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LUCID MAINS CURRENT AFFAIRS 2018

  1. ELECTORAL BONDS

In 2018, Government of India officially launched the sales of Electoral bonds. The scheme was first announced by Finance Minister during 2017 Budget as a major reform that could “cleanse the system of political funding in the country”. It aims to account the donations made to all major political parties. It is pitched as an alternative to cash donations made to political parties and bring transparency in political funding.

What is it?

  • An electoral bond is designed to be a bearer instrument (which does not carry the name of the donor).
  • It may be purchased by a person, who is a citizen of India or entities incorporated or established in India.
  • These bonds can be purchased in the denomination of Rs 1000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, Rs 1 crore through SBI (the only authorized bank to issue such bonds). This purchase will have to be in ‘white money’ against cheque and digital payments only.
  • 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.
  • Donations can be made to political parties registered under Section 29A Representation of the Peoples Act, 1951 and have secured more than 1 percent of vote share in the previous Lok Sabha or Legislative Assembly polls.
  • These parties will be allotted a verified account by the Election Commission of India through which only Electoral bond transactions can be made.
  • Non -refundable - If the 15-day deadline is missed the money will be deposited in the Prime Minister Relief Fund

ELECTORAL BOND – WHY IS IT REQUIRED

  • The political funding system in India is almost non- transparent. The conventional practice of funding the political system was to take donations in cash and undertake these expenditures in cash.  The sources are anonymous or pseudonymous.  The quantum of money was never disclosed.  The present system ensures unclean money coming from unidentifiable sources.  
  • A report by the Association for Democratic Reforms (ADR) states that funding to national and regional political parties from 2004-05 to 2014-15 has largely remained opaque. About 69% of the donations received by these parties amounting were from unknown sources.
  • In order to make a serious effort to cleanse the political funding system the government introduced electoral bonds scheme with other reforms like reduction in disclosure limit of cash donations to Rs.2000.
  • Even though donations made online or through cheques remain an ideal method of donating to political parties because of total transparency it is not very popular because of disclosure of donor identity. So with introduction of electoral bonds a deliberate choice is made to ensure flow of clean money into the system but with some level of anonymity.

Legislations amended  for  introduction of  electoral bonds

·         RBI Act

·         Representation of the People Act, 1951

·         Companies Act, 2013

·         Income-Tax Act, 1961

·         Foreign Contribution (Regulation) Act 

BENEFITS OF ELECTORAL BONDS

  • Reduce the role that unaccounted cash has in the electoral process.
  • The balance sheet of donors will reflect that they have bought a certain amount of bonds, and political parties will also file their returns (to the Election Commission). This will keep a close tab on the inflow of funds.
  • Seek to cleanse the system - at present, most donations are made in cash. “The name of the donor, quantum and source of money are not known (for present donations). Electoral bonds will substantially change the scenario.
  • Anonymity - will ensure people are free to donate to any political party of their choice. 
  • Transition from a cash system towards clean money which cheque system could not achieve.
  • A 15 days gap, in the scheme, between buying and selling ensures that they do not turn into a parallel economy.

CONCERNS

  • Entry barrier to new contenders in the political arena. Electoral bonds allow donations through this route only to parties that won 1 per cent of the votes in the preceding election.
  • The choice of remaining anonymous is left to the prospective donors. So, if any donor wants then he can easily reveal his identity to the intended recipient party. The scheme will protect such donors from identifying the recipient either to the EC or the tax authorities.
  • Regressive measure - prevents the public from knowing who has contributed how much and to which party. The Election Commission will not have a record of the donors of electoral bonds received by a political party.
  • Amendments around electoral bonds
    • amended Representation of the People (RP) Act, 1951 allows political donations made through electoral bonds need not be declared to the Election Commission. Hence the public will never know how much donations were made to political parties through electoral bonds.
    • amendments gave away with the statutory limit on corporate donations to parties (7.5% of three years’ net profits) and waived the need to disclose the identity of the receiving party
    • the amended Companies Act now allows any foreign company registered in India to make contributions through bonds to political parties, overruling legitimate doubts about who or where its real owners are, or what its source of funding is.

SUGGESTIONS

  • National Electoral Fund: a fund to be constituted to which all donors can contribute. The allocation of funds to political parties would be in proportion to the votes they get. This would Not only protect the identity of donors, but also weed out black money from political funding.
  • State funding of elections (in various forms) is a potential solution to this problem. The Indrajit Gupta Committee on State Funding of Elections had endorsed partial state funding of recognised political parties and their candidates in elections way back in 1998. The mechanics of this process need to be carefully worked out to establish the allocation of money to national parties, State parties and independent candidates, and to check candidate’s own expenditure over and above that which is provided by the state.
  • Bringing Political parties under RTI- it would ensure that parties will reveal the source of their funding as per disclosure norms.
  • Make donations cashless- political parties would be “required” to receive donations digitally or by cheque.

COMPARISON WITH INTERNATIONAL PRACTICE

·        Countries like Britain, Germany, the US, Japan and the Philippines follow a strict mechanism for reporting the identity of donors. In Britain, if necessary, parties are required to return donations from unknown or impermissible sources.

·        Both Britain’s Electoral Commission and the Federal Election Commission have published guidelines on reporting electoral donations.

·        In India, this scheme seems to be an elaborate ruse to protect anonymous donations from any capping or regulation by the authorities, while at the same time ensuring income tax benefits to the donor.

·         The electoral bonds will not bear the name of the donor. In essence, the donor and the party details will be available with the bank, but the political party might not be aware of who the donor is. The intention is to ensure that all the donations made to a party will be accounted for in the balance sheets without exposing the donor details to the public.