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Electoral Bond Scheme in India UPSC NOTE

 Electoral Bond Scheme (EBS) in India

  • In paragraph 143 of his Budget Speech 2017-18, the then Finance Minister stated that the objective of his government was “to eliminate black money”.

  • The country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections. 

  • An attempt was made in the past by amending the provisions of the Representation of Peoples Act.

  • The Companies Act and the Income Tax Act to incentivise donations by individuals, partnership firms, HUFs and companies to political parties. 

  • The situation has only marginally improved since these provisions were brought into force.

  • Political parties continue to receive most of their funds through anonymous donations which are shown in cash.

  • As a solution, the Finance Minister proposed a reform, the EBS.

  • Which “will bring about greater transparency and accountability in political funding.

  • While preventing future generation of black money

  • The EBS too has not succeeded in this despite its stated objective.

  •  Thus, while political parties have been enriched through the EBS, money used in election campaigns may have still not changed colour.

  • There is no doubt that the EBS created a ‘clean’ channel for funds to flow from the donor’s bank account to the political party’s bank account. 

  • The questionable presumption is that since funds used to purchase the bond are drawn from an account in a designated bank, the source of those funds is also ‘clean’. 

  • The Supreme Court observed that a similar channel existed, and still does, in the form of the Electoral Trusts, which is more transparent.

  • The information that the State Bank of India has disclosed so far shows that many purchasers bought bonds that seem to be disproportionate to their business income. 

  • There are obvious questions about the legitimacy of the sources of the funds being used for the purchase. 

  • It cannot be said with certainty that the funds that reached the designated account of the political parties were of the same “colour”.

  • There were no safeguards to protect the so-called clean channel from being contaminated.

Criticisms of EBS 

  • Defenders of the EBS have argued that if there are doubts about the sources of the funds used to purchase the bonds, this would be easy to investigate. 

  • Will it not be the same agencies that are accused of directing donations to the party in power.

  • However, the real twist in the tale is that according to Section 7(4) of The Electoral Bond Scheme, 2018.

  • The information furnished by the buyer “shall be treated confidential by the authorised bank and shall not be disclosed to any authority for any purposes.

  • This is except when demanded by a competent court or upon registration of criminal case by any law enforcement agency”. 

  • It is being said by the ‘designers’ of the EBS that the bank could not have legally kept any record of the secret number on the bond issued to the purchaser.

  • If this is the case, it would be almost impossible to establish any link between purchaser and recipient.

  • This would mean that, as in the real life example of dispensing currency notes to a bank customer/the common man, the SBI does not have any record of the person who purchased a specific bond. 

  • The alphanumeric number in the bond was only embedded to verify the authenticity of the bond and thus meet the audit requirement. 

  • The bond was akin to currency — and this is why the Reserve Bank of India (RBI) raised objections in the beginning, which led to the amendment in the RBI Act.

Is Black money funding political parties solved?

  • No, the issue of Electoral Bonds being used for black money funding of political parties is not solved in India.

  • Anonymous Donations: EBs are bearer bonds, similar to cash, allowing anonymous donations exceeding Rs. 10,000 to political parties

  • This lack of transparency makes it difficult to track the source of funds and identify potential black money.

  • Dominant Party Advantage: Reports suggest a significant portion of EB donations go to the ruling party, raising concerns about unequal access to funding and potential influence on policy decisions.

Steps taken

  • While the Supreme Court hasn't banned EBs, it has acknowledged the transparency issue.

  • Discussions about electoral funding reforms are ongoing, but a concrete solution hasn't been reached.

  • Overall, EBs remain a concern for black money entering political funding in India.

Alternative solution 

  • Many proponents of the EBS have criticised the Court for not suggesting a ‘less worse’ method of political funding and dragging political parties to the “dark alleys” of black money. 

  • It is not for the courts to decide the future course because Parliament has the mandate to find a solution and has ‘superior’ wisdom in making laws.

  • A reasonable way forward can only be found through a well-meaning consultative process and not through court fiats, or laws and policies

crafted in secret to deal with complex and vexed problems.


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