Electoral Funding Reforms

What reforms are announced by Government?
  • The Union Government has announced two measures in the Budget 2017-18 to bring in greater transparency in funding of political parties.
  • These include :
    • Capping cash funding by a single anonymous donor to Rs. 2000 (one tenth of the current limit of Rs 20,000) and
    • Introduction of the electoral bonds.
  • It will take effect from 1 April, 2018.
What are Electoral bonds?
  • A person wishing to donate to a political party can purchase these bonds from an authorized bank using cheques or digital payment methods.
  • These bonds shall be redeemable only in the designated account of a registered political party.
Thus, these bonds look like bearer bonds i.e. they are instruments which are not registered in the name of a specific owner and will pay to whoever bears them.
How will Electoral Bonds work?
  • These bonds will be instrument to donate money to political parties and the RBI will acts as the intermediary.
  • Donors can purchase bonds only through cheque or digital mode, helping to track record of the source of the purchase.
  • These bonds shall be redeemable only in the designated account of a registered political party and within the prescribed time limit from issuance of bond.
  • The bond bearer’s identity will be unlikely revealed in the books of the political party and the recipient party will also remain unknown.
How can the banks issue such bonds?
  • Section 31 of the RBI Act gives power, as of today, to issue bearer bonds only to RBI and the Government.
  • The bearer bond has the characteristic of a currency.
Note: Commercial banks cannot issue these bonds.
Benefits of the move
  • Some experts claim, the announcement will bring more transparency on who the donor and donee is, and would help keep a check on parties that are formed only with “an eye on availing the benefits of income tax exemption.
  • There are many bogus political parties which have been registered with the Election Commission and accept donations but never contest election. These parties had become avenues of dumping ill-gotten money and electoral bonds would keep a check on their financial transactions.
  • The Section 29C of the Representation of People Act, 1951, allowed political parties to accept donations of Rs 20,000 from anonymous individuals. This has now been reduced to Rs 2,000. All that the parties will now have to do is find more people to lend their names to these donations, or better still, find more names of unsuspecting people to be listed as cash donors.
  • In order for electoral bonds to make an impact it should be available at commercial banks, who are currently prevented from the RBI Act from issuing such bonds since they have the characteristic of currency. Amending the RBI Act for such a purpose would lead to the erosion of RBI’s autonomy and authority.
Suggestions for stronger reforms
  • They should have placed a cap on the amount a party may receive in cash as a donation.
  • The proposal to allow donors to purchase electoral bonds from banks against cheque and digital payments to cater to donors’ need to remain anonymous to rival political parties hardly contributes to transparency.
  • Best solution is to bring all the political parties under the purview of the RTI Act.

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