Electoral bond is a financial tool used to make contributions to political parties. It is a promissory note that may be obtained by any Indian individual or company incorporated in India from specific State Bank of India branches. The bonds are similar to banknotes in that they are non-interest bearing and receivable to the bearer on demand. To incorporate electoral bonds, the Reserve Bank of India Act of 1934, the Representation of Peoples Act of 1951, the Income Tax Act of 1961, and the Companies Act were all changed.

This article explains the Electoral bonds, Features and Advantages of Electoral Bonds are useful for Prelims 2023 preparation and UPSC Mains 2023 as well.

Electoral bonds

• The Finance Bill of 2017 established "Electoral bonds" as interest-free bearer products that can be purchased from the State Bank of India within a 10-day window in each quarter of the financial year. 
• Election-related bonds, like promissory notes, are designed to be bearer instruments. It will resemble a banknote that bears no interest and is payable to the bearer on demand.
• On January 29, 2018, the electoral bonds were implemented.
• Individuals and domestic corporations can submit these bonds, which are issued in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore and must be redeemed within 15 days, to political parties of their choice.
• At the time of purchase, buyers of the bonds must provide complete KYC details. 
• However, the political party that receives the bond is not compelled to declare the identity of the entity that gave it the bond (s).

Electoral Bonds – Features

• Notified banks are the issuers of these bonds.
• These banks may be approached by the donor to purchase the bonds.
• The donor will be able to purchase the bonds using a check or a digital payment. 
• According to the Central Government's orders, the bonds will be available for purchase for 10 days at the start of each quarter, namely January, April, July, and October. 
• During the Lok Sabha election year, the Central Government shall designate an additional thirty-day term.
• To safeguard the donor's privacy, the bonds will not contain their name. The purpose is to ensure that any donations made to a party are reported in the balance sheets without revealing any personal information about the contributors.
• The political party must deposit the money into an account with the Election Commission of India.

Electoral Bonds – Conditions

• Any party that has registered under Section 29A of the Representation of the Peoples Act, 1951 and received at least 1% of the votes cast in the most recent General or Assembly elections is eligible to acquire electoral bonds.
• The Election Commission of India (ECI) will provide the party a verified account, and all electoral bond transactions would be conducted through this account.
• The donor's name will not appear on the electoral bonds. As a result, the political party may be unaware of the donor's identity.

Advantages of Electoral Bonds

• Transparency: The strategy asks for the creation of a transparent bond-purchasing mechanism that includes verified KYC and an audit trail. 
  • Contributors will be encouraged to make gifts through banking, allowing the issuing authorities to gather their names. 
  • Encourage people, corporations, nonprofit organisations, and other entities to make clean political donations, therefore eliminating the connection between business and politics.
• Get rid of black money: A tiny window and a short maturity time would make its use as a counter currency difficult. 
  • The amount of money acquired by political parties using electoral bonds must be disclosed.
• Secrecy: By instituting some kind of confidentiality, contributors will be shielded from spiteful politics, such as persecution by one party for backing its competitors.
• Reduces tax evasion: Strict eligibility restrictions will dissuade attempts to form political parties in order to avoid paying taxes.

Drawbacks of Electoral Bonds

• Anonymity: Due to the anonymity of contributors, electoral bonds do not provide the public with any information regarding how elections are funded. It has an impact on the concept of fair and free elections.
• The donor or the political party are not compelled to reveal the source of the money. 
• As a result, it violates the right to know. The Supreme Court declared that the "right to know," particularly in the context of elections, is a supplement to the right to free expression (Article 19).
• The bonds are purchased through the SBI, the government can always identify the contributor. 
• As a result of the information disparity, the method might possibly be slanted in favour of the ruling political party.
• It is a dislike towards crony capitalism. The 2017 Finance Bill eliminated the top limit of 7.5% on the proportion of profits a firm might give to a political party, allowing for the formation of fly-by-night shell corporations specifically to support parties.

Way forward

• The existing design of the electoral bond system makes streamlining the funding method impossible. The government's explanation that opacity is necessary to protect the donor's privacy is unconvincing. The secrecy surrounding political finance simply fosters corruption.
• Digital transactions: One easy solution is to switch to digital transactions. This ensures the donor enough privacy and transparency.
• The 2nd ARC, the Dinesh Goswami committee, and various other committees have also advised the state on election spending.
• By including political parties, the Right to Information Act can promote transparency. 
• In the absence of public pressure, it is unlikely to excite the interest of a political class hell-bent on protecting itself from public responsibility.
• National electoral fund: Former Chief Election Commissioner S.Y. Quraishi believes that establishing a National Electoral Fund that takes contributions from all donors is a viable option.
• The funds would be allocated to political parties in proportion to the amount of votes received. This protects donors' anonymity and eliminates dark money from political donations.

Conclusion

Electoral Bonds are a type of financial instrument that can be used to make payments to political parties. The bonds are available in denominations of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakhs, and Rs. 1 crore, with no upper limit. The State Bank of India is authorised to issue and redeem these bonds, which have a fifteen-day validity period.

FAQs

MCQs

1. What is the main purpose of Electoral Bonds in India?

A) To eliminate cash donations to political parties
B) To provide a secure way for citizens to invest in political campaigns
C) To promote transparency in political donations
D) To allow foreign donations to Indian political parties

2. Which bank is authorized to issue and encash Electoral Bonds in India?

A) Punjab National Bank
B) State Bank of India
C) ICICI Bank
D) Bank of Baroda

3. What is the validity period of an Electoral Bond from the date of issue?

A) 30 days
B) 60 days
C) 15 days
D) 90 days

4. Who can purchase Electoral Bonds in India?

A) Only Indian citizens
B) Only Indian registered companies
C) Only Indian political parties
D) Indian citizens, entities, and companies

5. What is one of the major criticisms of the Electoral Bond scheme?

A) It is too complicated to understand
B) It allows anonymous donations, fostering opacity in political funding
C) It encourages foreign funding in Indian politics
D) It discourages individual contributions to political parties

GS Mains Questions and Model Answers

Q1: Analyze the role of Electoral Bonds in reforming political funding in India.

Answer: Electoral Bonds were introduced to address issues of transparency in political funding in India. The primary aim was to provide a secure and regulated method for donations to political parties while reducing the reliance on unaccounted cash donations. However, while the scheme helps reduce the use of illicit means for political financing, it has been criticized for promoting opacity since it does not require donors to disclose their identity publicly. This lack of transparency has raised concerns about the potential for influence by corporate entities and anonymous foreign contributions. Despite these concerns, Electoral Bonds have played a significant role in formalizing political donations, and their impact on improving transparency will depend on future reforms that address the issues of accountability and public trust in the system.

Q2: What are the advantages and disadvantages of the Electoral Bond system in India?

Answer: The Electoral Bond system in India offers several advantages, including providing a formal, legal channel for political donations, reducing the reliance on cash donations, and ensuring that financial transactions are recorded through the banking system. It also allows for more secure contributions, especially in a country with widespread corruption. However, the major disadvantage of the system is its lack of transparency, as the identities of the donors are not disclosed, which could lead to unaccountable political funding. Critics argue that this could lead to undue influence from corporate donors or foreign entities and undermine the democratic process. The challenge is to strike a balance between financial transparency and donor privacy.

Q3: How can Electoral Bonds be reformed to increase transparency in political funding?

Answer: To increase transparency in political funding, Electoral Bonds can be reformed by introducing a mechanism where the identity of the donor is disclosed to the Election Commission, even if it remains anonymous to the public. This would help track large donations and ensure that political parties do not receive funding from dubious or untraceable sources. Additionally, setting a cap on the amount of donation that can be made through Electoral Bonds and increasing the frequency of audits and reports could help in minimizing the influence of money in politics. Enhanced monitoring and stricter compliance regulations would ensure that the system serves its intended purpose of transparent political funding without enabling hidden corporate or foreign influence.

Previous Year Questions on Electoral Bonds

1. UPSC CSE Prelims 2021:

Question: Which of the following best describes the Electoral Bond scheme in India?

A) A system for political parties to raise funds through interest-free loans
B) A financial instrument for donating funds to political parties in a transparent manner
C) A system for foreign donations to political parties
D) A scheme that requires full disclosure of donor identities

Answer: (B)

Explanation: The Electoral Bond scheme allows individuals, entities, and companies to donate funds to political parties in a secure and regulated manner, while maintaining donor anonymity.

2. UPSC CSE Mains 2020 (GS Paper 2):

Question: Discuss the pros and cons of the Electoral Bond system in India and its impact on political transparency.

Answer: The Electoral Bond system in India provides a secure, regulated channel for political donations, helping to reduce unaccounted cash donations. However, the anonymity of donors raises concerns about transparency and accountability. Critics argue that this opacity could lead to undue corporate influence over political parties and reduce the public's ability to hold parties accountable for their funding sources. While the system formalizes political donations and addresses some issues related to illegal funding, it needs reforms to ensure greater transparency and minimize the risks of hidden political influence.