Prelims level : Polity and Governance Mains level : GS – PAPER - II (Important aspects of governance, transparency and accountability, e-governance- applications).
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Why in News:

  • Ministry of Finance dismisses the Election Commission of India’s version that the invisibility afforded to benefactors was a “retrogade step” and would wreck transparency in political funding.


  • Most political parties use the negligent regime on donations to accept cash donations from anonymous sources. Nearly 70% of the Rs.11,300 crore in party funding over the past 11- year period came from unknown sources. Currently, political parties are required to report any donation of over Rs.20,000 to the IT department. But there has been a trend of more donations flowing by way of hard cash in smaller amounts. To fix this, the Budget has proposed to reduce the disclosure limit to Rs.2,000 and insists that any amount over this must be paid through cheque or the digital mode. The idea is that electoral bonds will prompt donors to take the banking route to donate, with their identity captured by the issuing authority.

What is Electoral bond?

  • The bank account used must be the one notified to the Election Commission and the bonds may have to be redeemed within a prescribed time period.
  • Electoral bonds are essentially like bearer cheques.
  • The issuing bank will remain the custodian of the donor’s funds until the political party redeems the bond.

Why is Electoral bonds needed?

  • They provide a transparent mechanism for political parties to raise finances in order to meet election expenditures. Since the donor buys electoral bonds after furnishing KYC details to the bank, it is a more transparent tool than cash.
  • The ADR (Association for Democratic Rights) states that 69% of political funding in India comes from unknown sources. In this context, Electoral bonds provide an alternate, transparent route for parties to raise funds.
  • It also preserves anonymity of donors which is essential as they need to be protected against any post-poll intimidation or harassment by political opponents.
  • Besides, the life of these bonds is only 15 days which limits the scope for misuse. Also, political parties are supposed to disclose the contributions received through electoral bonds to the Election Commission. Therefore, the bonds help in cleaning up the system of electoral finance in India.
  • The bonds also offer tax advantage to donors, thus making them an attractive tool for political donations.

What are the problems in electoral bond?

  • But there are loopholes to electoral bonds too.
  • While the identity of the donor is captured, it is not revealed to the party or public. So, transparency is not enhanced for the voter.
  • Also, income tax breaks may not be available for donations through electoral bonds. This pushes the donor to choose between remaining anonymous and saving on taxes. Also, privacy of the donor is compromised as the bank will know their identity. The RPA (Representation of People Act 1951) although makes it mandatory for the political parties to disclose donations over Rs 20000, there is no law which prohibits these parties from disclosing the donations below Rs 20000 but the parties lack political will hence do not disclose
  • The political parties have regularly delayed submitting the audited reports to the ECI. As per ADR between 2011-2015
      • BJP has delayed the submission on an average by 182 days
      • Congress by 166 days
      • NCP by 87 days
  • Worse is the fact that some political parties do not even file the returns. There is little to show that action has been against these parties who have either delayed or not filed the returns.

Way ahead:

  • As per T S Krishnamurthy (Former CEC), the government will not know how many times, the bond has been sold in the market before being encashed by the political party. So, it would be better if a Election Fund is set up by the EC and the donations to various political parties are collected by ECI (with compulsory PAN number)
  • The above suggestion of setting up of election fund has been given by Indrajit Gupta Committee.
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