Full disclosure on electoral bonds: Need of the hour
In 2014, the Delhi High Court held that 2 major political parties were guilty of illegally accepting donations from 2 companies registered in India but whose controlling shareholder was Vedanta, a foreign company.
The court held that this was in contravention of the FCRA rules, as the donations accrued from “foreign sources” within the meaning of the law.
Following this indictment, the 2 parties came together in the last memorable bipartisan move.
In 2016 and 2018, the government amended the FCRA through the annual Finance Bills, to retrospectively legalize the violations.
The amendments and subsequent changes brought in by the current government enabled new and regressive pathways that afford full anonymity to corporate and foreign political donors.
What are Electoral Bonds?
Electoral Bond is a financial instrument for making donations to political parties.
These bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh, and Rs. 1 crore without any maximum limit.
State Bank of India is authorized to issue and encash these bonds, which are valid for 15 days from the date of issuance.
These bonds are redeemable in the designated account of a registered political party.
A person being an individual can buy bonds, either singly or jointly with other individuals.
The donor’s name is not mentioned on the bond.
Supreme Court suggested “Match the Following”:
Recently hearing a Public Interest Litigation (PIL) by the Association of Democratic Reforms (ADR), the Supreme Court downplayed the concerns of the corrupting influence of anonymous corporate and foreign money.
It offered us, voters, the suggestion of “match the following”.
Earlier, only profit-making domestic companies could contribute to political parties; now loss-making companies can too.
Earlier, foreign companies or companies where the controlling stake was held by a foreign company couldn’t contribute; now they can.
India’s political parties could theoretically be fully funded by a foreign company operating in India or by a foreign entity through a shell company.
Misuse of Electoral Bonds as Pointed Out in the Supreme Court:
Anonymity:
In 2017, the then Finance Minister said anonymous cash donations to political parties would be reduced from ₹20,000 to ₹2,000 to ensure greater transparency in political funding.
However, the concurrent introduction of electoral bonds brought a new form of anonymity to thousands of crores of donations.
It drastically reduced public and legislative oversight. Only the ruling party via the State Bank of India (SBI) has a full account of all donations being made via electoral bonds, to itself and to Opposition parties.
Parliament, the Election Commission and the Opposition parties do not have this information, nor do the public.
Asymmetrically Opaque: Because the bonds are purchased through the State Bank of India (SBI), the government is always in a position to know who the donor is.
This asymmetry of information threatens to colour the process in favour of whichever political party is ruling at the time.
Chanel of Black money: Elimination of a cap of 7.5% on corporate donations, elimination of the requirement to reveal political contributions in profit and loss statements and also the elimination of the provision that a corporation must be 3 years in existence, undercuts the intent of the scheme.
A shell company can donate an unlimited amount anonymously to a political party giving it a convenient channel for business to round-trip its cash parked in tax havens for a favour or advantage granted in return for something.
Government’s Defence:
Conditions for Electoral Bonds: Only parties registered under the RPA 1951 could receive donations through electoral bonds, and they also should not have secured less than 1% of the votes polled in the previous elections.
To Take on the Menace of Black Money in Politics: Only white money is involved in the Bonds as the amounts are paid only through cheque or demand draft.
KYC norms are also followed.
Election Commission of India’s Support: ECI was not opposed to the bonds but was only concerned about the aspect of anonymity.
It also urged the court not to stay the bonds and said the scheme is one step forward compared to the old system of cash funding, which was unaccountable.
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According to this article, “match the following” is incorrect for three reasons:
If we set aside individual donors and focus just on registered entities, we will find that the full scale of registered entities is unknown.
Even if registered companies filed annual financial statements, many do not disclose political donations.
Crucially, political parties do not need to disclose their electoral bond donors either.
According to back-of-the-envelope calculations, there are close to 25 lakh potential donors comprising just companies and firms.
This includes about 12.6 lakh active private limited companies as of January 31, 2021.
Unlike what is stated in the judgment, the annual reports of all these companies are not readily accessible on the website of the Ministry of Corporate Affairs.
More than 12 lakh firms filed income tax returns for the assessment year 2018-19.
Firms, unlike companies, have no regulatory mandate to submit their annual reports except for filing their annual tax returns, since their functioning is regulated by Acts other than the Companies Act of 2013.
Even if these documents are indeed filed and available in the public domain, they will not specify donations to parties.
Conveniently, the Finance Bill of 2017 amended Section 182 of the Companies Act of 2013 to remove the requirement for declaring disaggregated donations to political parties.
At best, company statements might have a total aggregate amount of all donations, including philanthropic ones.
If we are lucky, these might be sub-categorised as “political contributions through electoral bonds.”
Nowhere are donations to specific political parties required to be mentioned.
Track potential company and firm donors are impossible for an average voter:
The “match the following” suggestion of the Supreme Court falls flat on its face.
It is impossible for an average voter to pore over documents of lakhs of entities and track potential company and firm donors.
Further, recipient-wise information is unavailable. Unlike the tall claims of electoral bonds enabling transparency, it is only RTI applications with the SBI that offer a glimpse into the crores of money funding political parties, and therefore influencing public policies.
If they chose to, the Supreme Court or the legislature could order full and real-time disclosure, to the actual benefit of transparency and accountability.
Instead, meagre civil society resources are expended in filing PILs and RTI applications, at significant personal risk.
The Right to Information (RTI) Act of 2005 enables easier access to information held by public authorities.
No ordinary person has the resources to navigate documents on obfuscating government websites or pore over income tax returns.
The few civic and non-profit organisations that attempt to simplify information to enable accountability have been systematically delegitimised.
Winners and losers:
In effect, electoral bonds give political power to companies, wealthy individual donors, and foreign entities, thus diluting the universal franchise of one voter-one vote.
Every vote is not equally valuable if companies can influence policies through hidden donations.
The winner of this arrangement is the ruling party, whether at the Centre or in a State, and the loser is the average voter.
Companies and political parties could exercise moral leadership and voluntarily disclose the identity of recipients and donors.
Till then, voters are stuck with a ruling party with war chests of resources, being subject to relentless election campaigns, while donors surreptitiously and directly influence policy.
Conclusion:
Voters can also help bring in substantial changes by demanding awareness campaigns. If voters reject candidates and parties that overspend or bribe them, democracy would move a step higher.
It is essential that if democracy is to thrive, the role of money in influencing politics ought to be limited. Thus, it is imperative that the scheme of the electoral bonds should be revised.
The government should take into account the distorting effect of the electoral bonds scheme and take measures to remove the provisions in the scheme that leaves the scope for its misuse.
