Electoral Bonds: Modi’s Dubious yet Legal Policy to Amass Wealth

Electoral Bonds: Modi’s Dubious yet Legal Policy to Amass Wealth

Modi has no respect for democracy, transparency, Constitution, systems and procedures. His governance style is consistent, be it the dubious use of Article-356, Rafale Scam or the Electoral Bonds Scheme. In this blog I have discussed the Electoral Bonds Scheme.

Know this Before Understanding Electoral Bonds

Finance Bill 2018 amended the Foreign Contribution Regulation Act (FCRA) to legalize all the foreign contributions to political parties made since 1976– the year FCRA was enacted.

The amendment exempted BJP and Congress for having violated the law by receiving foreign funding by political parties and legislatively overruled the Delhi High Court Judgement which found both the parties having received funds in violation of the FCRA in 2014 and were to be banned.

Brief Explanation

In 2017 budget Jaitley brought the policy of electoral bonds for political donation. It was passed into law with the Finance Bill 2017. Amendments were made to the Reserve Bank of India Act 1934, Representation of Peoples Act 1951, Income Tax Act 1961 and Companies Act. Following this, the scheme was notified in January 2018.

  • An electoral bond is designed to be a bearer instrument like a Promissory Note. It is similar to a bank note that is payable to the bearer on demand and free of interest.
  • Electoral bond scheme can be purchased by an Indian citizen and a body incorporated in India.
  • They are available in multiples of Rs. 1000, Rs. 10000, Rs. 1 lakh, Rs. 10 lakh and 1 crore.
  • There has to be a KYC but the names will not be made public- who is donating to which party.
  • The bonds will be available for purchase for a period of 10 days each in the beginning of every quarter, i.e. in January, April, July and October.
  • The party can convert these bonds back into money via their bank accounts which are verified by ECI.
  • The electoral bonds will have a life of 15 days during which they can be used to make donations to registered political parties that have secured not less than 1% of the votes polled in the last election to the Lok Sabha or State Assembly.
  • The bond will not carry the name of the payee.

Designed with Mal Intent

  • The policy is against the democratic norm of maintaining transparency.
  • Names of donors cannot be found even by RTI. Hence the information can never be made public.
  • Since SBI will know the names of the donors, hence the government would know it as well but no one else.
  • In case donations are given to opposition parties then Modi could trouble the donors through CBI, ED & tax officials.
  • Donors, by remaining anonymous, could influence Modi’s decisions, which they have been doing.

Scope Created for Wrong doings

  • Electoral bonds eliminated the 7.5% cap on company donations. Thus, even loss-making companies are eligible to make unlimited donations.
  • Companies no longer need to declare the names of the parties to which they have donated, so shareholders will not know where their money has gone.

HuffPost Reports

Citing documents on the scheme obtained by transparency activist Commodore Lokesh Batra (retd) under the Right to Information Act, HuffPost India detailed in a series of reports how the scheme was announced in Budget 2017-18. Since March 2018, electoral bonds worth at least Rs 6,128.72 crore were issued, and Rs 6,108.47 crore encashed. The BJP garnered 95 per cent of the Rs 222 crore bonds issued in the first tranche of bonds, according to data compiled by the Association for Democratic Reforms.

RBI’s Concerns

RBI said that electoral bonds and an amendment to the RBI Act as sought by the Finance Ministry would set a bad precedent. Electoral bonds, the RBI said, would effectively be a type of “bearer bond”, a notoriously opaque financial instrument that carries no trace of its ownership.

“Bearer instruments have the potential to become currency and if issued in sizeable quantities can undermine faith in banknotes issued by RBI,” the bank wrote. The bearer bonds are transferable by delivery, and who finally and actually contributes to the political party will not be known, it said.

EC’s Observations:

  1. Coupled with the removal of cap on foreign funding, electoral bonds invite foreign corporate powers to impact Indian politics.
  2. Donations received through electoral bonds would cause a “serious impact” on transparency in funding of political parties.
  3. Amendments would pump in black money for political funding through shell companies and allow unchecked foreign funding of political parties in India which could lead to Indian politics being influenced by foreign companies.

Concerns Expressed by EC:

  • The move could be misused, given the lack of disclosure requirements for individuals purchasing electoral bonds.
  • Electoral bonds make electoral funding even more opaque. It will bring more and more black money into the political system.
  • With electoral bonds there can be a legal channel for companies to round-trip their tax haven cash to a political party. If this could be arranged, then a businessman could lobby for a change in policy, and legally funnel a part of the profits accruing from this policy change to the politician or party that brought it about.
  • Electoral bonds eliminate the 7.5% cap on company donations which means even loss-making companies can make unlimited donations.
  • Companies no longer need to declare the names of the parties to which they have donated so shareholders won’t know where their money has gone.
  • They have potential to load the dice heavily in favour of the ruling party as the donor bank and the receiver bank know the identity of the person. But both the banks report to the RBI which, in turn, is subject to the Central government’s will to know.

Illegal Manipulations as per Sethi’s Report

  1. The report by Huffington Post stated that the government ignored the objections raised by RBI, and only after the Bill was passed did the government figure out how the bonds would work.
  2. Five state Assembly elections were scheduled in 2018. According to the HuffPost article, the prime minister’s office asked for the rules laid down for electoral bonds to be broken — and had special windows apart from the stipulated 10-day window where bonds were issued. The bonds had been opened for in March 2018, April 2018 (when it was actually supposed to be opened) and once again in May 2018, before the Karnataka elections.
    94.5% of the bonds received during this period went to the BJP. The opening of extra windows to sell bonds is crucial because a time limit was imposed in order to curtail money laundering. 
  3. After the Karnataka election threw up a hung Assembly, the report states that the Prime Minister’s office forced the banks to accept expired electoral bonds — which had been bought during the special window opened prior to the elections. The expired bonds, which SBI initially refused to accept as they were cashed beyond the 15-day period. The bank wrote to the finance ministry — to see if the period is 15 working days or 15 calendar days. The ministry wrote back that it was 15 calendar days.
    Technically, the bonds had lapsed and couldn’t go to the political party, and should have been given to the National Disaster Relief Fund. However, an official from the finance ministry directed that the bonds could be accepted within 15 working days due to the confusion this time alone.
  4. Electoral bonds are supposed to be untraceable. However, a 2018 investigation by The Quint found that they actually carry an alphanumeric code which can be seen under a UV light. At the time, the Finance Ministry issued a press release, stating that security features had been built in to eliminate chances of forgery or presentation of fake bonds, but is not noted in any record by the bank and can’t be used to track a donation.  The report found, “SBI does use the alphanumeric code to keep track of who bought how many bonds, and the political party to whom the bond was eventually donated.
    The rules also state that if required, this data can be shared with law enforcement agencies. This, in turn, means that there is a clear map of the route a bond takes — but only the general populace and opposition parties aren’t aware of it.
  5. According to the Indian Express, RTI documents that Lokesh Batra received showed that bonds of Rs 1 crore and Rs 10 lakh were nearly 99.7% of the total bonds sold in between March 1, 2018, and July 24, 2019. Of this, bonds of Rs 1 crore accounted for 91%.

Supreme Court’s Directions

Electoral bonds were challenged in the Supreme Court, where the petitioners sought a stay on the scheme or some other transparent alternative for funding of political parties. The Supreme Court then reaffirmed that “government must be allowed a free hand to implement the measure in the execution of policies framed,” but asked for parties to disclose their funding to the court. 

Government’s Response in Parliament

  • Rajya Sabha Member Mohammad Nadimul Haque asked the government whether the Election Commission of India raised concerns about electoral bonds, the then minister of state for finance, P. Radhakrishnan, replied that the government had not received “any concerns from Election Commission on the issue of Electoral Bearer Bonds”. The investigative report found that “three senior bureaucrats came up with six different convoluted explanations to protect P. Radhakrishnan when he was caught lying about electoral bonds on the floor of the Parliament.
  • In 2019, FM, Nirmala Sitharaman tabled a ‘corrected reply’ to the 2017 question, which acknowledged that the EC had raised concerns. Nirmala’s response was tabled after the EC’s objections became public knowledge due to an affidavit that it filed in the Supreme Court in March 2019.
  • On 21 Nov, the Congress and some other opposition parties staged a walkout from the Lok Sabha, calling electoral bonds a “big scam” and said it wasn’t transparent.
  • The matter was raised by the Congress soon after the House assembled for the day with its leader Adhir Ranjan Chowdhury announcing that his party has moved an adjournment motion over the issue.
  • The BJP on 21 Nov held a press conference to explain its stand and said that it is only natural that the Congress opposed a system which is cleaning the electoral process of black money.  “The allegations against the government over electoral bonds are baseless. The Modi government has, in fact, for the first time, taken a number of steps against corruption,” Union Railways Minister Piyush Goyal said. He further added that cash had been removed from the electoral process.

Summary of Electoral Bonds Scheme

  • The policy has achieved the desired intent of amassing wealth for BJP through dubious means which are legal.
  • The ill-gotten wealth has been useful in bribing MLAs and toppling state governments.
  • Despite having created a dubious policy, ignoring views of opposition, RBI and EC, Modi still bent the rules of even this policy to achieve his objectives of getting money, when needed, quickly.
  • The concerns raised by the RBI, EC and the opposition are genuine and Modi has no rational answers to allay those concerns.
  • Starting from Jaitley to Sitharaman to Piyush Goyal and Radhakrishnan the statements made in the Parliament or elsewhere have been made to misguide rather than state the truth.
  •  Modi’s sole aim is sustenance in power. Lies and deceit are the main characteristics of his functioning. Since he also does not accept any rational advice or answers any questions or believes in transparency, India is suffering the present mis-governance and the dubious Electoral Bonds Scheme is a part of this opaque mis-governance.

Way Out?

The Electoral Bonds Scheme is a symptom of Modi’s mis-governance. To eradicate the problem, we have to remove Modi from power. Even if this scheme is terminated, Modi will find other ways of getting funds to manipulate elections. He is not going to change that.


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