Electoral bonds: Do the govt's proposals make party funding transparent?

After GST, the government now plans to shift focus to electoral funding reforms

With the government machinery busy in rolling out the GST regime in the country, the Finance Minister, Arun Jaitley has hinted at what his government’s next big focus area is going to be. 

"In the immediate future, after GST process is complete ...We are looking forward for some major steps to be announced by which we want to cleanse the whole process of political funding," said Jaitley on Wednesday.

This follows the FM’s announcements in his budget speech on 1 Feb, 2017. In the speech, he made two announcements. These were:

1. Reduction in limit for cash donation to political parties from Rs 20,000 to Rs 2,000
2. A proposal to issue electoral bonds

Reduction in limit for cash donations

Political parties are not required to maintain records of cash donations upto Rs 20,000. This is said to be a corruption enabler as parties can divide large cash contributions into smaller amounts and not keep any official records of the same. In their defence, political parties claim that donors are often unwilling to reveal their identity as it could lead to problems for them. By proposing to reduce this limit to Rs 2,000, the government seeks to make it harder for parties to accept cash donations and therefore fight the menace of black money being used to fight elections. Any payment over Rs 2,000 has to be made by cheque or digitally as per the announcement.

Electoral bonds

In the finance bill presented by the FM, the government proposed the introduction of electoral bonds for political funding in India. This is a new system. As per this system, electoral bonds will be issued by designated banks and individual or parties will be allowed to purchase these bonds digitally or through cheque. The individual or organisation can then give these bonds to a registered political party which can redeem them and use the money for its funding.

Current Status

In April this year, the FM said that the RBI and Income Tax acts will be amended to allow parties to raise funds through electoral bonds. Yesterday, Indian Express reported that the government had drafted the norms for electoral bonds, thereby setting the stage for wider consultations with various stakeholders. These norms will be circulated to RBI, Election Commission and political parties by the end of this month. As per the draft, the RBI will notify one or two banks which will issue these bonds. Parties will be required to redeem the bonds in a month or two.

So, why is this being criticised?

While the reduction in maximum cash donation limit to parties has been welcomed, the proposal to introduce electoral bonds has attracted a fair bit of criticism from various quarters. Political leaders, election commissioners and commentators have asserted that the proposal, as it exists, will make electoral funding more opaque rather than less so.

Chief Election Commissioner (CEC) Nasim Zaidi, who retired yesterday, said this in an interview to Times of India

The recent amendments to Representation of the People Act (RP Act) have affected transparency (in political funding). Contribution reports of political parties need not mention names and addresses etc of those contributing by way of electoral bonds. We have written (to the government) that this way parties will never file contributions received through electoral bonds.. And if commission will never get to know of that contribution — and EC regularly displays such information on its website — the people will also not get to know.

Why does the former EC think so?

As analysed in Business Standard earlier, certain amendments to different acts make the proposal for electoral bonds problematic. There are specific concerns about amendments that have been proposed to the Representation of People’s Act (RPA) and the Income Tax Act (ITA). 

Section 29C of RPA enjoins political parties to  report on all contributions above Rs 20,000 (by individuals or companies) to the EC for scrutiny. As per the finance bill, an amendment was moved to keep electoral bonds out of the purview of this section. Therefore parties will not have to submit records of electoral bonds received to the EC for scrutiny.

Similarly, the finance bill also sought to exempt electoral bonds from Section 13T of the I-T Act. As per this section, parties need to maintain records of names, addresses of all donors who contribute more than Rs 20,000. This further reduces transparency of the proposed system of electoral bonds.

As per Nasim Zaidi, while the government has reduced the maximum limit for cash donations to Rs 2,000 it has not made the requisite amendments to the RPA which would make parties declare contributions under Rs 20,000 (existing limit) to the EC.

What about the donors?

According to Section 182 of the Companies Act, political donations can not be made by companies without the express approval of the board of directors through a resolution. Moreover, a party was allowed to contribute a maximum of 7.5 per cent of its average three year net profit as political donations according to this section of the Act and also name the political parties to which contributions have been made. But the government moved an amendment in the Finance Bill to ensure that this proviso will not be applicable to companies in case of electoral bonds.

This means that a party can contribute even 50 per cent of its profits to a party without having to inform anyone of this contribution and the party can receive this money without ever having to provide any records for scrutiny. 

BJD MP Bhratruhari Mahtab told The Telegraph that this "opened the floodgates for potential corruption and removes the means to check it."

Transparency in politics

In June, 2013, the Central Information Commission held that political parties are under the Right to Information Act. It was contended that since parties received substantial indirect funding from the Central government they must comply with the provisions of the RTI Act. The Congress rejected the order saying that this would hurt democratic institutions.

All political parties affected by the order opposed the directions of the CIC and Right to Information (Amendment) Bill, 2013 was moved to overturn this. The BJP initially backed the law but later said that it had no problem being under the ambit of RTI.

In August, 2014, after coming to power, BJP once again reversed its stand and said that bringing political parties under the RTI would hamper their smooth functioning and that the information could be misused by political opponents. In August, 2015, the central government told the SC that parties should not be brought under the ambit of the RTI.

In June, 2016, Congress again said that CIC was not competent to bring political parties under the purview of the RTI. Bringing parties under the RTI, would ensure that parties reveal the source of their funding as per disclosure norms and all parties are opposed to the idea.

Twitter: @bhayankur