Electoral Bonds

Context: The Supreme Court scheduled to examine whether petitions challenging the validity of electoral bonds scheme need to be referred to a Constitution Bench.

About the petition

  • The petition was filed by the Association for Democratic Reforms (ADR) challenging the Centre’s electoral bonds Scheme.
  • The petition alleged that the Finance Act 2017 made the electoral bonds exempt from disclosure under the Representation of peoples Act, 1951 led to unchecked, unknown funding to political parties.
  • The petition also said that The Finance Act 2016 which amended the Foreign Contribution Regulation Act (FCRA), 2010 will allow the foreign companies with subsidiaries in India to fund political parties in India. This will made Indian politics and democracy exposing to international lobbyists
  • The plea has been pending since 2017.

What is electoral bond scheme?

  • Electoral bonds are money instruments like promissory notes that can be bought by companies and individuals in India from the State Bank of India (SBI)
  • Such bonds, which are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, can be bought from authorised branches of the State Bank of India.
  • As such, a donor is required to pay the amount — say Rs 10 lakh — via a cheque or a digital mechanism (cash is not allowed) to the authorised SBI branch.
  • There is no limit on the number of electoral bonds that a person or company can purchase.
  • The donor can then give this bond (just one, if the denomination chosen is Rs 10 lakh, or 10, if the denomination is Rs 1 lakh) to the party or parties of their choice.
  • The political parties can choose to encash such bonds within 15 days of receiving them and fund their electoral expenses. On the face of it, the process ensures that the name of the donor remains anonymous.
  • Every party registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and having secured at least one per cent of the votes polled in the most recent Lok Sabha or State election has been allotted a verified account by the Election Commission of India.
  • The bonds go for sale in 10-day windows in the beginning of every quarter, i.e. in January, April, July and October, besides an additional 30-day period specified by the Central Government during Lok Sabha election years.
  • The central idea behind the electoral bonds scheme was to bring about transparency in electoral funding in India.

What is the Purpose of the electoral Bond?

  • It was introduced to” cleanse the system of political funding in the country” by eradicating the “menace of unaccounted money coming into the country’s economy through political funding”.
  • It would make political donations transparent while also protecting the identity of the donor.
  • Under the scheme, bonds are available for purchase at any SBI branch in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and can be bought through a KYC-compliant account. There is no limit on the number of electoral bonds that a person or company can purchase.
  • Every party registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and having secured at least one per cent of the votes polled in the most recent Lok Sabha or State election has been allotted a verified account by the Election Commission of India. The donor can donate the bond to a party of their choice, which can cash it within 15 days, only through the allotted account.

Will it be tax deductible?

  • A donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party

 Why have electoral bonds attracted criticism?

  • The central criticism of the electoral bonds scheme is that it does the exact opposite of what it was meant to do: bring transparency to election funding.
  • Critics argue that the anonymity of electoral bonds is only for the broader public and opposition parties.
  • The fact that such bonds are sold via a government-owned bank (SBI) leaves the door open for the government to know exactly who is funding its opponents.
  • This, in turn, allows the possibility for the government of the day to either extort money, especially from the big companies, or victimise them for not funding the ruling party — either way providing an unfair advantage to the party in power.
  • Critics have noted that more than 75 per cent of all electoral bonds have goes to the ruling party in the centre.
  • Further, one of the arguments for introducing electoral bonds was to allow common people to easily fund political parties of their choice but more than 90% of the bonds have been of the highest denomination (Rs 1 crore).
  • Moreover, before the electoral bonds scheme was announced, there was a cap on how much a company could donate to a political party: 7.5 per cent of the average net profits of a company in the preceding three years. However, the government amended the Companies Act to remove this limit, opening the doors to unlimited funding by corporate India, critics argue.

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