Electoral Bonds have been a Mixed Bag


    Syllabus: GS2/Government Policies & Interventions

    In Context

    • Electoral bonds have received tremendous attention and scrutiny as a unique poll funding instrument since their introduction in 2018.

    Electoral Bonds

    • About:
      • Electoral bonds are money instruments like promissory notes that companies and individuals in India can buy from authorised branches of the State Bank of India (SBI).
    • An electoral bond is a bearer banking instrument that works as follows: 
      • Any donor who is an Indian citizen or incorporated or established in the country can buy the bond 
      • The donor can buy the bond from a designated branch of the SBI by submitting, among others,
        • A copy of citizenship proof, 
        • KYC documents and 
        • A declaration on the source of funds. 
      • The bond can be bought in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and `1 crore. 
      • The payment can be made through cheque, demand draft or internet banking
      • To protect the donor’s identity, the bond does not contain their name but a unique alphanumeric character.
    • Eligibility:
      • Every political party registered under Section 29A of the Representation of People Act which secured at least 1% of the votes polled in the most recent Lok Sabha or State elections is allotted a verified account by the Election Commission of India (ECI) in which the bond amounts can be deposited.
    • Validity:
      • The Electoral Bonds shall be valid for fifteen calendar days from the date of issue and no payment shall be made to any payee Political Party if the Electoral Bond is deposited after expiry of the validity period. 
      • The Electoral Bond deposited by an eligible Political Party in its account shall be credited on the same day.

    Rationale for bonds

    • Previous fundraising method:
      • Indian political parties have traditionally raised funds through donations from citizens and corporations. 
      • A donor could donate up to Rs 20,000 in cash to any party, and the latter was not required to declare the source of cash donations received within this limit. Donations exceeding this had to be made through cheque or DD. 
      • In this case, the party had to declare the source in their contribution reports submitted to the ECI. 
    • Issues of Cash donations:
      • A significant drawback of this funding system was the predominance of cash donations. 
      • To bypass disclosure to the ECI, even donations above `20,000 were accepted in cash by dividing them up into several smaller ones. 
      • Cash donations allow the anonymity of the donor and the flow of unaccounted money into the political system. 
    • discourage cash and bring transparency:
      • The government introduced an electoral bond instrument to discourage cash donations and bring transparency
    • Significance of anonymity of donor:
      • The protection of donor identity is expected to reduce the influence of cash donations and increase the traceability of election funding.
      • Proponents of the bond mechanism argue that if donor disclosure is made, the system of financing through cash would return.

    Success of introduction of bonds

    • Since its introduction, electoral bonds have become an essential source of financing for all major political parties.
    • Between March 2018 and January 2021, electoral bonds worth Rs 6,514.50 crore were redeemed by parties.
      • While the ruling party (BJP) has managed to receive the lion’s share (60.17%) of political funding made through the bonds.
      • Over half of the total income of all national and regional parties too was contributed through this method. 
    • For both the principal political parties in India (BJP & Congress), it seems that the quantum of political donations channelised through cash donations/non-identifiable sources has decreased substantially.
      • Instead, today more funds are channelised through the formal banking system.


    • A step backward:
      • Critics have termed this a significant step backward in achieving the goal of transparency in political funding.
      • It has been claimed that the scheme opens the “floodgates” to unlimited political donations and anonymous funding of political parties by Indian and foreign companies, thereby legitimising electoral corruption on a huge scale. 
    • Issues with donor anonymity:
      • The donor anonymity feature of the bonds works against the complete fulfilment of the transparency goal.
        • Scheme’s anonymity also violates a citizen’s ‘right to know’.
      • What the bond mechanism achieved was increased formalisation of political funding. But it has failed to track the donors.
        • Following the Law Commission’s recommendations, the ECI has proposed a cap of Rs 20 crore or 20% of overall contributions from unknown sources. 
    • Introduction as a ‘Money bill’:
      • The electoral bonds system was introduced by way of a money bill introducing amendments to the Finance Act and the Representation of Peoples Act.
      • The Rajya Sabha has no power to reject or amend as it was introduced as a ‘Money bill.
        • This was allegedly to circumvent the scrutiny of the Rajya Sabha, where the ruling Party does not enjoy a majority.
    • Concerns raised by the Election Commission:
      • ECI said that electoral bonds would wreck transparency in political funding and invite foreign corporate powers to impact Indian politics
      • It also warned that the bonds would open up the possibility of shell companies set up for the sole purpose of making donations to political parties, with no other business consequence or disbursable profit. 
      • It pointed out that the amendments virtually made the ECI guidelines of August 29, 2014 redundant.
        • These require political parties to file reports on contributions received, audited annual accounts, and election expenditure statements.
    • RBI’s objections:
      • The Reserve Bank of India (RBI) had repeatedly warned about its potential to increase black money circulation, money laundering, cross-border counterfeiting, and forgery
      • Terming electoral bonds ‘opaque financial instruments’, the RBI pointed out that since the bonds are transferable any number of times like currency, their inherent anonymity can be exploited for money laundering. 

    Way ahead

    • To sum up, electoral bonds can be considered an improvement over the previous system as it has helped formalise that part of the election funding hitherto made through cash. 
    • However, the absence of a provision to disclose donor details flies in the face of complete transparency.
    Daily Mains Question
    [Q] What is the rationale behind the introduction of electoral bonds? Why are the electoral bonds criticised for legitimising electoral corruption in India?