The electoral bonds scheme defeats the purpose of improving transparency and accountability in political funding.
On Tuesday, the NDA government unveiled the fine print of much publicised electoral bonds scheme. As per the notification, the electoral bonds will be a bearer instrument in the manner of a promissory note and an interest free banking instrument whereby a citizen, or a registered body, in India is eligible to purchase the bond from notified branches of the State Bank of India (SBI) for 10 days each in months of January, April, July and October.
The electoral bonds can be purchased for specified denominations and the payee then can bestow it upon a registered political party as donation.
The significant aspect of this scheme is that the bonds will remain valid for 15 days and shall not carry the donor’s name, although the payee will have to fulfil KYC (know your customer) protocols at the bank.
Justifying the rationale behind the new scheme, Finance Minister Arun Jaitley stated in the Lok Sabha that “political funding needs to be cleansed up. A very large part of donation coming to political parties by the donors, quantum and source is not known… electoral bonds substantially cleanse the system.”
Coming on the heels of demonetisation, the NDA’s electoral bonds scheme appears to be a bold and innovative policy instrument to fight the pernicious effects of black money afflicting every aspect of Indian economy and society.
Democracies over the world are constantly weighing and experimenting with innovative systems and practices including debt financing, matching grants, and infrastructure funds to fight the rising tides of illegal and ‘interested’ money.
On this count, GoI deserves full credits for embracing a pathway that certainly breaks the ‘cash’ route to political donation. On a deeper probing, though, the electoral bonds scheme defeats the basic purpose for which it is intended — improving transparency and accountability in political funding. First, while electoral bonds can greatly expand the space for clean funding —’white money’, as GoI claims — by leaving the names of donors undisclosed, it only promotes the culture of opacity that pervades India’s current political finance regime.
As per the amendments to the Income Tax Act, “Any contributions received by way of electoral bond shall be excluded from reporting.”
Anyone who understands electoral finance knows that the cornerstone of a sound and transparent electoral finance system regime is disclosure. Disclosure of donors and their background greatly empowers citizens, public spirited organisations, election watchdogs to verify donor records, recipient parties and establish any quid pro quo or possible complicity.
Even while it ensures digital traces of donors, the electoral bonds hardly empowers anyone (including the Election Commission). Global evidence suggests much of the transparency and accountability in well-functioning democracies have come through strong records of disclosures and strict scrutiny of accounts of parties and candidates receiving funds.
So much so, disclosures have encouraged an industry of election and anti-corruption watchdogs to go after parties and political candidates in western democracies unveiling big ticket corruption scandals and scams. Second, on paper, the new scheme, contrary to what Jaitley said, would help fill the coffers of the incumbent government.
Given GoI’s regulatory and administrative arbitrage over economy and governance, and the designated bank being under GoI’s control, it leaves little to the imagination that most bonds will go to the ruling party. Fear of reprisal and vindictive behaviour would prevail on donors. In other words, this would greatly harm the equality principle in political finance.
Finally, counter-intuitively, the electoral bonds scheme may not work at all. Most private donors, as openly acknowledged by Jaitley, prefer anonymity for fear of reprisals from political parties.
They would continue with cash donations under the INR 2,000 slab (Section 29C of the Representation of the People Act) and via electoral trusts where anonymity is better maintained.
Private donors would not lie to leave any digital trace as well. Simply put, the bonds scheme is designed to fail.
To cut a long story short, GoI has lost a major opportunity to clean up India’s most opaque political finance regime that creates incentives for political corruption, subversion of governance, and citizen’s loss of faith in the democratic process.
Considering no government in India’s 69 years of budget-making had devoted an entire section on electoral finance, reform steps on this line greatly disappoints votaries of transparent election finance. One hopes, the government of this day will show courage at some point to take the ‘full steps’.
This commentary originally appeared in The Economic Times.