Electoral Bonds

Electoral Bonds Scheme: Opaqueness/Manipulation & Black Money

This is a guest blog by Satyendra.
Recently the Finance Minister, Arun Jaitley outlined the contours of electoral bonds. The idea of electoral bonds was communicated in the 2017 budget speech. The government’s stated aim of introducing electoral bonds is to increase transparency in political funding. In my view this is untrue. I have analyzed the subject in this blog.

Past Record of Political Funding

According to a report from a NGO, National Democratic Reforms, nearly 69% of Rs. 11, 300 crore received by political parties over the last 11 years came from unknown sources. Currently political parties are required to report to IT department if they accept a donation of above Rs. 20, 000/- There was a universal trend of accepting donations in the form of cash below Rs 20,000/-

Explanation of Electoral Bonds
  1. As per the notification, an electoral bond will be a bearer bond in the nature of promissory note and an interest free – banking instrument.
  2. A citizen of India or a body/company incorporated in India will be eligible to buy these bonds from the specified branches of State Bank of India in the multiples of Rs. 1, 000, Rs. 10, 000, Rs. 10 lakh and Rs. 1 crore.
  3. The purchaser of electoral bonds will be allowed to buy these bonds only after the fulfillment of KYC (Know Your Customer) norms and by making payment through cheque or via digital mode.
  4. It is also notified that electoral bonds will not carry the payee name and the name of political party to whom the payee is willing to donate.
  5. A bond shall have a life of 15 days during which it can be donated to any political party that has secured not less than 1% seat in the recent Lok Sabha or state assembly elections.
  6. The bonds shall be available for purchase for a period of 10 days each in the months of January, April, July and October. However, it is also notified that additional 30 days will be given during the year of general elections.
  7. The bonds can be enchased by an eligible political party through an authorized bank account which is registered with Election Commission of India.

Scope for Opaqueness/Manipulation & Black Money in Scheme

  • Misuse of Power. The electoral bonds scheme is in favour of the ruling party. It is very clear that bank will know the identity of the purchasers and they will report the same in their financial statement to the RBI. RBI is an agency of the government. Government can influence donations to the party in power and dissuade the same to other parties.
  • Scope for Manipulation. Electoral bonds do not have the condition of 7.5% cap on company donations, which means even loss making companies can contribute unlimited sums of money. Removal of condition of existence for three years provides room for creation of shell companies to donate.
  • Incentive to Donate. Since the cap of 7.5% has been removed a company can not only earn political favour by donation but also get benefit in tax deduction as well.
  • Benefit of Anonymity. Earlier it was possible to get information about political donations from the Registrar of Companies. With the Finance Act of 2017 political donations are immune from public scrutiny.
  • Foreign Funds. Changes have been made in the Foreign Contribution Regulation Act (FCRA) in 2016 which allows foreign companies with subsidiaries in India to fund political parties. Till date foreign funding was not possible.
  • Black Money. Donations below Rs 2000/- in cash to political parties are still legal. This provides ample scope for flow of black money. From the above provisions created it is clear that big amount of funds can be donated to political parties through forged KYC identities as there is no legal scope for public scrutiny.

What Should Have been Done for Transparency & Eradication of Black money

  • Cash donations should be banned.
  • There should be no anonymity clause in political donations.
  • There should be no tax benefits for political donations to corporate because political donations are not charity.


By the false propaganda conducted during demonetization Modi was able to fool the masses that he was against the rich and black money. This was evident from the election results in UP. Electoral bonds can never attract the attention of the masses. From the above discussion it is clear that the government has no intention to clean the system of political funding which is the single biggest reason for creation of black money in India.

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