The End of Electoral Bonds – A Ray of Hope for Transparent Election Funding

The End of Electoral Bonds – A Ray of Hope for Transparent Election Funding

Elections in India are a costly affair. Especially after the general elections of 2019, it became clear how public opinion can be shaped by spending humongous amounts of money on campaigns to spread constructive narratives of progress in the largest democracy of the world. As the BJP, tactfully introduced the Electoral Bonds Scheme in 2017, stating that it was intended to stop black money entering the poll process, it made the election funding system opaque by reducing its transparency. This is because the identity of the donors of electoral bonds was hidden, and could only be known by the government through SBI. The Supreme Court of India in a historic verdict on 15th February, 2024, invalidated the electoral bond system and shed light on its gaping loopholes. While in banking parlance bonds refer to corporate debts, the electoral bonds were a kind of financial gift system for funding the elections to specific political parties in multiple denominations. Apparently, it subtly implied a political and corporate “bonding” for mutually beneficial purposes also known as quid pro quo in legal parlance. In this article, My City Links delves deep into what was the Electoral Bond system, some relevant statistics, the landmark Supreme Court judgement, political response to this verdict, public opinion on the issue and the possible future of election funding in India.

What were the Electoral Bonds?

The Electoral Bonds were introduced in India through a finance bill as part of the Union Budget of 2017. The government had described the scheme as an electoral reform in a country moving towards a cashless-digital economy. It was claimed by the then Finance Minister, Arun Jaitley, that this scheme was introduced to bring transparency in electoral funding in India. Donations for the bonds could be made in various denominations sold in the multiples of ₹1000, ₹10000, ₹1 lakh, ₹10 lakh, and ₹1 crore. These donations enjoyed 100% tax exemption, with the identity of the donor being kept confidential. Once the bonds were purchased they had to be encashed by the political parties within a given time frame. There was no limit to the amount of donations that an individual or a company can make. In the Electoral Bond Scheme only the registered political parties under Section 29A of the Representation of the People Act, 1951, and which secured not less than 1 percent of the votes polled in the last elections to the Lok Sabha or a state legislative assembly, were eligible to receive electoral bonds. A slew of amendments by the Centre followed the introduction of the Electoral Bond Scheme to facilitate the provisions of the scheme such as those to the Companies Act, Income Tax Act, Foreign Contribution Regulation Act (FCRA), and the Reserve Bank of India Act.

What do the statistics say?

As per the data of Association of Democratic Reforms (ADR) and the Election Commission, at the top of the list of the major beneficiaries of the electoral bonds scheme is the BJP, with ₹6566.11 crores added to its account. This is 55% of the total donations made by these bonds between March 2018 and March 2023, which amount to nearly ₹12000 crores. The Congress, despite its usual shrill tirades of corruption on the ruling party, was the next highest beneficiary at 9.3% of the total donations. The only party which claims to stand the moral high-ground and reject all such donations was the CPI(M), by not opening a designated SBI account for funds. Among the regional parties Trinamool Congress, DMK, BJD, and BRS got the maximum from these bonds, with their sources unknown. The highest donations from Electoral Bonds, totalling ₹3,438.8237 crore, were received in 2019-20, the year of the general elections. The Association for Democratic Reforms (ADR) reported that the total amount of funds generated through the sale of electoral bonds from March 2018 to January 2024 was ₹16,518.11 crore. Out of this, 94% of the bonds were purchased in the denomination of ₹1 crore, showing that it was mostly used by big corporate donors rather than individual contributions.

Supreme Court’s historic verdict

Concerns regarding the Electoral Bond Scheme’s various flaws were aired from time to time by different organisations. The recent SC verdict was a conclusive statement that settled the issue and changed the status quo forever. The five-member bench of the Supreme Court led by Chief Justice D.Y. Chandrachud struck down the Union’s Electoral Bond Scheme by declaring it to be illegal and unconstitutional. The verdict can be summarised as below:

Electoral Bonds infringe RTI

The Supreme Court held that the scheme by permitting anonymous political donations infringed upon the fundamental right to information under Article 19(1)(a) of the Constitution. The SC observed that there was a legitimate possibility that this scheme which facilitated non-transparent financial contributions to political parties could lead to quid pro quo arrangements. 

Least restrictive method not adopted

SC observed that there was no capping on the donations beyond which the identity of the donor through electoral bonds has to be revealed. The old system used to have a ₹ 20000 cap on anonymous donations to political parties. The electoral bonds scheme made all donations anonymous to the public. 

Right to Privacy cannot be applied to all donations made

SC pointed out that financial contributions to political parties can have two specific purposes -  to show support or as a quid pro quo measure. The huge corporate donations, as per the SC, were not at par with individual contributions of ordinary citizens. The right to privacy only applies, according to SC, on those donations which were made to show support.

Violation of free and fair elections

The SC noted that unlimited corporate donations violated free and fair elections. Thus the corresponding amendment done to Section 182 of Companies Act, 2013 was manifestly arbitrary or without reason. This amendment also errs by treating individual contributions at par with corporate ones. Under the old system there was a cap on the companies to donate to political parties at 7.5% of the average profits of the preceding three fiscal years. 

RoPA amendment quashed

The SC quashed the Section 29C amendment to the Representative of People Act, 1951, which created exceptions on declaring donations to political parties through electoral bonds for all the contributions above ₹ 20000. This was done so as to secure the right to information of voters.

Orders to SBI

The Supreme Court ordered the SBI to immediately stop any further issuance of electoral bonds and furnish details of those brought between April 12, 2019 and March 6, 2024. All necessary details such as date of purchase, name of purchaser and denomination are to be included by the SBI and shared with the Election Commission of India. The ECI shall subsequently publish these details in its website by March 13, 2024.

The SC observed that the electoral bonds scheme was the exact opposite of what it was meant to do, that is increase transparency. This lack of transparency was for the public and the opposition parties, as the party in power had access to all the information. The SC also observed that it provided an unfair advantage to the party in power with possibilities of far reaching consequences such as extortion of money from corporates and even their victimization for not supporting. The limitless donations provision, as per the SC, paves the way for crony capitalism.

Political Response to SC verdict

My City Links reached out to two national parties the Congress party and BJP for their reactions to this verdict. First we spoke to Dr. Biswaranjan Mohanty, Chairman of Media Communications, Odisha Pradesh Congress Committee. Voicing his opinion on the electoral bonds Biwaranjan said, “We say that the donations made in electoral bonds are willful donations. But the question arises why did the Congress and other political parties not get so much of such donations? The reason is that only a few capitalists who are donating to the government are getting its benefits. It will be clear once the list of donors comes out. The BJP got the highest donations because they are in power at the center. Otherwise, how did the BJP become the richest political party within a span of 10 years, something which the Congress could not do after so many years of rule?”

Highlighting the demerits of the electoral bonds, Biswaranjan said, “From the beginning we have been saying that electoral bonds are a method of corruption. Otherwise why did the Honorable Supreme Court reject it? Why is the general public not able to know how a political party is being funded and why it is funded? Is it not the right of the public? The public elects the government through its votes. You cannot keep the public in the dark and run the government. That is the reason why the Supreme Court stopped the electoral bonds.”

Biswaranjan made it clear that from the very day of its inception, the electoral bonds were opposed by the Congress party. Speaking about the consequences of this scheme, Biswaranjan added, “It is clear that the corporate sector is influencing politics in this country. We are not saying that there should be no corporate sector. There should always be businessmen and industrialists in the country. But when the government kills the MSME sector for the vested interests of certain few capitalists then corruption becomes visible.”

Biswaranjan further spoke, “When the government tries to promote centralization by encouraging a few power centers, with one nation, one election, and a one man show it creates a dictatorial regime. Monopoly in politics and business always leads to decline. Centralization of power can never work in democracy as history shows us. Today when the opposition says that democracy is in danger, then it is because of these reasons.” Biswaranjan concluded by hailing the SC verdict, “The Supreme Court’s verdict has restored our faith in it. Because of such important directives of the SC today the public trusts it so much.” 

Despite best efforts, My City Links failed to get any response from the ruling party BJP on the issue as they consider election funding to be a sensitive topic.

What the public has to say?

Issues like election funding don’t get plenty of attention by the public, as they don’t seem to directly affect their life. Only those citizens who make it a point to keep themselves updated with daily happenings know about them. Civil service aspirant Manoj Gupta said, “I think as members of civil society we should not blindly support any political party, because after all they are composed of fallible human beings. The SC verdict addresses the possible repercussions at the hands of such fallible politicians in an opaque system of election funding.” Social worker Amit Sahoo shared, “Being a developing country, we cannot justify the huge sums of money we are spending on elections. This money could have been spent on bridging the rich and poor gap that exists in our society. Electoral reforms are the need of the hour.”  Ajit Prusty, lecturer at a private engineering college, added, “Politics today has become very competitive. Politicians’ hunger for power is visible through their speeches, and it seems that they can go to any extent to have it.” 

Retired banking professional Ashish Samantaray gave an interesting opinion, “The issue of transparency in funding is very important. I would like to give you a relevant example from the epic Mahabharata to tell you why. In the epic, it is said that righteous men such as Bhishma and Dronacharya chose to fight for the unjust Kauravas instead of the truthful and just Pandavas. The simple reason behind this was that they depended on the Kauravas for their financial needs. If today’s politicians depend upon the capitalists for funding their elections, their loyalty would be towards them, not the common people. To make matters worse the electoral bond system kept us in the dark of any such favours obtained by them.”

Sukadev Purohit, a research scholar opined, “It is important to be skeptical as a voter. One should not believe on hearsay and false information. Whatever political campaigns we see are funded by anonymous donations, mostly by corporates. So, we cannot conclusively assert that the government is concerned for the poor without properly analyzing facts. This is where transparency comes in.” Aniket Roy, a lawyer, said, “The SC verdict sets a precedent for making India an informed democracy. This will lead towards greater accountability and hopefully, subsequently better policy making.”

What’s Next in Election Funding?

The SC verdict has taken back the Election Funding system to the pre-2017 era, where donations to political parties were more transparent. Most observers opine that the murkiness of the world of election funding will remain unless the inflow of black money is curbed through further electoral reforms. But this landmark verdict has given a ray of hope to democracy. Transparency with regards to donations made to political parties will highlight any possible quid pro quo arrangement leading to corporate influence in policy making. 

This verdict when taken in the right democratic spirit can become an impetus for initiating further electoral reforms. Experts such as former Chief Election Commissioner S.Y. Quraishi has floated ideas in public, such as the setting up of a National Elections Fund under the Election Commission of India for corporates to give donations to, as a state funded mechanism for different political parties. These funds could be relocated to parties based on their electoral performance to eliminate concern about donor reprisals. This will also reduce any possibility of quid pro quo that could lead to corrupt practices. However, to bring such ideas to fruition, political will and desire to learn from faults would be necessary.