[op-ed snap] The danger of electoral bonds

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Mains Paper 2: Governance | Citizens charters, transparency & accountability & institutional & other measures

From UPSC perspective, the following things are important:

Prelims level: Law Commission, Association of Democratic Reforms, Representation of the People Act, The Foreign Contribution (Regulation) Act (FCRA)

Mains level: Funding to political parties


Context

  1. Transparency in political funding is the global norm
  2. 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
  3. The lower the transparency in political funding, the easier it is for the super-rich to buy the kind of government they want

Funding to political parties

  1. According to the NGO, Association of Democratic Reforms, 69% of the income of political parties is from unknown sources
  2. Even the 31% from known sources pertains only to the income that the parties declare to the Income Tax (IT) department
  3. The real incomes of political parties are far greater than their declared income, all due to black money
  4. Not only is the source unknown for the greater chunk of a party’s income, even the very existence of this income is ‘unknown’, as it is not captured in any official record

Declaration norms

These are traditionally governed by four legislations

  1. The Representation of the People Act (RPA),
  2. The IT Act,
  3. The Companies Act, and
  4. 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
  • Political parties cannot accept foreign contributions
  • Similarly, companies have to declare in their profit and loss (P&L) statement the party-wise break-up of political donations
  • Also, a company must be at least three years old to contribute to a party
  • Its contribution cannot be more than 7.5% of its average net profit in the three preceding years

Making way for Electoral bonds

  1. 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
  2. This year, the Finance Act 2017 did the rest, by amending the RPA, the Companies Act, and the IT Act
  3. 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?

  1. Electoral bonds are essentially bearer bonds that ensure donor anonymity
  2. They are like cash, but with an expiry date.
  3. Let’s say company ‘X’ wishes to contribute ₹100 crore to political party ‘Y’
  4. It could buy ten electoral bonds of ₹10 crore each from bank ‘A’
  5. These bonds would carry only a serial number and not the identity of the buyer
  6. X would have these bonds deposited in Y’s designated account with bank ‘B’
  7. B would know that this money belongs to Y but it doesn’t record the fact that it has come from X

Changes in donation limitations via Electoral bonds

  1. The cluster of amendments around electoral bonds eliminate the 7.5% cap on company donations
  2. This means even loss-making companies can make unlimited donations
  3. The requirement for a company to have been in existence for three years is also scrapped
  4. Companies no longer need to declare the names of the parties to which they have donated
  5. As for political parties, they no longer need to reveal the donor’s name for contributions above ₹20,000, provided these are in the form of electoral bonds
  6. A foreign company can anonymously donate unlimited sums to an Indian political party without the EC or the IT department ever getting to know

Danger to democracy

  1. The most pernicious feature of electoral bonds is their potential to load the dice heavily in favor of the ruling party
  2. Banks receiving donation amounts on behalf of political parties as well as companies report to the RBI which, in turn, is subject to the Central government’s will to know
  3. So, only the ruling party — and no one else — can ascertain which companies donated to the Opposition parties
  4. It is then free to use the organs of the state to gently dissuade (or retaliate against) these misguided donors
  5. Only the government is in a position to harass, or alternatively, protect, donors from harassment by non-state harassers

Way forward

  1. Former Chief Election Commissioner S.Y. Quraishi has suggested an alternative worth exploring
  2. A National Electoral Fund to which all donors can contribute
  3. The funds would be allocated to political parties in proportion to the votes they get
  4. Not only would this protect the identity of donors, it would also weed out black money from political funding
Electoral Reforms In India
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