For long, widespread use of black or unaccounted money [income on which tax has not been paid or even money generated from dubious sources] in elections has been considered to be the fountainhead of corruption. Fighting elections – be it member of parliament or member of legislative assembly or any other elected body – costs huge sums which a candidate [or the party on whose ticket he/she is contesting] is unable to garner on his/her own.
Businessmen and industrialists [even other entities engaged in undesirable activities] exploit this vulnerability of candidates and political parties to give contributions expecting favors in return – under quid pro quo arrangement – either by way of favorable policies or favors in other forms such as award of contract etc. On getting elected, the latter return the favor. The grant of such favors results in generation of more black money which gets funneled in to the system resulting in a vicious cycle of political funding on an increasing scale and intensification of corruption.
Rampant use of cash in these wheeling dealings has aggravated the vicious cycle. This in turn, was catalyzed by subsisting rules under which a person could contribute up to Rs 20,000/- in cash. This threshold was very generous and allowed for tens of thousand crore to be given to political parties in cash even while keeping the identity of donors anonymous. This was the surest invitation to letting black money dominate electoral scene. The requirement of having to file returns with Election Commission [EC] provided no deterrence as the party won’t even show the contribution received in cash.
To rein in widespread use of unaccounted money and bring ‘transparency’ in funding of elections, Modi – government took two major initiatives. First, based on the long-pending recommendation of EC, it lowered the limit for anonymous cash donations from Rs 20,000 /- to Rs 2,000/. Second, in the Union Budget for 2017-18 presented on February 1, 2017, the finance minister announced an Electoral Bond Scheme [EBS]. The scheme was approved on March 31, 2017 as part of the finance bill and implemented from January 2, 2018.
Both the initiatives have come under strident criticism from the opposition parties. In particular, they have targeted the EBS which according to them, has only contributed to ‘legitimization of the role of black cash in election even as identity of the donor remains anonymous’. They also opine that ‘an overwhelming share of this money has gone only to ruling party at the centre’. The measures need careful scrutiny before one jumps to any conclusion.
On the face of it, drastic reduction in threshold of contribution from Rs 20,000/- to Rs 2000/- may appear to be big step forward in the direction of taming use of cash but on ground zero, this may not make much of an impact. If, both the giver and receiver are hell bent on indulging in give and take in cash, they will do so even with reduction in the ceiling to Rs 2000/- without being noticed. For instance, a party which receives Rs 100,000/- in cash from a person, can show it as receipt from 50 individuals each giving Rs 2,000/- instead of the earlier dispensation when it made entries for 5 donors of Rs 20,000/- each.
Even so, given the circulation of currency on a mammoth scale [in the aftermath of demonetization (November 8, 2016) though bulk of it was sucked out of the system, it is back with vengeance] and absence of any credible mechanism to check its movement, fixing a ceiling irrespective of the level won’t be of any help in preventing its use in elections. That will be the case even if the government were to completely bar contribution in cash and insist that every single rupee has to be paid by cheque or electronic/digital mode.
Coming to EBS, the electoral bond is a bearer instrument in the nature of a Promissory Note that is payable to the bearer on demand and is interest-free. The bond can be purchased by any citizen of India – singly or along with other individuals – or a body incorporated in India. The instrument is issued in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore and its sale is opened once in every quarter for 10 days, and for a month ahead of general elections or as notified by the government. They are valid for only 15 days.
To purchase the instrument, the donor has to submit the Electoral Bond Application Form along with the deposit slip, citizenship and KYC documents and cheque or demand draft at any authorized SBI Branch. Alternatively, the instrument can be bought online through NEFT/RTGS visiting the SBI website.
The donor can give the bond to a party of his/her choice. Only registered political parties that secured at least 1% of the votes polled in the last general elections are eligible to receive this instrument, which can be en-cashed by eligible parties only through bank accounts in authorized banks, currently only State Bank of India [SBI]. The withdrawals from the account are used for meeting their election expenses. All parties are required to maintain accounts of receipts and expenditure and submit to the EC.
The sale of first batch of electoral bonds took place during March 1-10, 2018. Over a period of six months during 2018, SBI sold bonds worth Rs 1,056 crore. During January-March, 2019, the value of bonds sold increased to Rs 1,716 crore.
The charge that use of electoral bonds has led to ‘legitimization of black cash in election and that there is lack of transparency’ does not hold water. This is because a person or an entity keen to buy bonds can pay for it only by cheque or electronic transfer implying that the amount used for the purpose has an address. It is visible to the authorities who can ask questions on its source and ascertain whether tax has been paid on it. Clearly, such money can’t be unaccounted.
When, the contribution is made from known source of income through banking channels, the question of legitimizing unaccounted money simply does not arise. A related charge that the scheme conceals the identity of the donor, amount donated and to which party is preposterous. The SBI from where this person purchased the bonds has all the particulars viz. citizenship, KYC of the latter. Though, the information is not in public domain [this is to protect him from possible harassment by parties whom he didn’t favor], this can always be accessed, if need be, by authorized agencies viz. income tax, Central Bureau of Investigation [CBI], Enforcement Directorate [ED] etc in criminal cases under directions of the court.
Notwithstanding the above, the allegation may have to do with an objection raised by Dr Urjit Patel, then governor, Reserve Bank of India [RBI] vide his correspondence with the then finance minister, Arun Jaitely [September 14, 2017] wherein he had insisted on issuing bonds in ‘demat’ form only and RBI to be the only issuing authority whereas, the ministry wanted these to be in physical form and issued by SBI. The RBI also wanted a unique identifier and an additional security feature-based ID to be incorporated in the bond. These differences [natural in any interaction on formulating new policy] do not take away from the fundamental fact that the ‘identity of donor is known’.
As regards the charge that an overwhelming slice of donor’s contribution has gone to the BJP, this too is untenable as to whom a particular entity wants to donate and how much is entirely its prerogative. Neither, the government nor EC can order distribution of intended contribution of an entity in a particular manner.
To conclude, there is absolutely nothing to doubt the credibility of electoral bond scheme. The scheme brings in a substantial degree of ‘transparency’ and increases the role of ‘legitimate’ sources of income for funding elections even while ensuring that the donor does not get into a vulnerable zone [this consideration is no less important as otherwise, the scheme won’t get off to a start].
However, to get still better results/deliverable from implementation of the scheme as also make the other initiative [read: lower threshold for donation in cash] meaningful, all stakeholders need to put in efforts to make fast progress towards ‘digitization’ of the economy and minimize the use of cash.