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On February 15, 2024, India’s Supreme Court struck down the Electoral Bond Scheme, introduced in 2017 by the Bharatiya Janata Party (BJP), as unconstitutional. While the Union Home Minister Amit Shah claims that this decision will bring black money (illicit or untaxed funds) back into political funding, the public is astounded by the data revealed during the Supreme Court hearing.

The proliferation of the scheme catalyzed a paradigm shift in the landscape of political funding in India, with a staggering 56 percent of all funding in the country’s political arena originating from these financial instruments. Under the Scheme, corporate entities and individuals could purchase electoral bonds, an interest-free bearer instrument, and donate the bond to political entities anonymously. This ability made the scheme very popular for political funding, but the secrecy around donors’ identities has prompted public concern over its compatibility with democratic principles and its potential to harbor corruption.

Commodore Lokesh Batra, an advocate for transparency in electoral funding, argues that unchecked financial inflows can lead to the misuse of funds and compromise democratic processes. Critics contend that the electoral bonds constitute legalized corruption, enabling corporate entities to wield disproportionate influence over policy decisions by sponsoring ruling parties. 

Transparency in electoral funding stands as a fundamental tenet of democracy. However, the use of digital transactions alone does not guarantee transparency. In reality, electoral bonds result in selective transparency due to the custodianship of donor data by the State Bank of India (SBI), a government-controlled statutory body.  

Critics contend that the electoral bonds constitute legalized corruption, enabling corporate entities to wield disproportionate influence over policy decisions by sponsoring ruling parties.

Impact of the Electoral Bond Scheme

The Indian government itself acknowledged the inflow of black money into Indian election funding. The scheme ostensibly aimed to curtail this influx by mandating digital transactions through banks. Electoral bonds are only available through designated branches of India’s foremost national bank, the State Bank of India (SBI). Customers can buy bonds in denominations ranging from USD $12 (Rs 1,000) to approximately USD $120,000 (Rs 1 Crore), and parties must cash them in within 15 days. Crucially, the bond does not bear the name of the payee.

While the data is hidden from the general public and opposition parties, electoral bonds allow the ruling party exclusive access, thereby engendering concerns regarding the impartiality and integrity of the electoral process. This dissonance between public and private disclosure raises questions about the Electoral Bond Scheme’s adherence to democratic norms. Given that most other liberal democracies keep political funding data open to the public, this raises questions about why Indian electoral financing data should be shrouded in anonymity.

In light of these concerns, regulatory bodies, including the Reserve Bank of India (RBI) and the Election Commission of India (ECI), issued cautionary advisories regarding the susceptibility of electoral bonds to exploitation by shell companies for the facilitation of money laundering. The Keventers Group Firm donated nearly 100 times its annual profit in 2019-2020, reducing its tax payments. The ECI, in particular, has characterized the electoral bond system as a regressive step, lamenting its adverse implications for the transparency of political donations.

In addition to these issues, electoral bonds promote a higher possibility of quid pro quo transactions between companies and political parties. In its ruling, the Supreme Court observed, “This scenario fosters crony capitalism, a threat to India’s democracy.”

Critics posit that the ruling party’s exclusive access to donor information dissuades potential contributors from channeling their funds through electoral bonds to opposition parties out of fear or intimidation. While the BJP raked in about USD $788 million from electoral bonds, the most prominent opposition party, the Indian National Congress, managed to secure only USD $134 million. This glaring asymmetry amplifies calls for a revaluation of the scheme’s efficacy and ethical implications.

Lessons from the World

The present government has made a concerted effort to dismantle regulatory safeguards on political funding. The abolition of previous restrictions on corporate donations, the exemption of companies from disclosing their contributions, and the relaxation of constraints on foreign entities signify a retreat from erstwhile standards of accountability and oversight.

The Supreme Court’s decision to invalidate the Electoral Bond Scheme marks a significant milestone in the quest for transparency and accountability in India’s political funding landscape, but inefficient laws, flourishing crony capitalism, and the Election Commission’s lack of power continue to restrict transparency. Enhancing transparency in political funding necessitates both regulatory reforms and technological innovations. Below are some policy recommendations inspired by international best practices:

1. Mandatory Public Disclosure: Implement stringent regulations mandating the public disclosure of all political donations, irrespective of the mode of contribution. Australia’s disclosure laws serve as a model: there, political parties are required to disclose donations exceeding USD $9500, and in Luxembourg it is as low as USD $265. 

2. Real-Time Reporting: Introduce real-time reporting mechanisms to enable immediate and accessible disclosure of political contributions. The United States’ Federal Election Commission (FEC) Electronic Filing System facilitates the prompt reporting of campaign finance data, enhancing transparency and public scrutiny.

3. Donor Transparency: Enhance donor transparency by requiring disclosure of donor identities and affiliations. Canada’s political financing laws mandate the disclosure of individual and corporate donors, empowering citizens to make informed decisions and hold elected officials accountable.

4. Caps on Contributions: Enforce strict limits on individual and corporate contributions to prevent undue influence and mitigate the risk of quid pro quo arrangements. In the United Kingdom, under the Political Parties, Elections and Referendums Act 2000 (PPERA), goods or services given to a party with a value of over USD$63 need to be reported.

5. Public Financing: Explore the feasibility of public financing mechanisms to reduce reliance on private donations and mitigate the influence of vested interests. The Clean Elections Program in the United States provides matching funds to qualifying candidates who agree to limit private contributions, thereby promoting equity and integrity in electoral campaigns.

6. Blockchain Technology: Embrace blockchain technology to enhance the transparency and traceability of political donations. Estonia’s e-Governance initiatives leverage blockchain for secure and transparent digital voting and financial transactions, offering a potential model for safeguarding electoral integrity.

7. Civil Society Engagement: Foster partnerships with civil society organizations like the Association for Democratic Reforms, Center for Public Policy Research, and others to promote public awareness of electoral funding processes, monitor compliance, and advocate for electoral reforms. The Open Government Partnership initiative in countries like Brazil tries to harness civil society engagement to advance transparency and accountability in governance.

If citizens possess the right to vote for their chosen political parties, they also inherently possess the right to know who finances those parties.

What to Remember on Election Day

The pivotal question regarding the Electoral Bond Scheme is not merely about who stands to gain — whether it is the ruling government or corporate entities. Rather, the crucial inquiry is: Who bears the brunt of this web of arrangements? Undoubtedly, it is voters who lend their support to political parties without knowing who those parties may be financially beholden to. If citizens possess the right to vote for their chosen political parties, they also inherently possess the right to know who finances those parties. Every Indian must remember this before casting their vote in the forthcoming Indian general elections.

Also Read: Election Eve: Evaluating the State of Democracy in South Asia

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Image 1: Indian Parliament via Wikimedia Commons

Image 2: Indian voters at an election rally via Wikimedia Commons

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