Context:

• The Government decided to Issue Electoral Bonds as a Money Bill. This was unconstitutional because electoral bonds are not covered by the definition of ‘money bill’ in the Constitution.

What is Electoral Bonds?

• Electoral bonds are a transparent and a legal instrument, wherein a donor has to purchase these electoral bonds from select branches of the State Bank of India (SBI) through a KYC bank account for electoral bonds.
• The electoral bond, which will be a Bearer Instrument, will not carry the name of the payeeand can be bought for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore.

Eligibility for availing Electoral Bonds:

• Electoral bonds may be purchased by a citizen of India, or entities incorporated or established in India.
• Only the registered Political Parties which have secured not less than one per centof the votes polled in the last Lok Sabha elections or the State Legislative Assembly are eligible to receive the Electoral Bonds.

Why it was Introduced?

• Electoral bonds were introduced to stop cash funding of political partiesbecause most political parties were taking large donations in the form of cash.
• While introducing electoral bonds, the individual donations or cash donation to any political parties have been reduced from ₹20,000 to ₹2,000,in a way making it difficult for political parties to receive cash funding.
• This system has ensured that cash cannot be used to purchase electoral bonds and cash cannot be donated to political parties in higher amount.
• The real purpose of these electoral bonds is to ensure clean money and tax paid money comes into political partiesand not some slush funds or corrupt money.

Concerns regarding the Electoral Bond scheme:

• The Election Commission (EC) saying that the electoral bonds as proposed would have serious impact on the transparency aspect of funding of political parties, with the possibility of shell companies being created only for making donations and warned it could increase the use of black money.
• Coupled with the removal of cap (7.5%) on Foreign Funding,electoral bonds invite foreign corporate powers to impact Indian politics.
• Electoral bonds make electoral funding even more opaque. It will bring more and more black money into the political system.
• Companies no longer need to declare the names of the parties to which they have donated so shareholders won’t know where their money has gone.
• With electoral bonds there can be a legal channel for companies to round-trip their tax haven cash to a political party.
• If this could be arranged, then a businessman could lobby for a change in policy, and legally funnel a part of the profits accruing from this policy change to the politician or party that brought it about.
• Out of the bonds worth ₹220 crore sold in 2017-18, as much as ₹210 crore (95%)was donated to the BJP.
• Observers had expressed an apprehension, at the introduction of the scheme, that it had the potential of choking the funding for all opposition parties, and may give a huge undue advantage to the ruling party.
• They have in favour to the Ruling Party as the donor bankand the receiver bank know the identity of the person. But both the banks report to the RBI which, in turn, is subject to the Central government’s will to know.

 Conclusion:

• To summarise, it is a scheme which two constitutional authorities—EC and RBI—have said will encourage money laundering and lead to increased use of black money for political funding through shell companies.
• So, more scrutiny is needed regarding the scheme in its implementation.