Electoral bonds

  • Electoral bonds allows donors to pay political parties using banks as an intermediary.
  • The bond would be a bearer instrument in the nature of a Promissory Note and an interest free banking instrument.
  • It can be bought for any value in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore.
Details of electoral bonds:
  • Electoral bonds are a bearer instrument in nature of promissory note and an interest-free banking instrument.
  • These can be redeemed only through the registered accounts of a political party in a prescribed time frame.
  • It aims at rooting out current system of largely anonymous cash donations made to political parties which lead to generation of black money in the economy.
  • A citizen of India or a body incorporated in India will be eligible to purchase the bond.
  • The purchaser is allowed to buy electoral bonds only on due fulfilment of all extant KYC norms and by making payment from a bank account.
  • It will not carry the name of the payee.
  • It will have a life of 15 days during which they can be used to make donations to registered political parties.
  • The bond can be encashed by an eligible political party only through a designated bank account with the authorised bank.
  • The electoral bonds will be available for purchase for a period of 10 days each in months of January, April, July and October with additional 30 days to be specified by Central government in year of general election so that this does not become a parallel currency.
Eligibility of Political Parties:
Political parties that have secured not less than 1% of votes polled in last general election to Lok Sabha or Assembly can avail funding through this bonds
Issuance of bonds:
The bonds are issued by Scheduled Commercial banks upon authorization from the Central Government to intending donors but only against cheque and digital payments (it cannot be purchased by paying cash).
Why is it needed?
  • According to Association for Democratic Reforms (ADR), most political parties use lax regime on donations to accept cash donations from anonymous sources. Nearly 70% of Rs. 11,300 crore in party funding over an 11-year period came from unknown sources.
  • The electoral bonds will prompt donors to take banking route to donate, with their identity captured by the issuing authority.
  • Promoting transparency in funding and donations received by political parties
  • Building a transparent system of acquiring bonds with validated KYC and an audit trail.
Issues with Electoral bonds:
  • Anonymity: Neither the donor nor the political party is obligated to reveal whom the donation comes from.
  • Black Money: The sale of electoral bonds had become an avenue for shell corporations and entities to park illicit money and even proceeds of bribes with political parties.
  • Tax Exemption: Electoral Bonds donations enjoy 100% tax exemption. Further, they need not be reported to the Income Tax department either.
  • Removal of Cap on Net Profit Donations: The government has removed the eligibility cap for funding political parties. Earlier a company can make a political contribution only if it has 7.5% of the net average profit for three preceding financial years.
Observations by Election Commission
  • The Election Commission of India called these measures as a retrograde step and the ECI has no way to ascertain whether the donations were received illegally by the political party from government companies or foreign sources.
  • The Election commission also expressed concerns that these amendments would pump in black money for political funding through shell companies and allow unchecked foreign funding of political parties in India which could lead to Indian politics being influenced by foreign companies.
  • In an affidavit filed before the Supreme Court, the Election Commission of India has made the following observations:
    • Electoral bonds, contrary to government claims, wreck transparency in political funding.
    • Electoral bonds coupled with the removal of the cap on foreign funding invites foreign corporate powers to impact Indian politics.
    • Electoral bonds would cause a “serious impact” on transparency in the funding of political parties.
The Election Commission of India further criticises amendments made to various key statutes through the two consecutive Finance Acts of 2016 and 2017.

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