There are two ways in which India's electoral bonds can be misused

India’s Electoral Commission (EC) is currently petitioning the Supreme Court against the legality of electoral bonds, a political funding mechanism that allows for anonymous donations.

The debate was spurred by a public interest litigation (PIL) filed by Prashant Bhushan, a senior advocate, on behalf of the Association of Democratic Reforms (ADR), an NGO, that challenged the electoral bonds scheme.

As the rules stand today, India’s politicians can misuse the electoral bonds in two ways.

Political parties can create shell companies to launder money

The EC feels that the scheme has compromised the transparency of the political funding process. Under the guise of anonymity, politicians and companies with black money can route the cash back into their political party through newly-incorporated companies that have no other business to speak of.

At the time the corporate funding cap was removed in early 2017, the EC said it would result in “shell companies being set up for the sole purpose of making donations to political parties, with no other business of consequence having disbursable profits.”

Companies can route bribes to political parties with complete anonymity

The scheme’s detractors have also singled out provisions that allow foreign funding and unlimited donations from corporations.

As per a 2017 amendment to the Representation of the People (RP) Act, political parties don’t have to disclose the amount of donations received through electoral bonds and have legitimate grounds to claim that they don’t know the identity of their donors. As a result, the EC has no way of ascertaining whether a foreign or domestic company donated to the political party.

Hence, bribes and kickbacks can be easily channeled to a political party through the purchase of bonds. If a company wants to pay a political party for securing a contract, it can make the payment legally through an electoral bond donation.

Since the bonds for scheme are issued by the government-owned State Bank of India (SBI), it is the only entity with knowledge of the payment details.

How did we get here?

When the electoral bonds scheme was first implemented in January 2018, the anonymous aspect was touted as one of its primary benefits. Prior to this, all cash donations above ₹20,000 had to be disclosed - a rule political parties circumvented by received donations of ₹19,999 or less, according to ADR.

In an article accompanying the scheme’s launch, Arun Jaitley, India’s Finance Minister, said that electoral bonds would ensure transparency and prevent forced donations as the identity of the donor would not be known to the political party.

As such, the political party does not have to disclose who it has received the bond from and . the donor entity has no reason to disclose the party to which it has donated. But there may be a tacit understanding, especially in the wake of an illegitimate deal, that a donor can buy the ruling party’s bond in exchange for favours.

The money flow so far

By most accounts, it seems that the BJP has received the most money from the scheme.

In fact, in the first tranche of bond sales in March 2018, as much as 95% of the donations - totalling ₹2.1 billion - made through electoral bonds went to the ruling party.

What portion of the money raised from donors, whichever party it is meant for, has shady sources or intent cannot be known because the process is not transparent.

What’s next?

The Supreme Court has scheduled the hearing on the PIL for April 2nd. If the apex court is adequately swayed, it could lead to the revision and the cancellation of the aforementioned provisions of the electoral bonds scheme.


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