7 PM I Govt policy on funding political parties bad news for democracy I December 4th, 2019

What is the ‘electoral bond’?

• The Finance Bill, 2017, introduced “electoral bonds” that are interest free bearer bonds. It is an instrument that is used to donate money to political parties. The parties involved will probably be a donor, the political party and the RBI which acts as the intermediary.
• On January 29, 2018 government notified the Electoral Bond Scheme 2018.
• An electoral bond is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of State Bank of India.
• The citizen or corporate can then donate the same to any eligible political party of his/her choice.
• The bonds are similar to bank notes that are payable to the bearer on demand and are free of interest.
• An individual or party will be allowed to purchase these bonds digitally or through cheque.
• The electoral bonds are available for purchase for 10 days in the beginning of every quarter. The first 10 days of January, April, July and October has been specified by the government for purchase of electoral bonds.
• An additional period of 30 days shall be specified by the government in the year of Lok Sabha elections.
• Any party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one per cent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds.
• The party will be allotted a verified account by the Election Commission of India (ECI) and the electoral bond transactions can be made only through this account.
• The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.
• Donations will be tax deductible, and the benefitting political party will get a tax exemption for the amount received. Further, the RPA Act has been amended in March 2018, to exempt parties to inform the Election Commission (EC) of any amount received above Rs 2,000, if made through electoral bonds.

Need of the Electoral bonds:

• They provide a transparent mechanism for political parties to raise finances in order to meet election expenditures. Since the donor buys electoral bonds after furnishing KYC details to the bank, it is a more transparent tool than cash.
• The ADR (Association for Democratic Rights) states that 69% of political funding in India comes from unknown sources. In this context, Electoral bonds provide an alternate, transparent route for parties to raise funds.
• It also preserves anonymity of donors which is essential as they need to be protected against any post-poll intimidation or harassment by political opponents.
• Besides, the life of these bonds is only 15 days which limits the scope for misuse. Also political parties are supposed to disclose the contributions received through electoral bonds to the Election Commission. Therefore, the bonds help in cleaning up the system of electoral finance in India.
• The bonds also offer tax advantage to donors, thus making them an attractive tool for political donations.

Issues with the Electoral Bond Scheme:

While Electoral Bond Scheme acts as a check against traditional under-the-table donations as it insists on cheque and digital paper trails of transactions, several key provisions of the scheme make it highly controversial.

• Anonymity: Neither the donor (who could be an individual or a corporate) nor the political party is obligated to reveal whom the donation comes from. This undercuts a fundamental constitutional principle: the freedom of political information, which is an integral element of Article 19(1) (a) of the Constitution.
• Transparency: It will also defeat the fundamental principle of transparency in political finance. It will conceal from public scrutiny the identity of the corporates and moneybags who contribute huge amounts to political parties, especially to the ruling parties resulting in more opacity, making it a convenient channel for black money.
• Asymmetrically Opaque: because the bonds are purchased through the SBI, the government is always in a position to know who the donor is. This asymmetry of information threatens to colour the process in favour of whichever political party is ruling at the time.
• Provisions such as elimination of a cap of 7.5% when it comes to corporate donations, elimination of the requirement that corporations must reveal political contributions in profit and loss statements, and the elimination of the requirement that a corporation must be three years in existence undercuts the intent of the scheme and thus any troubled companies, dying companies, shell companies can donate to an unlimited amount, and do so anonymously.
• EBS could become a convenient channel for business to round-trip their cash parked in tax havens to political parties for a favour or advantage granted in return for something.

The controversy about electoral bond scheme:

• According to RBI, the sole authority to issue currency under Section 31 of the RBI Act, the bonds would “undermine the faith in Indian banknotes and encourage money laundering.”
• The Election Commission of India (ECI) wrote to the law ministry in May 2017 also saying that the electoral bonds as proposed would have serious impact on the transparency aspect of funding of political parties, with the possibility of shell companies being created only for making donations and warned it could increase the use of black money. Going further, the ECI filed an affidavit in the Supreme Court in March 2019 saying that electoral bonds, in their current form, should be scrapped.
• The scheme has the potential of choking the funding for all opposition parties and may give a huge undue advantage to the ruling party. This is evident from the fact that out of the bonds worth ₹220 crore sold in 2017-18, as much as ₹210 crore (95%) was donated to the BJP.

What does the Supreme Court have to say on electoral bonds?

On April 12, 2019 the Supreme Court asked all the political parties to submit details of donations received through electoral bonds to the ECI. It also asked the Finance Ministry to reduce window of purchasing electoral bonds from 10 days to five days. The apex court is yet to fix a date for hearing other pleas against the electoral bonds.

Other reforms in Indian electoral financing:

• The cap of Rs 2000 for cash donations provides an opportunity for flow of black money into elections. This should be eliminated altogether. Election Commission has suggested that parties be made to disclose contributions received in cash for smaller sums in case they exceed 20% of total funds raised. This can be considered.
• An intrusive scrutiny of election expenditure incurred by parties and candidates is required so as to ensure detection of black money in the system.
• To prevent parties from flouting expenditure norms, Election commission should permit higher expenditure limit for candidates.
• A shorter campaign period will limit expenses incurred by parties. Simultaneous elections should also be explored for the same reasons.
• National Electoral Fund, as suggested by former Chief Election Commissioner S.Y Quraishi, to which all donors can contribute, is another plausible alternative. Such a fund could be declared as the only channel through which businesses and individuals can contribute to political parties. The Election Commission can decide how the donations are shared among parties.
• Another alternative can be the implementation of Indrajit Gupta Committee (1998)report that endorsed state funding of elections, in order to establish a fair playing field for parties with less money. However the mechanics of this process need to be carefully worked out to establish the allocation of money to national parties, State parties and independent candidates.
• To bring all parties on a level playing field and to make private donations less relevant, state funding of elections can also be explored.

Conclusion: The two constitutional authorities, ECI and RBI, both are critical to the scheme and have said that it will encourage money laundering and lead to increased use of black money for political funding through shell companies. Despite the controversial views, it was introduced just because the Finance Bill was “already printed” and in defence of which a minister misled Parliament. Also, the scheme may almost completely choke the flow of funds to all opposition parties. Such controversial scheme is bad for the democratic spirit of a nation. The flaws in the scheme must be checked and alternatives can be used to fund the political parties.

Source: https://www.livemint.com/opinion/online-views/opinion-govt-policy-on-funding-political-parties-bad-news-for-democracy-11575424746442.html