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Electoral Bonds

  • 13 Apr 2019

Why is it in News?

The Supreme Court has passed an interim order directing the political parties to provide complete information to the Election Commission of India in sealed cover regarding the donations received through Electoral Bonds.

What is an Electoral Bond?

  • An electoral bond is designed to be a bearer instrument like a promissory note - in effect, it will be similar to a bank note that is payable to the bearer on demand and free of interest.
  • It can be purchased by any citizen of India or a body incorporated in India.
  • Tax deductions can be provided to the people who are funding these electoral bonds.

Note: Although it is being referred to as a bond, but please do keep in mind that it will not carry an interest.

Denominations of Electoral Bond:

  • The bonds will be issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore and will be available at specified branches of State Bank of India.
  • They can be bought by the donor with a KYC-compliant account.
  • Donors can donate the bonds to their party of choice which can then be cashed in via the party's verified account within 15 days.

Who all are eligible to get Electoral Bonds?

  • As per provisions of the scheme, only the registered political parties which have secured not less than one per cent (1%) of the votes polled in the last Lok Sabha elections or the State Legislative Assembly are eligible to receive the electoral bonds.

Who issues Electoral Bonds?

  • Department of Economic Affairs, Ministry of Finance promulgated Electoral Bond Scheme in 2018 via section 31(3) of Reserve Bank of India Act, 1934.

What were the Amendments done to bring the Electoral Bonds?

Changes were made to bring the Electoral Bond Scheme in the following acts:

  • Representation of People Act, 1951.
  • Income Tax Act, 1961
  • Companies Act, 2013
  • RBI Act, 1934
  • Foreign Contribution Regulation Act 2010.

Why Electoral Bonds are being criticized?

  • Earlier, any donations above Rs. 20,000 was to be recorded by political parties with the name of the donor, but after introduction of electoral bonds, political parties can accept donations in cash below Rs. 2,000 only. Any donation above Rs. 2,000 has to be taken through electoral bonds/ cheque. Since electoral bonds don’t have the name of donors in it, it is likely to promote opacity in the system.
  • Earlier, only those companies can donate to political parties who are at least 3 years old and the cap was to the tune of 7.5% of the average net profit in three preceding years but with the coming of electoral bonds the cap of 7.5% has been removed.
  • Now, any company can donate any amount of cash through electoral bonds, this loophole can be easily exploited by the shell companies.
  • These shell companies can be formed just for the political funding and thus it will promote opacity and corruption in the electoral process.
  • Earlier, donations to the political parties by foreign entity was banned, but with the amendments done to Foreign Contribution Regulation Act, 2010, foreign companies with majority stake in India can donate to the political parties. The major concern is that these big corporate bodies can interfere in the policy making of the Government at a later stage.


Source: eci.gov.in, Financial Express, TH