Last week, a series of investigative reports revealed that the far-right government of Narendra Modi had opened windows for the purchase of electoral bonds to fund political parties on six occasions, two more than the permitted number. This happened in two consecutive years. The government also relaxed rules and permitted the cashing of many of these bonds after the time limit.
This revelation caused an uproar as the government was accused of breaking the law. It also led to a fresh focus on the electoral bonds system itself. This system which was inaugurated in 2018 has been severely criticised by the left and other sections of the opposition. It has also received flak from key institutions in India. The critics of this system point out that it legitimises the role of big money in elections and destroys any possibility of transparency in political funding. Let’s look at this system and how it is subverting democracy in India.
What are electoral bonds?
The proposal for electoral bonds was mooted by the Narendra Modi government in 2017. It allows political parties in the country to receive funds from individuals and entities, including corporations and NGOs, without the source being disclosed to the public.
These bonds can be bought by any Indian citizen or any entity incorporated in India. Designated branches of the State Bank of India (SBI) sell the bonds during four windows that open at the beginning of each quarter of the financial year.
The bonds are worth in multiples of Rs.1,000 (USD 13.99) upto Rs. 1 crore (USD 139,875.8). The bonds are then deposited as donations in the bank accounts of the beneficiary political parties. The parties can encash it within 15 days. Neither the political parties which receive the donation in this form nor the companies or individuals making the contribution are obliged to disclose them.
The bond itself bears only a serial number and only the bank branch has information about who bought it and who encashed it. These details cannot even be accessed under India’s Right to Information (RTI) Act.
Why are electoral bonds dangerous?
Both left parties and the Election Commission of India (ECI) have expressed the concern that the electoral bonds will allow foreign companies and international finance to pour unlimited funds into Indian political parties through shell companies. The reports were based on documents obtained by RTI activist Commodore Lokesh Batra (Retd.).
Earlier, any donation in excess of Rs. 20,000 (USD 279.75) was to be listed out in a Contribution Report, which every political party is obliged to prepare by the end of each financial year. Now, this has been amended to exempt donations received through electoral bonds.
Similarly, while introducing the scheme, another law was amended that obliged companies to declare their political contributions. The companies earlier also had to disclose which party they were contributing to. Now, they just have to disclose the amount and not the name of the party.
Most importantly, earlier laws ensured that a company could not donate over 7.5% of its average profit over three years to political parties. This was to ensure that money would not be routed through shell companies to political parties. Even this cap has been removed. India’s election commission has warned that this could lead to a huge inflow of black money into the electoral process. The new scheme can also help foreign corporations, who have no legitimate business in India, to route money through shell companies.
How do the bonds affect the financial system?
India’s central bank, the Reserve Bank of India, too has expressed many reservations. It has pointed out that these bonds could be transferred by hand and were thus mired in opacity. While the identity of the original buyer may be traced, how many hands the bond changes before finally reaching a political party cannot be known. This could lead to a huge increase in money laundering.
The bank is also worried that these bonds could end up serving as currency and will thus “seriously undermine a core principle of central banking legislation and.. set a bad precedent.” Incidentally, the government did not even properly consult the Reserve Bank ahead of this decision. The scheme was even passed in an improper manner. The government introduced the Bill for the same in the lower house of parliament where it has a majority by bypassed the upper house where it was in a minority. This is despite the fact that this scheme had the potential to drastically alter the very nature of Indian democracy.
How does the ruling party benefit from electoral bonds?
When the scheme was introduced, the then finance minister Arun Jaitey declared that this would introduce “transparency” and “cleanse the system of political funding in India”.
At the same time, he also claimed that this would ensure secrecy as it would help corporations fund opposition parties
However, a government note four months later clarified that the records of the purchaser could always be accessed by the government’s financial enforcement agencies.
This is even as the credibility of the government’s enforcement agencies is at its lowest ebb. These agencies have been used to crack down on the government’s opponents. Thus, it does seem that the electoral bonds scheme will in fact further discourage anyone from funding opposition parties as enforcement agencies can always track down this data.
Thus, it is not surprising that nearly 95% of the first batch of the bonds, worth Rs. 222 crore (over USD 31 million) were donated to the BJP.
The total number of bonds released so far in 12 separate batches are worth Rs 6,000 crore (over USD 839 million), a majority of which are also expected to have been encashed by the BJP.
The question of election financing is an existential one for the country’s democracy. In the 2019 general election, political parties spent 8.7 billion dollars, making it the most expensive election in the world. India has 2,293 political parties, including 8 national parties. Yet the Bharatiya Janata Party alone spent nearly 50% of this 8.7 billion. The party has been experimenting with targeted campaigns, big data and a number of other techniques, along with its traditional polarisation based on religious lines. The electoral bonds scheme could give the party the resources to further divide the people and spread it divisive message.
The left in India has been consistently resisting this scheme. The Communist Party of India (Marxist) (CPI-M) fighting a case in the Supreme Court against the opaque funding mechanism. The party is now examining the possibility of filing an additional affidavit seeking an immediate stay on the use of the bonds till the final verdict is out. This is a battle for the very soul of democracy in India.