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Electoral Bonds Legality And Voters Right

India is the world's largest and most vibrant democracy, here elections keep on happening to range from General elections to Panchayat level elections. As a multiparty nation, various political parties do campaigning which requires funds, earlier the voters could know who is funding their parties and what is the amount of donations but after the introduction of the Finance Bill in 2017 the scenario changed and the details about the funding of parties was made opaque from transparent. Since then there has been several instances of uproar by the opposition about the legality of electoral bonds and how the voters are being snatched of their right.

Let's dive deep and see how this measure alters the transparency regime of electoral funding and also check whether it is transparent as claimed or opaque.

What are Electoral Bonds? How anyone can acquire it and which political party can receive it?

As stated in the Finance Bill 2017, these are interest-free bearer instruments, which can be purchased from the State Bank of India, within a designated window of 10 days in every quarter of a financial year. These bonds are issued in multiples denomination of 1000, 10,000, 1 lakh, 10 Lakh, and 1 Crore. The donors have to give it to their respective political party and then these parties can encash them within 15 days.

To acquire a bond, the buyer has to submit full know-your-customer (KYC) details while buying but the political party is not required to reveal the identity of the entity that has given it the bond.

The Representation of People's Act 1951, mandates every party under section 29A and has secured at least one percent of the vote in the most recent Lok Sabha election will be allotted a verified account by the Election Commission and can use it to collect the funds.

The electoral bonds were introduced with a vision to restrict the unknown sources of funding which would account for 70-80% of a political party's wealth. In the Association for Democratic Reform report, it was sighted that 69% of the income of six national parties and 51 regional parties was from

unknown sources. When political parties get funding from unknown sources, difficulty arises in assessing if someone is influencing a policy or not also we cannot determine who is involved.

The then (2017) Finance Minister quoted "Transparency in the funding of political parties is needed to guard against the above issue." He titled his speech as Transparency in Electoral Funding. But then he decided to ensure anonymity.

The other issue at hand is the removal of the cap which barred companies to donate more than 7.5% of their average net profit in the past three financial years to political parties also corporate bodies needed to disclose the name of the beneficiary parties in the profit and loss of statement, but after the Bonds came in force this process was changed and the corporate houses could donate any amount of money without disclosing their name.

This raises the possibility that a company could be given a contract to build a road or a railroad bridge, and that company could then pay a donation to the party in power that placed the order with it. "An infrastructure firm could theoretically pay up to 50% of its net profits to a single party as a donation without anyone learning which party has been paid."

The bill of 2017 gave a major blow to Democracy by amending the finance act 2017 by exempting political parties from disclosing the donation received via an electoral bonds. The voter would not get to know which individual, organization, or company has funded which party and to what extent.

The bill was framed in such a way that it legitimizes corruption and no question can be asked even in parliament or any court.

The scheme compromises the "right to know" which was held by the Supreme Court as an integral part of the right to freedom of expression (Article 19 ) under the Indian Constitution.
The scheme also favors crony capitalism by bypassing Income Tax Law "As per Section 80GGB of the Income Tax Act, 1961, any Indian company or enterprise that donates to a political party or an electoral trust registered in India can claim a deduction for the amount contributed."This law was amended in 2017 and donated to political parties by bonds undisclosed.

Talking about the economic cost of the issuing of bonds, a request made under the Right to Information Act to the finance ministry revealed that, the transaction cost of electoral bonds used to make anonymous contributions to political parties will be covered by the Indian government, the bonds also come at a cost to the tax payer's money. As per the RTI replies, the State Bank of India has charged 5.5 paise per Rs 100 worth of bond money.

The Catenation Between Bond And Ruling Party

The recent report of ADR showed that BJP In 2019�2021, got donations totaling Rs 2,642.63 crore from unknown sources and its earnings were 3.5 times greater than the combined money from unidentified sources that six other national parties had disclosed.

In the year 2017, the party in power ignored the contention raised by the RBI. The finance ministry at that time asked RBI about Its view on bringing Electoral bonds, as the fund's parties collected had to be stored in a bank. The reply that the Revenue Secretary received was " electoral bonds and the amendment to the RBI Act would set a "bad precedent" by encouraging money laundering and undermining faith in Indian banknotes, and would erode a core principle of central banking legislation."

On the same day the finance ministry got the central bank's letter, Hasmukh Adhia, who was then the revenue secretary, immediately and summarily disregarded RBI's worries in one brief paragraph. This shows that the government was never serious about the feedback of the RBI and went ahead.

The political parties in India, especially the ruling Bharatiya Janata Party, benefited from this seemingly harmless change to the RBI Act and other revisions that were rushed through with minimal debate, which question the legality of the bond as there were so many lies sold to the general public and propaganda regarding bonds were on its peak that, there will be more transparency in the electoral system once the bonds were enforced, but it made the system more opaque and unaccountable.

Companies are not required to disclose their beneficiaries. Political parties are not obligated to disclose their funding sources either.

The issuer bank would keep the identities of the buyer and payee a secret. These details cannot be even asked via RTI filling too.

Electoral bonds, which are supposed to increase system transparency, instead increase system opaqueness, but only for the general public. Parties are not required to disclose the recipients of corporate donations or the sources of funds received by them. Additionally, because of the other developments involving foreign businesses and profitable businesses, shell businesses with no actual operations or profits can use electoral bonds as a means of funding political campaigns.

To lessen the Election Commission's objection to the electoral bond system, the memo discloses that officials from the finance ministry purposefully misled the Election Commission.
The Supreme Court approved the hearing about the legality of the electoral bond which was due for nearly 6 years. In a hearing, the SC directed the Election Commission to submit its viewpoint about the scheme.

In reply to the Supreme Court, the Election Commission submitted an affidavit stating that the introduction would have a serious impact on the election process and that fairness of elections will get compromised. The Association for Democratic Reform filed a petition challenging the validity of the electoral bonds.

It can be seen from the reports of ADR that the elections in India are getting expensive with each passing year, and the benefit is with the party which has the maximum funds. The election conducted in 5 states in 2022 revealed that the share of the BJP was highest than any other political party in terms of expenses concerning the election.

The System Of Political Funding In Different Countries

United Kingdom - Political parties are allowed to accept an unlimited number of donations; however, rules are limiting who is allowed to contribute and spending caps for political parties on campaign expenses. The goal of the law is to control political donations through transparency, as political parties are required to publish their financial information.

United States of America - The amount that different people and organizations can contribute to a decision is limited. Foreign nationals are prohibited from making direct or indirect contributions or donations to elections. Entities like corporations and labor unions are likewise forbidden from contributing to or spending in federal elections. Political committees, on the other hand, are authorized to donate to Hybrid PACs' non-contribution accounts and to form distinct, distinct funds from the autonomous spending on funds.

The government considered electoral bonds to strengthen democratic values and to make elections more transparent. Still, the current scenario and process have made it opaque, leading to political corruption and creating an impediment to the smooth functioning of democracy because there is no limit on donations. The names of the donors remain anonymous as there are more chances that the government will fulfill the needs and desire of the donors' instead of working for the welfare of the states.

The amendments made to various legislations, particularly the Companies Act of 2013, show an increasing trend of corporates contributing to political parties in exchange for something in return, which can have serious ramifications for the concept of free and fair elections.

In India, political donors are required to register with the appropriate authorities to ensure donation transparency. RTI should apply to political parties, and they should be brought within the scope of RTI due to their influence and importance in a democracy. Corporate donations should also be prohibited because those who are unable to vote should not be allowed to create imbalance and influence the electoral process.

The voters have every right to know about the donation as they are a fundamental part of democracy.
Additionally, the donors' anonymity substantially impairs the citizens' right to access information, and it withholds sensitive data that is harmful to accountability and transparency. The Center asserts that donor "victimization" is prevented by anonymity. However, to protect the donors' identities, greater public interest cannot be undermined.

  • Dristi IAS:
  • Clear Tax:
  • Author: Kaushik Deka ( India Today)
  • Author: Jenny Anderson (Quartz) differences-between-us-and-UK-elections/
  • Newspaper clipping of The Hindu and Indian Express.

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