Electoral Reforms In India

[pib] Electoral Bonds Scheme


From UPSC perspective, the following things are important :

Prelims level: Electoral Bonds

Mains level: Not Much

The 19th phase of sale of Electoral Bonds will commence ahead of elections is some states.

What are Electoral Bonds?

  • Electoral bonds are banking instruments that can be purchased by any citizen or company to make donations to political parties, without the donor’s identity being disclosed.
  • It 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.
  • An individual or party will be allowed to purchase these bonds digitally or through cheque.

About the scheme

  • A citizen of India or a body incorporated in India will be eligible to purchase the bond
  • Such bonds can be purchased for any value in multiples of ₹1,000, ₹10,000, ₹10 lakh, and ₹1 crore from any of the specified branches of the State Bank of India
  • The purchaser will be allowed to buy electoral bonds only on due fulfillment of all the extant KYC norms and by making payment from a bank account
  • The bonds will have a life of 15 days (15 days time has been prescribed for the bonds to ensure that they do not become a parallel currency)

Objective of the scheme

  • Transparency in political funding: To ensure that the funds being collected by the political parties is accounted money or clean money.

Who can redeem such bonds?

  • The Electoral Bonds shall be encashed by an eligible Political Party only through a Bank account with the Authorized Bank.
  • Only the Political Parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last General Election to the Lok Sabha or the State Legislative Assembly, shall be eligible to receive the Electoral Bonds.

Restrictions that are done away

  • Earlier, no foreign company could donate to any political party under the Companies Act
  • A firm could donate a maximum of 7.5 per cent of its average three year net profit as political donations according to Section 182 of the Companies Act.
  • As per the same section of the Act, companies had to disclose details of their political donations in their annual statement of accounts.
  • The government moved an amendment in the Finance Bill to ensure that this proviso would not be applicable to companies in case of electoral bonds.
  • Thus, Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.

Issues with the Scheme

  • Opaque funding: While the identity of the donor is captured, it is not revealed to the party or public. So transparency is not enhanced for the voter.
  • No IT break: Also income tax breaks may not be available for donations through electoral bonds. This pushes the donor to choose between remaining anonymous and saving on taxes.
  • No anonymity for donors: The privacy of the donor is compromised as the bank will know their identity.
  • Differential benefits: These bonds will help any party that is in power because the government can know who donated what money and to whom.


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