ELECTORAL
BONDS - POLITY
News: Centre amends Electoral Bond scheme to open a fresh one-week window for sales of such bonds starting November 9
What's
in the news?
● Weeks ahead of the Gujarat and Himachal Pradesh polls, the Centre on November 7, 2022 amended the Electoral Bond Scheme to grant itself the power to spell out an extra fortnight of electoral bond sales in years when States and Union Territories with a legislature have polls, and used the power to open a fresh one-week window for issuing such bonds starting November 9.
Key
takeaways:
●
The Electoral Bond Scheme was introduced
in 2018 as an alternative to cash
donations made to political parties, and the government had notified a
ten-day window in October this year for what was the 22nd tranche of such bonds
issued and encashed solely by the State Bank of India (SBI).
●
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.
Electoral
bonds:
●
Electoral bonds are interest-free bearer instruments (like Promissory Notes) that will
be available for purchase from the State Bank of India within a designated
window of 10 days in every quarter of the financial year.
●
Electoral bonds allow donors to pay
political parties using banks as an intermediary.
●
It can be bought for any value in
multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore.
●
These can be redeemed only through the
registered accounts of a political party in a prescribed time frame.
● It aims at rooting out the current system of largely anonymous cash donations made to political parties which lead to generation of black money in the economy.
Who
is eligible to purchase electoral bonds?
●
A citizen
of India or a body incorporated in India will be eligible to purchase the
bond.
●
The purchaser is allowed to buy electoral
bonds only on due fulfilment of all extant KYC norms and by making payment from
a bank account.
● It will not carry the name of the payee, thereby maintaining anonymity of the purchaser.
Validity:
●
It will have a life of 15 days during which they can be used
to make donations to registered political parties.
●
The bond can be encashed by an eligible
political party only through a designated bank account with the authorised
bank.
● The electoral bonds will be available for purchase for a period of 10 days each in months of January, April, July and October with additional 15 days to be specified by the Central government in the year of general election so that this does not become a parallel currency.
Who
can avail funding?
● Political parties that have secured not less than 1% of votes polled in last general election to Lok Sabha or Assembly can avail funding through these bonds.
Who
is eligible for issuance of bonds?
● The bonds are issued by Scheduled Commercial banks upon authorization from the Central Government to intending donors but only against cheque and digital payments (it cannot be purchased by paying cash).
Why
is it needed?
1.
Cut out anonymous source of funding:
●
According to Association for Democratic
Reforms (ADR), most political parties use a lax regime on donations to accept
cash donations from anonymous sources. Nearly 70% of Rs. 11,300 crore in party
funding over an 11-year period came from unknown sources.
●
The electoral bonds will prompt donors to
take a banking route to donate, with their identity captured by the issuing
authority.
2.
Transparency in funding:
●
Promoting transparency in funding and
donations received by political parties
●
Building a transparent system of acquiring
bonds with validated KYC and an audit trail.
3.
Ensures Accountability:
●
Donations through Electoral Bonds will
only be credited in the party bank account disclosed with the ECI.
●
As encashment of all the donations are
through banking channels, every political party shall be obliged to explain how
the entire sum of money received has been expended.
4.
Maintains Anonymity:
●
The individuals, groups of individuals,
NGOs, religious and other trusts are permitted to donate via electoral bonds
without disclosing their details.
● Therefore, the identity of the donor is being preserved.
Concerns:
1.
Anonymity: Neither the donor nor the political party is
obligated to reveal whom the donation comes from.
2.
Black Money: The sale of electoral bonds had become an
avenue for shell corporations and entities to park illicit money and even proceeds
of bribes with political parties.
3.
Tax Exemption: Electoral Bonds donations enjoy 100% tax
exemption. Further, they need not be reported to the Income Tax department
either.
4.
Removal of Cap on Net Profit Donations: The government has
removed the eligibility cap for funding political parties. Earlier a company
can make a political contribution only if it has 7.5% of the net average profit
for three preceding financial years. Thus, Electoral bonds open up another
route to further the unholy nexus between corporate houses and political
parties.
5.
Foreign funds: The Foreign Contribution Regulation Act,
2010 has been amended to exempt from scrutiny foreign funds received by
political parties with retrospective effect from 1976.
6. Black Money: The amended Companies Act allows any foreign company registered in India to make contributions through bonds to political parties despite doubts about who or where its real owners are.
Election
Commission Observations:
●
The Election Commission of India called
these measures as a retrograde step and the ECI has no way to ascertain whether
the donations were received illegally by the political party from government
companies or foreign sources.
●
The Election commission also expressed
concerns that these amendments would pump in black money for political funding
through shell companies and allow unchecked foreign funding of political
parties in India which could lead to Indian politics being influenced by
foreign companies.
●
In an affidavit filed before the Supreme
Court, the Election Commission of India has made the following observations:
●
Electoral
bonds, contrary to government claims, wreck transparency in political funding.
●
Electoral bonds coupled with the removal of the cap on foreign funding
invites foreign corporate powers to impact Indian politics.
●
Electoral bonds would cause a “serious
impact” on transparency in the funding of political parties.
● The Election Commission of India further criticises amendments made to various key statutes through the two consecutive Finance Acts of 2016 and 2017.
Way
forward:
1.
Measures to ensure transparency in political funding:
●
To make electoral funding transparent, two
types of needs should be addressed such as
○
The funding of political parties, which
need to engage in political activity all through the year, whether there is an
election or not.
○
The funding of candidates.
○
The electoral bonds scheme makes no sense,
and needs replacement with a more transparent means of funding political
parties, where both the donor and political recipient are identified clearly.
2.
National Electoral Fund:
●
An alternative to electoral bonds is a
National Electoral Fund to which all donors can contribute.
●
The funds would be allocated to political
parties in proportion to the votes they get.
●
Not only would this protect the identity
of donors, it would also weed out black money from political funding.
●
At the candidate level, we have to
seriously consider state funding. Direct funding of candidates, who will be
reimbursed according to their final share of the votes cast is needed.
3.
Details to be submitted to Election Commission:
●
There should be clear provisions for
getting tax benefits for all those making such donations.
●
Make it mandatory for political parties to
submit details of all donations received with the Election Commission and also
with the income-tax department.
4.
State funding of election:
●
State funding of political parties can be
considered.
●
The Indrajit Gupta Committee on State
Funding of Elections had endorsed partial state funding of recognised political
parties.
5.
Bringing political parties under RTI to make it more
accountable and transparent.