What is the electoral bond? And what is the way ahead?

The Supreme Court on Friday, March 15, 2024, issued notice to the State Bank of India for not releasing the bond numbers in the electoral bond data submitted to the Election Commission of India.

Just before the general election 2024, a big twist has unfolded with respect to Electoral bonds. Before getting into details, let us understand when these bonds were introduced? Electoral Bonds were introduced in the Finance Bill, 2017 during the Union Budget 2017-18 when the maximum limit of cash donation to political parties was capped at Rs 2,000 by Union Minister and Corporate Affairs, Late Shri Arun Jaitley, in a move to enhance the transparency of political party financing.   But almost seven years after the introduction of electoral bonds, why they are in news now?  In landmark decision, a five-judge Constitution Bench of the Supreme Court (SC) of India unanimously struck down the Electoral Bond Scheme (EBS) and associated amendments as unconstitutional, sparking significant ramifications for political financing in India.

The SC asserted that the EBS violated the fundamental right to information guaranteed under Article 19(1)(a) of the Constitution.

What is Electoral Bond?

Electoral bonds are financial instruments introduced in India to facilitate transparent political funding. They are issued by the State Bank of India (SBI) which acts as the authorized bank for this purpose. Electoral bonds allow individuals and corporate entities to donate money to political parties, anonymously i.e. the identity of the buyer remains secret, meaning nobody knows who's giving money to which party. These bonds can be purchased in denominations of Rs 1000 from SBI branches during certain periods notified by the government. The political parties have to cash these bonds within 15 days, or the money goes to the Prime Minister's Relief Fund.

Electoral bonds are like special notes that people or companies in India can buy to donate money to political parties. They're bought from specific branches of a bank, usually in January, April, July, and October, and sometimes during election years. These bonds come in different amounts, from Rs 1,000 to Rs 1 crore. Some people worry that this secrecy could lead to shady dealings and corrupt practices, while others see it as a way to support causes without fear of reprisal.

Eligible Parties and Fund Disbursement

Not all political parties can accept electoral bonds. Only parties officially registered and got at least 1 per cent of votes in the last big election can get them. These parties have a limited time to cash the bonds at a special bank, especially crucial during election seasons. If they miss the deadline, the money goes the Prime Minister’s Relief Fund!

Denominations and Availability

During election years, the availability of electoral bonds extended to meet the heightened demand; electoral bonds were available in various denominations, ranging from as low as Rs 1,000 to as high as Rs 1 crore. Donors can purchase these bonds from designated branches of authorized banks during specific periods announced by the government. These periods typically occur four times a year and extend to 30 days during general election years.

Who can invest in Electoral bonds?

Anyone in India, whether an individual or an organization, can invest in electoral bonds. To do so, they need to follow the KYC norms set by the Reserve Bank of India. These bonds are available in different amounts (like Rs 1,000, Rs 10,000, etc.) and can be bought using cheques or digital payments. The goal is to make political funding more transparent and ensure compliance with election rules.

Benefits of Electoral Bonds

• Donations via electoral bonds are tax-exempted under Sections 80GG and 80GGB of the Income Tax Act, 1961.
• It minimizes misuse of funds because electoral bond must be redeemed through a bank account disclosed by the Election Commission of India (ECI),
• Only registered parties receiving at least 1 per cent of the votes in general elections are eligible for electoral funding. Digitization and Security: Electoral bonds promote a digital and secure election funding system by reducing cash transactions.
• By making redemption through stated bank accounts, electoral bonds contribute to the political party's objective of digitizing and securing the election funding process, minimizes the risk of fraud.

Donations, Contributors and Beneficiaries

The State Bank of India was directed by the Supreme Court to provide the Election Commission of India (ECI) with information on electoral bonds by the end of business hours on March 11, 2024. The ECI later made this data available on its website on March 15, 2024. It contains information on every bond that was cashed between April 12, 2019, and January 24, 2024.

According to statistics made public by the ECI, Mr. Santiago Martin's gambling mafia, Future Gaming and Hotels Pvt Ltd., was the largest donor. From 2019 to 2024, this lottery corporation invested Rs 1,300 crore in bonds. Of them, bonds valued at Rs 100 crore were bought seven days following an Enforcement Directorate raid in India on suspicion of money laundering. During same time, law enforcement agencies also conducted investigations into Megha Engineering and Infrastructures Ltd. and Vedanta Limited, the second and fifth largest contributors, respectively. In the meantime, QWIK Supply Chain, the third-largest donor, was charged with being a Reliance Industries subsidiary, a claim the company refuted.

Following are the listed companies who made donations in electoral bonds:

Spicejet, IndiGo, Grasim Industries, Piramal Enterprises, Torrent Power, Bharti Airtel, DLF Commercial Developers, Apollo Tyres, Edelweiss, PVR, Sula Wines, ITC, Cipla, and Ultratech Cement, reflecting a wide participation from various sectors.

Top ten political parties with encashed donation:

Source: Wikipedia

Top 5 contributors to Electoral Bonds:

Source: ECI Website

What is Next?

The Supreme Court on Friday, March 15, 2024, issued notice to the State Bank of India for not releasing the bond numbers in the electoral bond data submitted to the Election Commission of India.

The CJI said on the data released by the SBI, “Who is appearing for the SBI? They have not disclosed the bond numbers. It has to be disclosed by the State Bank of India; all details have to be published by the State Bank of India.”

Disclaimer: The article is for informational purposes only and not investment advice