[Answered]Argue whether electoral bonds are an effective mechanism to conduct fair and transparent elections? Suggest some measures to improve transparency in electoral funding to political parties.

Demand of the question

Introduction. What are electoral bonds?

Body. Discuss the effectiveness, rationale and issues related to electoral bonds.

Conclusion. Way forward.

Electoral bonds are instruments that allow donors to pay political parties using banks as an intermediary. Although called a bond, the banking instrument resembling promissory notes do not carry any interest. These are meant to ensure transparency in political funding and thus fair elections in India.

Effectiveness of electoral bonds:

  1. Electoral bonds scheme only ensures that contributions come from legitimate, tax-compliant sources. Since we can’t know who gave which party how much, it is impossible to assert that no political influence was bought with these anonymous bond contributions.
  2. In 2017-18, according to data collected, some 95% of the ₹222 crore of electoral bonds issued landed up with the major political party as anonymous contributions.

Rationale for introduction of the electoral bonds:

  1. Electoral bonds have been introduced to promote transparency in funding and donation received by political parties.
  2. The scheme envisages building a transparent system of acquiring bonds with validated KYC and an audit trail. A limited window and a very short maturity period would make misuse improbable.
  3. The electoral bonds will prompt donors to take the banking route to donate, with their identity captured by the issuing authority. This will ensure transparency and accountability and is a big step towards electoral reform.
  4. The previous system of cash donations from anonymous sources is wholly non-transparent. The donor, the donee, the quantum of donations and the nature of expenditure are all undisclosed.
  5. According to government the system of Bonds will encourage political donations of clean money from individuals, companies, HUF, religious groups, charities, etc.
  6. After purchasing the bonds, these entities can hand them to political parties of their choice, which must redeem them within the prescribed time.
  7. Some element of transparency would be introduced in as much as all donors declare in their accounts the amount of bonds that they have purchased and all parties declare the quantum of bonds that they have received.
  8. The electoral bonds are aimed at rooting out the current system of largely anonymous cash donations made to political parties which lead to the generation of black money in the economy.

Concerns related to electoral bonds:

  1. The move could be misused, given the lack of disclosure requirements for individuals purchasing electoral bonds.
  2. Electoral bonds make electoral funding even more opaque. It will bring more and more black money into the political system.
  3. With electoral bonds there can be a legal channel for companies to round-trip their tax haven cash to a political party. If this could be arranged, then a businessman could lobby for a change in policy, and legally funnel a part of the profits accruing from this policy change to the politician or party that brought it about.
  4. Electoral bonds eliminate the 7.5% cap on company donations which means even loss-making companies can make unlimited donations.
  5. Companies no longer need to declare the names of the parties to which they have donated so shareholders won’t know where their money has gone.
  6. They have potential to load the dice heavily in favour of the ruling party as the donor bank and the receiver bank know the identity of the person. But both the banks report to the RBI which, in turn, is subject to the Central government’s will to know.

Measures to ensure transparency in political funding:

  1. To make electoral funding transparent, two types of needs should be addressed:
  • One is the funding of political parties, which need to engage in political activity all through the year, whether there is an election or not.
  • The other is the funding of candidates.
  1. The electoral bonds scheme makes no sense, and needs replacement with a more transparent means of funding political parties, where both the donor and political recipient are identified clearly.
  2. An alternative to electoral bonds is a National Electoral Fund to which all donors can contribute.The funds would be allocated to political parties in proportion to the votes they get. Not only would this protect the identity of donors, it would also weed out black money from political funding.
  3. At the candidate level, we have to seriously consider state funding. Direct funding of candidates, who will be reimbursed according to their final share of the votes cast is needed.
  4. The best way to bring about such transparency in political funding is to put a complete ban on cash donations by individuals or companies to political parties.Making it mandatory for all parties to receive donations only by cheque, or other modes of money transfer.
  5. There should be clear provisions for getting tax benefits for all those making such donations.Make it mandatory for political parties to submit details of all donations received with the Election Commission and also with the income-tax department.
  6. State funding of political parties can be considered. The Indrajit Gupta Committee on State Funding of Elections had endorsed partial state funding of recognised political parties.

The mechanics of this process need to be carefully worked out to establish the allocation of money to national parties, State parties and independent candidates, and to check candidate’s own expenditure over and above that which is provided by the state.Voters have to be made aware through awareness campaigns about ill effects of money power during elections. Bringing political parties under the preview of RTI act.

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