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Daily Editorial – Electoral Bonds and Transparency in Electoral Funding

  •  Electoral Bonds and Transparency in Electoral Funding 
  1. Introduction
  2. What are Electoral bonds?
  3. How can the banks issue such bonds?
  4. Has such a step been taken before?
  5. What are the benefits of the move?
  6. Why some experts are sceptic about it?
  7. Other debates
  8. Suggestions for stronger reforms
  9. Conclusion

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Electoral Bonds and Transparency in Electoral Funding 


The need for transparency in political funding has been at the centre of the debate on electoral reforms in this context, couple of measures on electoral funding reforms were announced by finance minister Arun Jaitley in the budget aimed at cleaning up political funding—which is long considered to be the biggest source of black money.

  • The government accepted the Election Commission’s (EC) recommendation of capping anonymous donation to Rs2000 down from Rs20000.
  • It also introduced the first-of-its-kind “electoral bonds” as a means of donating to political parties.

The opinion whether the move is good or bad is divided as the move has been debated intensely over the last two days. We bring to you both sides of the debate in this column so that you have a comprehensive coverage at one place.

Before that we shall clear some basic questions:

What are Electoral bonds?

While all details on electoral bonds are not out yet, here’s what is known: a person wishing to donate to a political party can purchase these bonds from an authorized bank using cheques or digital payment methods. These bonds shall be redeemable only in the designated account of a registered political party.

On the face of it, these bonds look like bearer bonds. These are instruments which are not registered in the name of a specific owner and will pay to whoever bears them.

How can the banks issue such bonds?

Section 31 of the RBI Act gives power, as of today, to issue bearer bonds only to RBI and the government. The bearer bond has the characteristic of a currency. That is why the power is not given to a bank.To let commercial banks issue these bonds, the government will have to amend the RBI Act.

Has such a step been taken before?

This is not the first time that the government has issued bearer bonds.

In 1987, the then government floated a development bond called Indira Vikas Patra, which was issued through post offices. Since this had the characteristic of a bearer bond, it conferred anonymity to the holders of this bond. However, it was finally discontinued after it was suspected that these bonds were used as a conduit for laundering black money.

What are the benefits of the move?

Some experts claim, the announcement will bring more transparency on who the donor and donee is, and is in line with the EC’s view that curbs on anonymous donations would help keep a check on parties that are formed only with “an eye on availing the benefits of income tax exemption.

There are many bogus political parties which have been registered with the Election Commission and accept donations but never contest election. These parties had become avenues of dumping ill-gotten money and a check on their financial transactions will definitely help the government achieve its goal of eliminating corruption and black money from the system.

Why some experts are sceptic about it?

They call it a half-baked move. The Section 29C of the Representation of People Act, 1951, allowed political parties to accept donations of Rs 20,000 from anonymous individuals. This has now been reduced to Rs 2,000. This basically means that all the political party receiving cash donations needs to do is to split one cash donation of Rs 20,000, into ten cash donations of Rs 2,000, and continue with the system as it has evolved.

Earlier, those who did not want to declare donations used to issue receipts for Rs 19,999. Now they will do the same for Rs 1,999.

All that the parties will now have to do is find more people to lend their names to these donations, or better still, find more names of unsuspecting people to be listed as cash donors. The proposal does not disrupt the flow of illicit political donations but only channels it differently, and will not reduce the proportion of cash from unverifiable sources in the total donations received.

Other debates

The government move to amend the Act to allow commercial banks to issue such bonds is leading to some discomfort among RBI officials who feel it will erode some of the central bank’s authority.

This will unnecessarily fragment the note-issuing authority’s capacity. The government can do without amending the Act. But since RBI is creation of RBI Act, there is no question of the erosion of RBI’s autonomy or authority.

Suggestions for stronger reforms

  1. They should have placed a cap on the amount a party may receive in cash as a donation or much better still if government is serious about cleaning up electoral funding they would have simply banned cash donations to political parties and at the same time there would be no donations from unknown sources. If individuals in this country are expected to go cashless and make use of digital payment mechanisms, the political parties should be expected to do the same as well. It is much easier for them to get the necessary infrastructure in place.
  2. The proposal to allow donors to purchase electoral bonds from banks against cheque and digital payments to be given to registered political parties for redemption, meant to cater to donors’ need to remain anonymous to rival political parties, which hardly contributes to transparency. Indeed, donors should not enjoy any anonymity, before tax authorities or the general public. The absence of such anonymity, of course, will bring down the level of contributions from corporate houses and other entities to parties.
  3. Plain and simple, bring all the political parties under the purview of the RTI Act.


Government seem to have missed their“loha garam hai maar do hathoda”moment, to clean up the face of electoral funding in India with intense debate around it.

Experts feel this is the first step towards cleaning up political funding, and more measures would need to be taken.

As former election commissioner S Y Quraishi told The Indian Express, “It is a positive move and also an acknowledgment that political funding is an issue that needs to be addressed. As the Budget also says, this is the first step and not the final one. I hope this will be taken to the logical conclusion.”



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