Explained: How electoral bonds work, and why they face criticism

What are electoral bonds?

Simply put, electoral bonds are an instrument through which anyone can donate money to political parties. Such bonds, which are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, can be bought from authorised branches of the State Bank of India. As such, a donor is required to pay the amount — say Rs 10 lakh — via a cheque or a digital mechanism (cash is not allowed) to the authorised SBI branch. The donor can then give this bond (just one, if the denomination chosen is Rs 10 lakh, or 10, if the denomination is Rs 1 lakh) to the party or parties of their choice. The political parties can choose to encash such bonds within 15 days of receiving them and fund their electoral expenses. On the face of it, the process ensures that the name of the donor remains anonymous.

When were electoral bonds introduced and why?

The central idea behind the electoral bonds scheme was to bring about transparency in electoral funding in India. In the Union Budget speech on February 1, 2017, then Finance Minister Arun Jaitley stated: “Even 70 years after Independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections…Political parties continue to receive most of their funds through anonymous donations which are shown in cash. An effort, therefore, requires to be made to cleanse the system of political funding in India.”

In response, he proposed two main changes. One, he reduced the amount of money that a political party could accept in cash from anonymous sources — from Rs 20,000 to Rs 2,000. Two, he announced the introduction of electoral bonds as a way to make such funding more transparent.

Formally, these bonds were introduced in 2018.

How many have been sold?

Electoral bonds can be bought only during specific windows of time. The 20th such window — between April 1 and April 10 — is currently open. According to a written reply in Rajya Sabha last month, Minister of State for Finance Pankaj Chaudhary provided the break-up of the yearly sale of electoral bonds: Rs 1056.73 crore in 2018; Rs 5071.99 crore in 2019; Rs 363.96 crore in 2020; Rs 1502.29 crore in 2021; and Rs 1213.26 crore in 2022. In other words, in 19 tranches since 2018 when they were effectively available, bonds worth Rs 9208.23 crore have been sold. Of these, bonds worth Rs 9187.55 crore have been encashed by political parties. The minister also underscored that no bonds were sold to foreign entities because the scheme does not allow it.

Why have electoral bonds attracted criticism?

The central criticism of the electoral bonds scheme is that it does the exact opposite of what it was meant to do: bring transparency to election funding.

For example, critics argue that the anonymity of electoral bonds is only for the broader public and opposition parties. The fact that such bonds are sold via a government-owned bank (SBI) leaves the door open for the government to know exactly who is funding its opponents. This, in turn, allows the possibility for the government of the day to either extort money, especially from the big companies, or victimise them for not funding the ruling party — either way providing an unfair advantage to the party in power. Critics such as Anjali Bhardwaj, co-convenor of the National Campaign for People’s Right to Information, have noted that more than 75 per cent of all electoral bonds have gone to the BJP, which is in power at the Centre.

Further, one of the arguments for introducing electoral bonds was to allow common people to easily fund political parties of their choice but more than 90% of the bonds have been of the highest denomination (Rs 1 crore).

Moreover, before the electoral bonds scheme was announced, there was a cap on how much a company could donate to a political party: 7.5 per cent of the average net profits of a company in the preceding three years. However, the government amended the Companies Act to remove this limit, opening the doors to unlimited funding by corporate India, critics argue.

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