The wrong reform

Electoral bonds do not address corruption in political funding

The Supreme Court’s decision earlier this month to hear a petition by two non-governmental organisations challenging the electoral bond scheme raises hope of some public debate on this novel mode of electoral funding. The apex court has not, however, set a date for the hearing, which has already been delayed by the Covid-19 pandemic. It is vital that the issue be addressed sooner rather than later, given the questionable ethics in the design of the scheme. Introduced in 2017 by then finance minister Arun Jaitley, these bonds were meant to be an alternative to the growing complaints of black money flowing into political party coffers. Political parties could escape Election Commission scrutiny of these donations by claiming —disingenuously — that they mostly came in the form of cash and were below the limit of Rs 20,000 for identifying individual contributions.

To address this problem, Jaitley slashed the individual donor limit to Rs 2,000 and introduced the concept of electoral bonds. It is unclear whether this innovation altered the opaque or corrupt nature of electoral funding. These bonds are issued by state-owned State Bank of India (SBI) and could be bought only through cheque payments or digital transfers. Buyers can then transfer these bonds, which are available in tranches of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore, to a political party of their choice. These bonds are sold four times a year in January, April, July and October. The party concerned then can encash this bond through its own bank account. Though this mode arguably addresses the question of black money, its lack of transparency and the mode of disbursement are deeply problematic.
 

In theory, the identity of the buyer and the recipient are anonymous, and an amendment to the Finance Act, 2017, exempted parties from revealing electoral bond contributions in their reports to the Election Commission. The amendment also removed the limit that barred companies from donating more than 7.5 per cent of their average net profit to a political party. 

Companies were also exempted from disclosing the name of the party to which the donation has been made. Such legally permitted non-disclosures are out of sync with the tenets of electoral democracy. But a deeper problem lies in the information asymmetry in the system. The bonds can be bought from just one government-owned bank, SBI, creating scope for information flows to the ruling dispensation about donation details. This instinctive understanding among donors automatically creates a fund flow bias towards the ruling party.

No doubt these issues will be given an airing once court hearings begin, but the truth is that the retention or scrapping of electoral bonds will not address the fundamentally murky nature of electoral funding in India, which is rooted in the chronic corruption in governance. The Rs 6,500-odd crore raised in 15 phases from March 2018 and January 2021 indicates this; it is a laughably small amount compared with the visibly mammoth electoral spending of the major parties. The real game in political funding lies in the massive public contracts for infrastructure projects where opaque pricing and disclosures enables the corporate-political nexus to flourish below the radar. Given the expensive nature of the electoral process, it will take a genuinely disinterested political regime to tackle this harmful element in the political process.