Book Excerpt: The Opaque Electoral Bonds

the scheme last week. During the hearing, the apex court, however, flagged a new issue—the possibility of misuse of money received by political parties for activities like funding terror or violent protests— and asked the Centre whether it has any control on the end use of the money. I wish the court had mentioned another important and new area of dubious expenditure—purchase of MLAs after elections to overturn the public mandate.

The bench was hearing a plea by the Association for Democratic Reforms (ADR), which was seeking a stay on fresh sale of electoral bonds while its petition challenging the electoral bonds scheme was pending.

The issue has been hanging fire since February 2017 when, in his budget speech, Finance Minister Arun Jaitley made two profound statements: one, without transparency of political funding, free and fair elections are not possible; and two, despite seventy years of concern we have failed to achieve the transparency required. 

After these momentous statements, one expected that the issue would be resolved. However, what he announced was the opposite of the desire he expressed.

Electoral bonds were born.And transparency died.Till then, every transaction of more than `20,000 in the context of elections was reported to the Election Commission. Now, even `20 crore or `200 crore could be donated anonymously.The reason given was that the donors want secrecy.

Why would donors want secrecy? To hide return favours like contracts, licences and bank loans, with which some of them may abscond to foreign lands? For seven decades, corporations have been donating to all parties in India, and often the same donors fund rival parties. Did any ruling party ever harass a donor who donated to its rivals? Did the current ruling party do so? If not, the excuse that donors want secrecy is phoney. It is clearly a case of private interests in conflict with the public interest of transparency.

Importantly, both the RBI and ECI, standing up to their mandates, had registered their strong protest against the electoral bonds scheme. The ECI, in a letter to the ministry of law and justice, warned that electoral bonds, combined with the preceding legislative amendments, would encourage large sums in illegal donations. It would lead to the mushrooming of shell companies to funnel black money into the political system through these bearer bonds.

However, the ECI counsel in April 2021 submitted that the commission supports electoral bonds. ‘Without electoral bonds, we will go back to the earlier cash system, which was unaccounted. Bonds is one step forward, as all transactions are through banking channels,’ he said.This is exactly the government line. Is this change of stand surprising?

The introduction of electoral bonds through the budget was not an isolated act. The Finance Act 2017 introduced amendments in the Reserve Bank of India Act, Companies Act, Income Tax Act, Representation of the People Act and Foreign Contribution Regulations Act to make way for electoral bonds.

There were three serious changes which did not receive the deserved attention. First, the limit of 7.5 per cent of profits which a company could donate was not just increased but completely done away with by amending Section 182 of the Companies Act, 2013.Thus, a company can donate 100 per cent of its profits to a political party. Even a loss-making company could make political donations.This is a sure step to legitimize and legalize crony capitalism. Companies can now virtually run the government, as we can see happening.

There was more to follow. Section 29B of the Representation of the People Act, 1951 prohibits political parties from accepting any contribution from a ‘foreign source’. Moreover, Section 3 of the 2010 Foreign Contribution (Regulation) Act bars candidates, legislative members, political parties and party office holders from accepting foreign contributions. In 2014, when the Delhi High Court found that the Congress and BJP had accepted foreign funds in violation of the FCRA 1976,the BJP government passed a retroactive amendment through a 2016 finance bill, which repealed the 1976 Act and replaced it with the modified 2010 statute.

If any foreign country is financing our elections, it will now be a protected secret.We have seen how foreign interference in other countries’ elections is a reality. Even a superpower such as the US could not protect itself from this transgression, that too from its declared enemy number one.This is a serious concern, indeed a blot, on any democracy’s electoral system.

The Supreme Court’s concern about the possibility of misuse of funds is very pertinent.We need transparency, both about the source of income and its expenditure.The Election Commission has been demanding that a law be passed to make political parties liable to get their accounts audited by an auditor from a panel suggested by the Comptroller and Auditor General (CAG) or the Election Commission, and not by their party cardholders, who only whitewash the accounts.

I think the best way forward is simple—don’t abolish electoral bonds if you don’t want to, just disclose the identities of the donors and the recipients.This is something the government could do in thirty seconds. Since it is futile to expect the government to do it, the Supreme Court could have easily ordered this and clinched the issue. One wishes the highest court of the land would consider this case as one of national importance and show some urgency.

Let’s not forget that it was the same Supreme Court which had done great service in 2002-03 for the cause of transparency when it made it compulsory for electoral candidates to declare their financial dealings and criminal cases while filing their nominations. When the government tried to dilute the judgment by an enactment, the court even declared the law ultra vires. Is it wrong to expect the same judicial standards in other cases too?

Another alternative is to do away with collection of private funds altogether and replace it with public funding of political parties.This is not likely to amount to more than `10,000 crore every five years, if we were to go by the collection made by all the parties cumulatively. It’s a small price to pay for democracy.

Another feasible option is to establish a national election fund to which all donations could be directed.This would take care of the imaginary fear of political reprisal against the donors. Income tax rebates would make it an attractive proposition.The money from the fund could then be allocated to political parties on the basis of their electoral performance.

Let’s end by reminding the finance minister of her predecessor’s opening statement in the 2017 Budget speech, that ‘without transparency of political funding, free and fair elections are not possible’.

Published with permission from HarperCollins Publishers India