least 1% of votes polled in the last general election to the House of the People or Legislative Assembly are eligible to receive electoral bonds.
  • Parties can only encash these bonds through an authorized bank account of the political party.
  • Political parties are required to disclose their bank account with the Election Commission of India (ECI).

Pros of Electoral Bonds

  • Tackling Black Money: Electoral bonds require KYC compliance, promoting the use of clean, legal money in political funding.
  • Transparency and Accountability: The filing of returns helps evaluate the amount of money received by political parties, enhancing transparency.
  • Anonymity: Donor anonymity protects against potential retaliation in India’s competitive political landscape.
  • Preventing Parallel Currency: The short redemption period (15 days) prevents electoral bonds from functioning as a parallel currency.
  • Stringent Eligibility Criteria: Eligibility criteria filter out parties formed for tax evasion, ensuring a more genuine political landscape.

Cons of Electoral Bonds

  • Opacity: Limited entities know the details of donations, donors, and recipient parties, reducing transparency for the public.
  • Exemption from Reporting: Electoral bonds are exempt from the requirement to report contributions above Rs 20,000 to the Election Commission, reducing oversight.
  • Exemption from Income Tax Act: It exempts electoral bonds from the Income Tax Act, removing the need to maintain records of donors contributing more than Rs 20,000.
  • Potential Favoritism: As SBI, a government-owned bank, holds donor information, it may benefit the ruling party and deter donations to opposition parties due to fear of repercussions.
  • Unchecked Corporate Sector: The Companies Act restrictions on political donations have been removed for electoral bonds, potentially leading to unregulated corporate influence.
  • Emergence of Shell Companies: The removal of restrictions may encourage the formation of shell companies for illicit political funding.
  • Lack of transparency in donor information: Companies are not required to disclose which political party they have donated to, leaving shareholders in the dark.
  • Informal Reporting: Corporate donors can informally report donations to the donee party, bypassing formal regulations.

Election Commission’s arguments against the Electoral Bonds Scheme

  • Does not allow ECI to check violation of provisions in the Representation of the People Act: As any donation received by a political party through an electoral bond has been taken out of the ambit of reporting under the Contribution Report. For instance, the Representation of the People Act, 1951 prohibits the political parties from taking donations from government companies.
  • Allows unchecked foreign funding: An amendment to the Foreign Contribution Regulation Act (FCRA) allow political parties to receive funding from foreign companies with a majority stake in Indian companies. It can lead to Indian policies being influenced by foreign companies.

Measures to enhance transparency in Electoral Bond Scheme 

  • Enforce regulations requiring political parties to disclose all donations, including those received through electoral bonds. Mandate disclosure of donor details, amounts, and dates of contributions.
  • Empower the Election Commission of India (ECI) to examine donations made through electoral bonds. Allow the ECI to scrutinize both the bonds themselves and the expenditure by political parties.
  • Conduct a thorough audit and review of the Electoral Bond Scheme to identify and close any existing loopholes.
  • Subject the Electoral Bond Scheme to regular judicial scrutiny to assess its compliance with legal and constitutional standards.

Allow the judiciary to provide guidance and rulings on any legal challenges or concerns

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