What Are Electoral Bonds? Impact Of Supreme Court’s Verdict

What are Electoral Bonds

The 15th of February, 2024 banged with a firebolt on Electoral Bonds! What are Electoral Bonds? Well, these are the financial instruments used in India for making political donations to political parties, providing a degree of anonymity to the donor.

So, it is related to politics… That’s what makes it more interesting!

What are Electoral Bonds

First, the Electoral Bond was introduced back in 2017 through The Finance Bill of Union Budget 2017-18. After seven years the Supreme Court of India called it “unconstitutional” and struck it down immediately.

Reason?

As per the court, the Electoral Bonds violated many regulations and acts. Let me tell you a fact if you don’t have much idea about Electoral Bonds then it will be a tough nut to crack the Supreme Court’s decision…

So, in this write-up we will thoroughly discuss- What are Electoral Bonds? Why Supreme Court cease it? And lastly, what is the impact of the Supreme Court’s Verdict?

Stay tuned!

(A) What are Electoral Bonds?

You can assume electoral bonds as special currency notes designed for political contributions in India. These bonds act like a secret handshake between a donor and a political party, allowing someone to support their preferred party without revealing their identity. 

So, it’s like making a political donation incognito, adding a layer of privacy to the funding process.

In short, Electoral Bonds are a type of financial instrument used for making donations to political parties in India.

Let’s have a brief overview of Electoral Bonds-

Particulars of Electoral BondsDescription
Introduced inThe Finance Bill, 2017
PurposeFacilitate transparent and legal funding of political parties. 
Issuing AuthorityThe State Bank of India (SBI) acts as the authorized issuing agency.  
DenominationsAvailable in denominations of ₹1,000, ₹10,000, ₹1,00,000, and ₹10,00,000.
EligibilityAny Indian citizen or organization registered in India can purchase Electoral Bonds. 
KYC NormsBuyers must fulfill Know Your Customer (KYC) requirements as per the Reserve Bank of India (RBI). 
AnonymityDonors’ identities remain confidential; details are submitted to the Election Commission in sealed covers.
RedemptionPolitical parties redeem these bonds through their designated bank accounts.  
DisclosureCompanies must disclose contributions to political parties in their profit and loss accounts. 
What are Electoral Bonds? A Brief Overview

Electoral bonds (EBs) function as “bearer” instruments similar to currency notes, available in denominations of 1,000 rupees ($12), 10,000 rupees ($120), 100,000 rupees ($1,200), 1 million rupees ($12,000), and 10 million rupees ($120,000). 

These bonds, purchasable by individuals, groups, or corporate organizations, can be donated to a political party of choice, with the party having the privilege to redeem them without any interest after 15 days. 

Despite the requirement for political parties to disclose the identities of cash donors exceeding 20,000 rupees ($240), donors utilizing electoral bonds enjoy complete anonymity, irrespective of the donation amount.

That’s how Electoral Bonds serve as a mechanism to promote election funding while safeguarding donor privacy.

(B) Electoral Bonds: Transforming Political Funding Landscape in India

Electoral Bonds (overview)

As you know, Electoral bonds are one of the prime sources of political funding. Since their introduction, Electoral Bonds (EBs) have reshaped the landscape of political funding in India, constituting a substantial 56 percent of all funding, as reported by the ADR (Association for Democratic Reforms). 

This shift towards EBs has triggered a nuanced discussion, fueled by their unique features of anonymity and the associated concerns regarding democratic principles and corruption.

(B.1) Electoral Bonds & Anonymity

One key aspect contributing to the popularity of EBs is the ability to donate money anonymously. This anonymity, however, has raised questions about its impact on transparency and the potential for covert corruption within the political funding system.

(B.2) Changes in Transparency Requirements

Simultaneously with the introduction of EBs, the Modi government enacted changes that significantly altered transparency requirements. Corporate donation limits were abolished, companies were relieved from the obligation to disclose contributions in their financial statements, and foreign companies gained the newfound ability to fund Indian parties through their Indian subsidiaries.

(B.3) Legal Implications

Major-General Anil Verma (retired), head of the ADR, has expressed concerns about the legal implications surrounding EBs, stating that they legitimize backroom lobbying and allow for unlimited anonymous donations. 

The opacity surrounding the identity of donors raises alarm, as it opens the possibility of major corporations or entities channeling illicit funds through the guise of shell companies, leading to what some consider a form of legalized and institutionalized corruption.

In essence, the rise of Electoral Bonds as a predominant force in political funding in India has sparked a multifaceted debate, encompassing anonymity, transparency, and potential legal ramifications, all of which contribute to the ongoing discourse surrounding the integrity of the country’s political financing mechanisms.

(C) Working Strategy: How did Electoral Bonds work?

In this section, we will delve into the operational mechanics of electoral bonds-

Working StrategyDetail
Electoral Bond ProcurementUnder this system, individuals or companies had the option to purchase electoral bonds directly from the State Bank of India (SBI), with denominations ranging from 1,000 rupees ($12) to 10 million rupees ($120,000). Once acquired, these bonds could be donated to a political party of the donor’s choice.
Transaction ProcessInitiated in early 2018, the bonds, exempt from taxation, were physically delivered to the political party selected by the donor. The receiving party could then exchange these bonds for cash. Notably, these bonds did not bear the name of the donor, providing a level of anonymity. While this allowed for tax exemption, it contrasted with cash donations, which, although permissible for elections, did not come with any tax benefits.
Popularity and Anonymity ConcernsSince their introduction, electoral bonds swiftly became a significant avenue for political funding. Although donors maintained technical anonymity, concerns arose among critics who feared that the government might access data through the state-owned SBI, raising questions about the actual level of anonymity provided by the system.
Court’s Intervention and Corporate Donation LimitsHighlighting the potential for financial contributions to lead to “quid pro quo arrangements,” the court reinstated corporate donation limits, deeming the treatment of companies and individuals as manifestly arbitrary. The court expressed concerns over the considerable influence companies could wield in the electoral process, characterizing their contributions as “purely business transactions” made with the anticipation of securing benefits in return.
Impact and Halt on SalesDescribing the court’s ruling as a landmark, transparency campaigner Lokesh Batra emphasized its potential impact on the upcoming general election, scheduled for May. The court’s decision to reinstate limits on corporate donations is expected to curb the influence of money in politics, particularly from companies. As a result, the sale of electoral bonds, a significant source of political funding, has been brought to a halt, affecting the financial dynamics of political parties ahead of the imminent election.
Electoral Bonds: How do they work?

(D) How do Electoral Bonds Benefit the Ruling Party?

Electoral bonds immensely impacted the political funding dynamics in India. Critics say that the electoral bonds specifically benefitted the current ruling party in India. Let’s see how-

(D.1) Electoral Bonds’ Disproportionate Impact on BJP

Data sourced from the ECI (Election Commission of India) reveals that the BJP emerges as the primary beneficiary of Electoral Bond (EB) donations, receiving a significant 57 percent of the total contributions between 2018 and March 2022. 

This amounted to 52.71 billion rupees (approximately $635 million), overshadowing the second-largest recipient, the Indian National Congress, which received 9.52 billion rupees (about $115 million).

(D.2) Exclusive Sale by SBI and Implications

Electoral Bond rules dictate that only the State Bank of India (SBI) can sell these bonds, leading to concerns about unchecked government power. Economist and former RBI

Governor Raghuram Rajan highlighted in an article that the issuance by a public sector bank raises fears of the government gaining access to the donor and recipient lists, potentially influencing donation patterns due to government leverage.

(D.3) Contributions to BJP’s Electoral Dominance

What are electoral bonds (How are they benefiting the ruling party)

EBs have played a role in enhancing the BJP’s electoral dominance, as their utilization extends beyond elections. Despite being labeled “electoral bonds,” retired Indian Navy commodore Lokesh Batra argues that there are no restrictions specifying the funds must be used exclusively for elections. 

This flexibility enables recipients, such as the BJP, to allocate funds for various purposes like media space acquisition and advertising.

(D.4) Unequal Playing Field and Funding Discrepancies

Critics point out the evident mismatch in funds received by the BJP and its closest rival, the Congress, showcasing the unequal playing field created by EBs. 

In a specific example from the May 2023 state assembly polls in Karnataka, the BJP’s expenditure of 1.97 billion rupees ($24 million) far exceeded the Congress’s spending of 1.36 billion rupees ($16 million), underscoring the financial advantage enjoyed by the BJP.

(D.5) Government’s Influence on Bond Sales Timing

The Modi government wields influence over the timing of Electoral Bond sales, despite rules stipulating sales only during the first 10 days of each quarter (January, April, July, and October). The government, however, deviated from these rules by allowing bond purchases on the eve of crucial elections in May and November 2018. 

This deviation forms part of an ongoing legal case in the Supreme Court, raising questions about adherence to established procedures.

(E) Why Electoral Bonds are Criticised?

Ever since its inception, Electoral Bonds have been a topic of debate and criticism in India. Let’s look at the reasons for criticism of Electoral Bonds one by one-

Key ReasonsExplanation
Lack of TransparencyElectoral Bonds allow political parties to receive donations anonymously. The identity of donors is not disclosed, leading to opacity in political funding. Critics argue that this undermines transparency and accountability in the electoral process. 
Influence of Corporates & Wealthy IndividualsSince donor identities are concealed, there is concern that corporations and wealthy individuals can exert undue influence over political parties. Parties may prioritize the interests of major donors over those of the general public.   
Potential for Money Laundering & black moneyThe anonymity of donors raises the risk of money laundering and the use of black money in political funding. Critics argue that unaccounted funds could flow into the system through electoral bonds, compromising the integrity of elections.
Exclusion of Small DonorsElectoral Bonds favor large donors who can afford to purchase them. Small donors, who contribute in smaller amounts, are excluded from this system. This exacerbates the influence of big money in politics and marginalizes grassroots supporters. 
Bypassing Election Commission ScrutinyUnlike direct donations, electoral bonds do not require scrutiny by the Election Commission. This lack of oversight allows for potential misuse and circumvention of campaign finance regulations.
Limited Validity PeriodElectoral Bonds have a short validity period (usually 15 days). If not redeemed within this time, they become worthless. Critics argue that this restricts their effectiveness and may lead to rushed spending by political parties.
Excessive Corporate Influence on PoliciesCritics contend that electoral bonds reinforce the influence of corporate interests on policy decisions. Corporations may expect favorable policies or regulatory changes in return for their donations.  
Legal Challenges and Court Interventionshe legality of electoral bonds has been challenged in court. Critics argue that the system violates the principle of transparency enshrined in the Constitution. The Supreme Court has heard petitions regarding electoral bonds and expressed concerns about their impact on democracy. 
Inadequate Disclosure by Political PartiesWhile political parties are required to disclose donations above a certain threshold, the use of electoral bonds complicates this process. Critics claim that parties do not fully disclose the details of bonds received, making it difficult for citizens to assess the financial backing of parties.
Impact on Electoral IntegrityOverall, critics believe that electoral bonds weaken the integrity of the electoral system. They call for reforms to enhance transparency, reduce the influence of money, and ensure that political funding serves the public interest rather than vested interests. 
Recommendations for ImprovementTo address these criticisms, reforms are needed. Suggestions include full disclosure of donor details, extending scrutiny by the Election Commission to electoral bonds, and promoting small donations. Additionally, exploring alternative funding models (such as state funding of elections) could mitigate some of the issues associated with electoral bonds. 
Why Electoral Bonds are criticized?

These criticisms highlight the need for a robust and transparent system of political funding. Even people also anticipate transparent funding methods that uphold democratic principles and safeguard the interests of citizens.

(F) Who challenged Electoral Bonds in the Supreme Court?

In the years 2017 and 2018, two distinct petitions were presented to the Supreme Court by non-governmental organizations (NGOs), ADR and Common Cause, alongside the Communist Party of India (Marxist). These petitions collectively urged the Supreme Court to bring an end to the existing Electoral Bond (EB) system. 

After six years, the court has finally delivered its verdict on these petitions, concluding hearings in November 2023.

During its announcement, the court expressed serious concerns about the EB scheme, emphasizing its “serious deficiencies” and characterizing it as creating an “information black hole.” The court unequivocally asserted that the scheme must be removed due to its tendency to prioritize opacity in the political funding process.

Despite the court’s critical stance, the sale of Electoral Bonds continues unabated. The most recent tranche of these bonds was available for purchase from January 2 to 11 at 29 locations across the country. 

It is anticipated that the funds generated from these transactions will constitute a substantial portion of the financial backing for political campaigns in the lead-up to the upcoming general elections scheduled for later this year.

This situation underscores the persistent challenges and controversies surrounding the Electoral Bond system, as its legal status faces scrutiny, and yet it remains a significant source of political funding with potential implications for the democratic process in India.

(G) Supreme Court’s Verdict on Electoral Bonds

The Supreme Court has recently declared the Electoral Bonds (EB) scheme “unconstitutional,” citing violations of the right to information and emphasizing the potential for corporate contributions to political parties to be “violative of the right to information.”

Now, let’s look at the Supreme Court’s verdict on electoral bonds-

VerdictKey ObservationsDetails
Insights of the VerdictFound UnconstitutionalThe Supreme Court found the Electoral Bonds Scheme, alongside specific provisions of the Income Tax Act and Finance Act 2015, to be violative of Article 19(1)(a) of the Constitution.
Cease Issuance by SBIThe State Bank of India (SBI), the issuing bank, has been instructed to immediately halt the issuance of electoral bonds.
Disclosure RequirementsSBI is mandated to provide detailed information about political parties receiving electoral bonds, including purchase dates, purchaser names, bond denominations, and details of each encashed bond, to the Election Commission (EC) by March 6.
Public Disclosure by ECThe EC is directed to publish the received information on its official website by March 13, ensuring transparency in the political funding process.
Refund of Encashed BondsElectoral bonds that remain encashed by political parties are required to be returned and refunded to the purchasers.
Corporations vs CitizensMoney and Politics NexusThe judgment sheds light on the deep connection between money and politics, emphasizing that corporate contributions are viewed as business transactions aimed at securing benefits.
Impact on Political IdeologiesThe court questions the democratic essence if corporations, with substantial financial power, can contribute unlimited amounts, overshadowing the relatively small financial contributions of ordinary citizens who believe in a political party’s ideologies without expecting substantial favors in return.
Economic InequalityChief Justice Chandrachud notes that the scheme promotes economic inequality, providing corporations an unsurpassable advantage over ordinary citizens, violating the principle of “one person, one vote.”
Voters’ Rights vs Donors’ RightsPrivacy and Political AffiliationThe court dismisses the government’s argument about the anonymity of political donors incentivizing financial contributions and stresses the balance between informational privacy and voters’ right to information.
Distinction in ContributionsChief Justice Chandrachud distinguishes between corporate donations for favors and individual contributions as expressions of political support.
Dismissal of Black Money ArgumentIneffectiveness of Absolute Non-DisclosureThe court rejects the government’s claim that the scheme aims to curb black money, emphasizing that absolute non-disclosure does not contribute to curbing black money injection into the electoral process.
Flawed Clause 7(4)Applying the “double proportionality standards,” the court deems Clause 7(4) unconstitutional as it doesn’t balance voters’ right to information with contributors’ right to privacy effectively.
Hinged on AnonymityCritical Role of Clause 7(4)The judgment highlights that the entire electoral bonds scheme relies on the anonymity provided under Clause 7(4), and without it, the scheme is indistinguishable from other modes of financial contributions.
Amendments Facilitated AnonymityImpact of AmendmentsThe court notes how amendments introduced in various acts facilitated blanket anonymity in financial contributions through electoral bonds, highlighting the balance that existed before these changes.
Supreme Court’s Verdict on Electoral Bonds (What are electoral bonds?)

Thus, the Supreme Court’s verdict marks a significant turning point, addressing concerns related to transparency, privacy, and the democratic principles surrounding political funding in India.

(H) Impact of Supreme Court’s Decision on Electoral Bonds

The Supreme Court’s ruling on the discontinuation of Electoral Bonds has multifaceted implications, influencing the strategies of political parties, fostering public trust, and prompting potential government actions toward more accountable and transparent political funding practices.

Let’s look at them in detail-

AspectImpact of Supreme Court’s Verdict on Cease of Electoral Bonds  
Political PartiesChallenges parties to explore more accountable and transparent funding avenues.
This may necessitate a reassessment of campaign strategies, focusing on grassroots and public engagement to compensate for reduced corporate contributions.
Poses an opportunity for parties to build public trust by demonstrating financial openness.    
This could lead to increased reliance on individual donors, potentially diversifying the donor base.  
PublicReinforces public confidence in the electoral process by addressing concerns about undisclosed corporate influence.  
Encourages citizen participation and awareness, as clearer financial disclosures become a prominent feature. 
May reduce skepticism regarding the influence of big corporations on political decisions, fostering a more inclusive democratic environment.
GovernmentPrompts a reevaluation of existing laws and regulations governing political funding, emphasizing the need for more stringent checks and balances. 
Signals the importance of safeguarding the democratic process against potential undue influence by corporate entities.   
Initiates discussions on reforms to establish a fairer and more transparent political financing system.
May influence policymaking to address loopholes and shortcomings identified in the court’s decision.  
Impact of Supreme Court’s Decision on Electoral Bonds

The recent decision by the Supreme Court coincides with revelations regarding substantial funding received by political parties through electoral bonds. 

Specifically, in the fiscal year 2022-23, the ruling BJP reportedly garnered nearly ₹1300 crore through this funding mechanism, a figure approximately seven times higher than the amount received by the Congress during the same period using the same channel. 

Data sourced from the Association for Democratic Reforms (ADR) indicates that in FY23, the BJP emerged as the primary beneficiary, securing ₹259.08 crore, which constituted 70.69 percent of the total amount disbursed to political parties through electoral bonds. 

This significant disparity in funding levels raises pertinent questions about the equity and transparency of the political financing landscape in India.

(I) Final Words

In a nutshell, Electoral Bonds, once a major avenue for political funding, faced scrutiny with the Supreme Court deeming them unconstitutional. The verdict aimed at curbing anonymity in contributions, and promoting transparency. 

This decision impacts political parties, urging them to seek alternative funding methods, and boosts public trust by revealing party finances. The government faces the challenge of reevaluating funding regulations.

Overall, the ruling seeks a fairer electoral process, reducing the potential influence of corporate money, and fostering a more transparent and accountable democratic system in India!

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Published By: Supti Nandi
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Madhumita
Madhumita
1 month ago

Which political party was highly affected through this Supreme Court’s verdict?