Explained: What are electoral bonds and why BJP wanted them under veil

Critics say that the electoral bonds scheme is not foolproof and the so-called donations will be used for elections is just a possibility but not a reality. This money can be used to buy up media space, and boost advertising.

In a constitutional verdict, the Supreme Court of India, on Thursday, February 15, struck down the Central Government’s electoral bonds scheme, invalidating it as ‘unconstitutional’ and an infringement on freedom of speech and expression.

Supreme Court said that the scheme violates Article 19 (1) (a) of the Indian Constitution. Following the verdict, the SC directed the State Bank of India (SBI) to stop the issuing electoral bonds and submit the details and particulars to the Election Commission of India (ECI) by March 6 of all political parties that received electoral bonds.

The ECI will publish the details on its official website by March 13.

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In October last year, the Central government argued in the court that citizens do not have the right to information regarding the source of funds in the electoral bonds schemes. It said that the citizens of India cannot be exposed to ‘anything and everything’ without being subjected to reasonable reasons.

A five-judge bench of Chief Justice of India DY Chandrachud and Justices Sanjeev Khanna, BR Gavai, JB Pardiwala and Manoj Misra had reserved its judgment in the matter on November 2 last year.

Let us try and find out why the Central government wanted to keep the details of electoral bonds away from the public eye.

What is electoral bond scheme?

An electoral bond allows individuals, corporations or organisations to contribute or donate money to any political party anonymously by purchasing bonds from the SBI.

According to the scheme, if the money donated is not encashed within 15 days, it will automatically be transferred to the Prime Minister Relief Fund.

Electoral bond scheme was introduced in the Parliament as part of the 2017 Union Budget by then Union finance minister Arun Jaitley.

“Political parties continue to receive most of their funds through anonymous donations which are shown in cash. An effort, therefore, requires to be made to cleanse the system of political funding in India,” Jaitley had said, stressing that the scheme must be kept opaque.

How does electoral bond work?

To apply for an electoral bond, a list of documents is needed:

  • The completed application form
  • Pay-in slip (how much is donated) downloaded from the SBI’s website
  • Proof of online payment of the amount in the form of a bank statement with the donor’s name on it
  • Aadhaar card and PAN card

After entering the name of the branch, bond amount and mobile number, an OTP is generated, using which a virtual account number (VAN) is created along with an Indian Financial System Code (IFSC).

The VAN and IFSC transfer the amount from one’s own online banking portal. Once the payment is made, a “TB reference number” is generated. A receipt is printed from the SBI site.

Since the payment is made through SBI’s website, it makes the bank the only link that knows the complete details of the donor.

The electoral bonds can be sold in denominations from Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore. Since there is full opacity of the contributor, it can be safely assumed that the largest electoral bond is brought by either a wealthy person or a large company.

‘Legalising corruption’

According to Major General Anil Verma (retired), head of the Association for Democratic Reforms (ADR), one of the petitioners in the case, the scheme legalises lobbying and corruption. “The secrecy around the donors’ identity is problematic. It could be big-time corporations or it could be players funnelling illicit money through shell companies – we don’t know who is donating. This has become what many call legalised and institutionalised corruption,” he told Al Jazeera in an interview.

According to an ADR report, 56% of political funding comes from electoral bonds. To snatch away the right to information on where a political party is getting its funding is undemocratic and unconstitutional.

Such schemes can allow powerful corporations to influence a political party for their benefit, thus impacting any Central Government’s decision, the ADR stated.

How does BJP benefit from electoral bonds?

According to an Al Jazeera article, the Bhartiya Janata Party, of which Prime Minister Narendra Modi and Union Home Minister Amit Shah are senior members, benefitted the most from the electoral bond scheme in the last elections.

According to data by the Election Commission of India (ECI), 57% of total donations between 2018 and March 2022 through the electoral bonds went to the BJP, amounting to Rs 5,271 crore.

The next largest party was the Indian National Congress which received Rs 952 crore.

Former RBI Governor Raghuram Rajan, wrote an article with the Times of India stating the electoral bond schemes were no solution to ‘cleanse the system of political funding in India’.

“According to an ADR report, nearly 90% of the amounts issued so far is in the Rs 1 crore slabs, indicating it comes from rich individuals or corporations. The public simply cannot judge whether the donations were made out of goodwill or whether there was a quid pro quo involved,” Rajan had written.

Why BJP wanted to keep it a secret?

When Jaitley officially introduced the electoral bond scheme during 2017 Union Budget session, he said that the RBI’s approval was critical as it was necessary to bring changes in the RBI Act. However, the RBI, whose governor was Urijit Singh, expressed objections.

In its response RBI said that firstly, since the electoral bond scheme was anonymous, it could become currency and “would seriously undermine a core principle of central banking legislation and doing so would set a bad precedence.”

Secondly, the government’s version of transparency fell nose down as being the ruling party, it will come to know the details of the donor and to which political party they sold the bonds. “There is no special need for, or advantage by, the creation of an Electoral Bearer Bond,” the RBI concluded.

However, the then finance secretary Hasmukh Adhia dismissed RBI’s objections saying, “It appears the RBI has not understood the proposed mechanism of having pre-paid instruments to keep the identity of the donor secret, while ensuring the donation is made only out of fully tax-paid money of a person. We may, therefore, go ahead with our proposal.”

When Subhash Chandra Garg, former finance secretary expressed his concerns to Jaitley terming the electoral bonds a “devious way” to funnel company donations to the ruling party, the late BJP leader reasoned that the scheme would build confidence among companies as no one would know whom they had given donations to.

Who challenged the Modi government?

Apart from ADR, the Common Cause, Communist Party of India (Marxist) along with Dr Jaya Thakur from the Congress filed two separate petitions in the Supreme Court, urging the court to put an end to the electoral bonds system.

The petition was possible based on the RTI request filed by Commodore Lokesh Batra, a 76-year-old war veteran. The RTI replies received urged the HuffPost to carry out a six-part investigative report on how the Modi government brought untraceable funds into Indian politics despite objections from the RBI and the ECI.

Echoing Rajan views, Batra said that the electoral bonds scheme is not foolproof and the so-called donations will be used for elections. “They might be called electoral bonds, but the rules don’t say that the money must be used only for elections,” he said.

“So, whoever gets more money, the money can be used to buy up media space, and boost advertising. Once you have the money, you can use it anywhere,” he added.

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