The danger of electoral bonds

The danger of electoral bonds

Context

• The electoral bonds characterstic of keeping secrecy and anonymity makes it an instrument to ease the flow of black money to political parties

Paradise Papers leaks

• All these Indians on the Paradise Papers leaks had their association with shell companies set up to siphon vast sums of money out of India and into a tax haven under the cloak of secrecy.
• The electoral bonds share with tax havens the two characteristics that make the latter such attractive destinations for black money: secrecy and anonymity.

What may be the implications?

• The 255th Law Commission Report on Electoral Reforms observed that opacity in political funding results in “lobbying and capture” of the government by big donors.
• According to the NGO, 69% of the income of political parties is from unknown sources. But even the 31% from known sources pertains only to the income that the parties declare to the Income Tax (IT) department.
• The source of funding for political parties is unknown for the greater chunk of a party’s income in any official record neither with the Election Commission (EC) nor with the IT department.

Are there any laws against such anonymous funding?

• There is a declaration norm, traditionally governed by four legislations: the Representation of the People Act (RPA), the IT Act, the Companies Act, and the Foreign Contribution (Regulation) Act (FCRA).
• Under these laws, political parties have to declare the source and the amount donated for all contributions above ₹20,000.
• The government set the ball rolling with the Finance Act 2016, which amended the FCRA to allow political parties to accept donations from foreign companies.
• The Reserve Bank of India Act was also amended to enable the issuance of electoral bonds, which would be sold through notified banks.

What electoral bonds do?

• Electoral bonds are essentially bearer bonds that ensure donor anonymity.
• In a nutshell, a foreign company can anonymously donate unlimited sums to an Indian political party without the EC or the IT department ever getting to know.

What is the government’s stance?

• But both the banks report to the RBI which is subject to the Central government’s will to know, though it remains to be seen if the former’s autonomy can withstand the latter.
• The government’s stated rationale for introducing electoral bonds was that they would protect donors from harassment by enabling anonymous contributions.