Institutional Fault Lines: The Saga of Electoral Bonds

Kashish Makkar

While the Electoral Bonds scheme has the potential to scar political funding in India, its enactment exposes the fault lines in political financing in India.

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If there is one concern that has troubled political scientists since the inception of democratic governments, it is the concern of political funding of candidates & parties. In India, this debate on political finance has resurfaced in light of the Finance Act of 2017. The 2017 Act introduced multiple amendments to the RBI Act, the Income Tax Act, the Companies Act & the Representation of People Act to introduce anonymized Electoral Bonds Scheme as a mode for making contributions to political parties. The policy was introduced as to ensure secrecy of the donor which serves two integral purposes; one, removes the potential of kickbacks in return of political funding, and two, extends the right to vote in a secret ballot by ensuring the Right to Privacy of the donor.

The scheme on a prima facie analysis could be said to be nothing short of being revolutionary, and the government projected it as such. It was proclaimed as an unprecedented idea to reform electoral finances. However, irony died a small death when a more nuanced analysis of the scheme was done. It came to light that, contrary to the above claims, these electoral bonds could wreak havoc in the transparency in Indian Political Funding. The anonymity and secrecy around electoral bonds not only provide fertile grounds for lobbying and capture of governments by big donors but also were an instrument that facilitated rerouting of illicit funds that originate in India, back into the country through a tax haven.

The above is possible because Electoral Bonds are bearer instruments, whereby the SBI would issue them for a KYC compliant customer, however, the customer has to deliver the same to Political Parties to enable them to encash the same. Therefore, there is ample scope for lobbying and receiving kickbacks as the donor has the avenue to disclose its identity to the political party. As a result, this ‘revolutionary’ scheme falls flat on its stated aim of removal of kickbacks.

Supporters of the scheme could argue that in a paradigm where electoral bonds didn’t exist, the same problems existed, but at least the current regime provides an option of privacy to the donor. Admittedly, yes, the electoral bonds scheme extends the right to vote in a secret ballot by ensuring the Right to Privacy of the donor. However, the costs for this extension of the right to privacy are enormous. These costs come to light only after a grounded analysis of these bonds is done in Indian corporate & financial system.

The 2017 Act which introduced the Electoral Bonds comes along with a series of amendments to other laws. The Companies Act stood amended by the 2017 Act, as a result of which the limits on the donations for companies to political parties were removed. Moreover, the disclosure requirements for the same in the annual statements was also done away with. This gave a free pass for corporates to route illicit funds raised in India to political parties. As if the incentive of non-disclosure was not strong, the 2017 Act also made the donations via Electoral Bonds deductible from Income Tax Assessment. Therefore, not only does the 2017 Act provides for an easy route for the flow of illicit money into politics, but it also makes political parties as an avenue for rerouting illicit money as is done in a tax haven. It may be argued that since the donations have to be done by a KYC compliant donor, therefore, the patron cannot possibly route illicit money through the banks. However, the routing of the illicit money is done via shell corporations, and with corporate structures non-traceable to an individual. Even if the inquiry turns out to be successful, the duration of inquiry & the improbable penalties or punishment provide enough incentives to defraud the system.

Therefore, with such a huge potential to route illicit money into politics along with the added scope for receiving kickbacks for the same, the scheme of the 2017 Act could potentially wreak havoc for transparency in political funding in India.

Apart from the larger threat to the transparency of funding, the electoral bonds scheme also has the potential to unbalance the level playing field of electoral politics. This is on account of the fact that the ruling party at the center is always likely to receive greater funds as compared to the opposition because the bonds are available for purchase throughout the term of the government.

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Therefore, in lieu of kickbacks, the bonds could be purchased even during the tenure of the government and used for lobbying. Understandably, in the paradigm where electoral bonds do not exist, cash was used for the same purposes at par for lobbying. However, electoral bonds come with the added benefit to route illicit money, as explained previously, therefore, it ends up aggravating the problem that existed in the previous paradigm.

In recognition of the above issues, the Association for Democratic Reforms challenged the scheme before the SC under Art. 32. The ECI supported the concerns expressed by the petitioners in its submissions before the SC. However, the Union government defended the scheme as a measure that ensures both transparency in funding and the right to privacy of the donor. However, the SC rejected the Union’s submissions and ordered the Political Parties to declare the source of funding received via Electoral Bonds to the Election Commission in a sealed cover.

The SC’s order can be said to be another classic in its jurisprudence of what Pratap Bhanu Mehta calls ensuring a modus vivendi to both the parties. He describes that SC as an institution has a unique jurisprudence of not adjudicating the case on merits & in accordance with the rule of law. Instead, it adjudicates disputes in a fashion that it awards some reliefs to both the parties & ensures that their trust stays in the Supreme Court by providing them partial victories, he explains.

As explained previously, the political parties are not obliged to record the source of their funding received from electoral bonds. Moreover, since these are anonymous instruments, the parties have valid grounds to cite unavailability of the information that has been sought by the SC to be given to the ECI. Therefore, in essence, the SC’s order gives a marginal win to both the petitioner and the Union by passing an order that on the face marks the victory of the petitioner, but has no consequence. Hence, sustaining the modus vivendi for both the parties, while consciously refusing to adjudicate on law & determining the rights of parties in a binding fashion.

This has been the saga of the Electoral Bonds Scheme introduced via the Finance Act of 2017. The scheme, as analyzed, has the potential to scar political funding in India in an unprecedented fashion. However, more than the implications of this scheme, the nuances of the analysis presented above bring out the fault lines in political financing in India. Not only do the donors seek illicit sources to donate the money for receiving the kickbacks, but the political parties on either side of the house also seem unequivocally in support of these corporates & actively ensure the creation of such avenues. While, the only stakeholder of citizens & by extension transparency, the ECI, is more often than not rendered toothless on account of either a non-perceptive judiciary or an over powerful government.


Kashish Makkar is one of the Founding- Editors of Law School Policy Review.


Image Source: News24Online.

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