Explained: What are electoral bonds and why are they controversial?

After amending the Electoral Bond Scheme, the government on Wednesday approved the fresh issuance of electoral bonds. The State Bank of India will issue and cash electoral bonds through 29 branches till November 15. The bonds will be valid for 15 days from the date of issue, and any bond deposited by a political party in its account will be credited on the same day. Here are some details about electoral bonds.

What are electoral bonds?

An electoral bond is a bearer bond instrument through which companies and individuals can donate funds to political parties. It is just like a promissory note, with the money payable to the bearer on demand. It is interest-free.

Origin of electoral bonds in India

In the 2017 Union Budget, then Finance Minister Arun Jaitley announced electoral bonds. Finance Bill 2017 legalised them with amendments to the Reserve Bank of India Act 1934, Representation of Peoples Act 1951, Income Tax Act 1961, and Companies Act.

Also read: Electoral bonds an absolutely transparent funding mode: Centre to SC

The Electoral Bond Scheme was notified in 2018, and sale of the first batch happened from March 1–10, 2018. The bonds to be issued now are the 23rd batch.

Who can buy and receive electoral bonds?

Any Indian citizen or entity incorporated or established in the country can buy electoral bonds. All registered political parties that got at least 1 per cent votes in the previous Lok Sabha or legislative assembly election are eligible to receive funding through electoral bonds.

Those looking to buy electoral bonds must fulfil certain prerequisites, such as filling in KYC (Know Your Customer) details with the bank for authentication. Electoral bonds are issued in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.

Also read: 5 regional parties declared donations of ₹250 cr through electoral bonds in 2020-21: ADR

Electoral bonds are available for buying at designated SBI branches in the first 10 days of every new quarter, that is, in April, July, October, and January. Now, the scheme has been amended to facilitate sales for “an additional period of 15 days” “in the year of general elections to the Legislative Assembly of States and Union Territories with Legislature.”

The original scheme facilitated an additional 30 days of sale during Lok Sabha election years.

Why the controversy? 

While introducing them, the government had claimed that electoral bonds would act as an alternative to cash donations made to political parties, which would bring more transparency to political funding.

But that is far from the case. Like bearer bonds, these are supposed to be untraceable. However, an investigation carried out by The Quint in 2018 showed that they bear an alphanumeric code, which can be seen under a UV light.

Also read: BJP earned ₹27.5L per hour in FY 2018-19 through electoral bonds: Report

The electoral bond is also interest-free, and the donors remain anonymous. They don’t have to reveal which party they donated to. Anybody can walk into a designated SBI branch, issue a bond to a political party, which cashes it within 15 days.

So, in fact, funding has become more opaque. Petitioners approached Supreme Court, seeking a stay on the Electoral Bond Scheme or transparent alternatives for funding of political parties. The SC, in a 2019 ruling, asked parties to disclose their funding to the court.

BJP and electoral bonds

According to media reports, in 2019–20, political parties received Rs 3,429 crore in electoral bonds. The BJP received Rs 2,606 crore or a whopping 76 per cent of that, followed by the Congress with a mere 9 per cent.

Incidentally, 92 per cent of that money came from Rs 1-crore bonds, and the same organisations donated in multiple tranches of Rs 1-crore bonds.