A vote for disclosure

Scrapping electoral bonds is an opportunity for reform

A five-judge Constitutional Bench of the Supreme Court has injected much-needed transparency into electoral funding in India by striking down the six-year-old electoral bond scheme for political contributions, ruling it violative of the right to information embedded in Article 19(1)(a) of the Constitution. In doing so, the majority court ruling has upheld the values of open and transparent governance and access to information for voters that had been infringed upon by this secretive campaign finance law. To this end, the apex court has instructed State Bank of India, the designated state-owned bank issuing these bonds, to give details of the bonds issued and bought since April 12, 2019 (when an interim order to this effect was passed) to the Election Commission of India (ECI). The ECI, in turn, must publish this information on its website between March 6 and 13. Electoral bonds that are within the 15-day validity period have to be returned.

No less significant is the apex court’s observations on amendments through the 2017 Finance Act to Section 182(3) of the Companies Act, 2013, concerning political contributions by companies. Section 182(3) required such contributions be authorised by the board, not be made in cash, and disclosed in the profit & loss account. The 2017 amendment removed the cap on donations — set at 7.5 per cent of the preceding three years’ profits — and eliminated disclosure requirements. The court raised the question of whether unlimited corporate funding to political parties violated the principle of free and fair elections and cast doubts on the potential of electoral bonds to curb black money. It also pointed out that this amendment had been introduced to align with Section 29(C) of the Representation of People’s Act, which exempts political parties from disclosing contributions received from electoral bonds and had therefore become “otiose”. In March 2023, the Association for Democratic Reforms found that more than 66 per cent of the income of seven national parties, including the ruling party, came from “unknown sources” in 2021-22; electoral bonds accounted for 83 per cent of this income.

The fact is that electoral bonds added one more element of opacity to a lax regime on political funding. Under current laws it is mandatory for parties to declare donations above Rs 20,000, a ceiling that enables large donations to be broken up into smaller undocumented denominations. In the absence of a system of independent audit of political parties, it is easy to circumvent even these disclosure rules. In 2013, the government introduced the Electoral Trust Scheme to allow not-for-profit companies to set up entities that can raise money from other companies and individuals and distribute them to political parties. These disclosure norms, too, do not require a declaration of the parent company setting up the trust. By questioning the rationale for “selective anonymity” and suggesting that corporations had a greater ability to influence the electoral process than individuals did, the court has pointed to the urgent need for an overhaul of political funding laws. This is imperative in any democracy where money remains a driver for political success. Campaign finance laws can perhaps never be perfect. But the ECI should not forgo this opportunity to try to align political donation rules with best-in-class norms of Western democracies.