Why in News?

A recent report by the Association of Democratic Reforms (ADR) an Indian Non-governmental Organization (NGO) established in 1999 situated in New Delhi sheds light on the significant role played by Electoral Bonds as the primary source of donations for political parties in India.

• Between 2016-17 and 2021-22, the seven national parties and 24 regional parties received a total donation of ₹9,188.35 crore from Electoral Bonds.
  • The report analyzed donations received from anonymous Electoral Bonds, direct corporate donations, contributions from MPs/MLAs, meetings, morchas, and collection by party units.

What are the Key Highlights of the ADR Report?

• Analysis of Donations and Funding Sources:
  • The highest donations from Electoral Bonds, totaling ₹3,438.8237 crore, were received in 2019-20, the year of the general elections.
  • The year 2021-22, which witnessed 11 Assembly elections, saw donations worth ₹2,664.2725 crore through Electoral Bonds.
  • Out of the total donations of ₹16,437.635 crore received by the 31 political parties analyzed, 55.90% came from Electoral Bonds, 28.07% from the corporate sector, and 16.03% from other sources.
• National Parties:
  • National parties experienced a significant surge in Electoral Bond donations, witnessing a 743% increase between FY 2017-18 and FY 2021-22.
  • In contrast, corporate donations to national parties increased by only 48% during the same period.
• Regional Parties and Electoral Bond Contributions:
  • Regional parties also witnessed a substantial proportion of their donations coming from Electoral Bonds.
• Power-Biased Donations of Electoral Bond:
  • BJP, as the party in power, secures the highest donation among national political parties. More than 52% of the BJP's total donations were sourced from Electoral Bonds, amounting to ₹5,271.9751 crore.
  • The Congress secured the second-highest Electoral Bond donations, with ₹952.2955 crore (61.54% of its total donations), followed by the Trinamool Congress with ₹767.8876 crore (93.27%).

What are Electoral Bonds?

• About:
  • The electoral bonds system was introduced in 2017 by way of a Finance bill and it was implemented in 2018.
  • They serve as a means for individuals and entities to make donations to registered political parties while maintaining donor anonymity.
• Features:
  • State Bank of India (SBI) issues the bonds in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.
  • Payable to the bearer on demand and interest-free.
  • Purchased by Indian citizens or entities established in India.
  • Can be bought individually or jointly with other individuals.
  • Valid for 15 calendar days from the date of issue.
• Authorized Issuer:
  • State Bank of India (SBI) is the authorized issuer.
  • Electoral Bonds are issued through designated SBI branches.
• Eligibility of Political Parties:
  • Only the political parties registered under Section 29A of the Representation of the People Act, 1951 and have secured not less than 1% of the votes polled in the last general election to the House of the People or the Legislative Assembly, are eligible to receive electoral bonds.
• Purchase and Encashment:
  • Electoral Bonds can be purchased digitally or through cheques.
  • Encashment only through an authorized bank account of the political party.
• Transparency and Accountability:
  • Parties must disclose their bank account with the Election Commission of India (ECI).
  • Donations are made through banking channels, ensuring transparency.
  • Political parties are obligated to explain the utilization of the funds received.
• Benefits:
  • Enhanced transparency in political party funding.
  • Accountability in disclosing donation utilization.
  • Discouragement of cash transactions.
  • Preservation of donor anonymity.
• Challenges:
  • Electoral bonds are donations to political parties that hide the identity of the donors and recipients. They may compromise the right to know, which is part of the right to freedom of expression under Article 19 of the Constitution.
  • Anonymity may be compromised by government access to donor data. This implies that the government in power can leverage this information and disrupt free and fair elections.
  • Potential for unauthorized donations violating regulations.
  • Risk of crony capitalism and infusion of black money.
    • Crony Capitalism is an economic system characterized by close, mutually advantageous relationships between business leaders and government officials.
  • Loopholes regarding transparency for corporate entities and donation limits.
    • As per Companies Act 2013, a company can make a political contribution only if its net average profit of three preceding financial years is at 7.5%. The removal of this clause has raised concerns of black money in political funding through shell companies.

Way Forward

• Implement measures to enhance transparency in the Electoral Bond Scheme.
• Enforce stricter regulations for political parties to disclose and let the ECI examine the donation and make observation regarding both bonds and expenditure.
• Identify and rectify loopholes in the Electoral Bonds to prevent potential misuse, violation of donation limits, and risks such as crony capitalism and black money infusion.
• Continuously monitor the Electoral Bond Scheme through judicial scrutiny, periodic review, and public engagement to address emerging concerns, adapt to changing landscapes, and ensure a more inclusive decision-making process