Electoral bonds have received tremendous attention and scrutiny as a unique poll funding instrument since their introduction in 2018. Critics have termed this a significant step backward in achieving the goal of transparency in political funding. How far is this criticism valid?
An electoral bond is a bearer banking instrument that works as follows: Any donor who is an Indian citizen or incorporated or established in the country can buy the bond from a designated branch of the SBI by submitting, among others, a copy of citizenship proof, KYC documents and a declaration on the source of funds. The bond can be bought in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and `1 crore. The payment can be made through cheque, demand draft or internet banking. To protect the donor’s identity, the bond does not contain their name but a unique alphanumeric character.
Rationale for bonds: Indian political parties have traditionally been raising funds through donations from citizens and corporations. A donor could donate up to Rs 20,000 in cash to any party, and the latter was not required to declare the source of cash donations received within this limit. Donations exceeding this had to be made through cheque or DD. In this case, the party had to declare the source in their contribution reports submitted to the ECI. A significant drawback of this funding system was the predominance of cash donations. To bypass disclosure to the ECI, even donations above `20,000 were accepted in cash by dividing them up into several smaller ones. Cash donations allow anonymity of the donor and the flow of unaccounted money into the political system. Around half of the political funding made under the traditional system was through cash donations below Rs 20,000.
Therefore, the NDA government introduced an electoral bond instrument to discourage cash donations and bring transparency. Since its introduction, electoral bonds have become an essential source of financing for all major political parties. Between March 2018 and January 2021, electoral bonds worth Rs 6,514.50 crore were redeemed by parties. While the ruling BJP has managed to receive the lion’s share (60.17%) of political funding made through the bonds, over half of the total income of all national and regional parties too was contributed through this method. The bond scheme allows political donations to be channelised through the formal banking system without revealing the identity of the donors. This is expected to reduce the influence of cash donations and increase the traceability of election funding.
Partial success: Available evidence supports this expectation. Our analysis of voluntary contributions (for the BJP) and grant/donation/contribution (for the Congress) data reported in the Annual Audit Reports of the two parties submitted to the ECI during 2013–14 to 2019–20 provide a fascinating insight. For the BJP, the share of voluntary contributions received through the unknown source “other contributions” has declined from over 90% before the introduction of the bond instrument to 23.66% after that. This has been replaced with contributions through electoral bonds, which increased commensurately from 21.22% as of 31 March 2018 to a whopping 74.54% as of 31 March 2020. In the case of the Congress, the share of donations received from individuals has declined after the introduction of electoral bonds from 65.19% to 7.16% in the same period and the share of contributions through electoral bonds increased from 15.41% to 67.72%. Thus, for both the principal political parties, it seems that the quantum of political donations channelised through cash donations/non-identifiable sources has decreased substantially. Instead, today more funds are channelised through the formal banking system. This was not the case with the earlier system in which half of the political donations were not traceable as they were made in cash form. Viewed from this angle, the electoral bonds scheme is an improvement over the previous system.
However, the donor anonymity feature of the bonds works against the complete fulfilment of the transparency goal. What the bond mechanism achieved was increased formalisation of political funding. But it has failed to track the donors. Proponents of the bond mechanism argue that if donor disclosure is made, then the system of financing through cash would return. Though this concern is valid, it doesn’t make electoral bonds a clean instrument. In the absence of donor disclosure, the dominant view that the bonds scheme was designed to facilitate the flow of unaccounted or black money for political parties holds.
Recently the JMM voluntarily disclosed the name of a donor who contributed to the party using the bond instrument. It will help the cause of transparency if other parties follow suit. Alternatively, a cap on anonymous donations could be imposed. Following the Law Commission’s recommendations, the ECI has proposed a cap of Rs 20 crore or 20% of overall contributions from unknown sources.
To sum up, electoral bonds can be considered an improvement over the previous system as it has helped formalise that part of the election funding hitherto made through cash. But the absence of a provision to disclose donor details flies in the face of complete transparency.
Sthanu R Nair, Professor of Economics, IIM Kozhikode
Kunal Dhir, Management consultant & alumnus of IIM Kozhikode
(We acknowledge the research assistance provided by Meenu Murali R, Academic Associate, IIMK)
(Views are personal)