Electoral bonds: What Govt, RBI, ECI said when the scheme was first proposed

What the government has argued

Starting with Jaitley’s Budget speech, the government has maintained in its communications with the RBI and ECI, as well as in media statements, that the scheme was introduced to clean up the political funding of elections.

It said the scheme would lead to greater transparency, as the transactions would be carried out by individuals and companies that complete the SBI’s KYC formalities, and the parties would have to open a special account with SBI to receive the EBs. The government also maintained that giving donors anonymity was of prime importance.

In a letter to then RBI Governor Urjit Patel, then Economic Affairs Secretary Subhash Chandra Garg wrote on October 5, 2017 that the scheme was “an earnest effort to make political funding more accountable and clean”.

Responding to the RBI’s suggestion that the bonds should be issued in demat form and not as bearer bonds (see below) Garg wrote: “It is the considered view of the Government that EBs (electoral bonds) in demat form will take away the key feature of the scheme to provide anonymity of the donors vis-à-vis political parties. The fact that information of this aspect will be with the Bank, would make the scheme a non-starter.”

The bonds were eventually implemented as bearer bonds, as the government wanted.

The concerns that the RBI raised

The RBI agreed that the scheme had the potential to clean up political funding, but expressed concern with some aspects during consultations with the Finance Ministry. Governor Patel wrote to Jaitley on September 14, 2017: “We are concerned that the issue of EBs as bearer instruments in the matter currently contemplated has the possibility of misuse, more particularly through use of shell companies.”

He went on to suggest that the EBs should be sold in digital form (demat), rather than in physical form.

In the face of the RBI’s objections, the government amended the RBI Act to allow other authorities to issue bearer instruments.

In a letter to Jaitley on September 27, 2017, Patel pointed out that the issue of currency was a monopoly function of the central authority, and the amendment that diluted the RBI’s power was a “matter of concern”. “Now that the RBI Act has been amended, the government should in the least not authorise any other institution to issue EBs,” he wrote.

However, when the scheme was notified in January 2018, it was SBI that was authorised to issue EBs, not the RBI.

What the Election Commission said

In 2017, when the scheme was being finalised, Garg briefed then Chief Election Commissioner A K Joti and then Election Commissioners O P Rawat and Sunil Arora. In a “record note” on the meeting held on September 22, 2017, Garg said Rawat “expressed doubts that the electoral bonds can be misused by shell companies”, to which he replied that the KYC compliance would require giving the source of funds. Rawat has since then publicly called the scheme “opaque”.

According to the record, CEC Joti raised three issues — (i) that the electoral bonds would not be available to individual candidates and new political parties; (ii) that there was an inconsistency between the Income Tax Act and the Representation of the People Act, with cash donations under the former law limited to Rs 2,000 while the latter allows up to Rs 20,000; and (iii) that political parties should be required to give the ECI denomination-wise details of the EBs received by them.

The scheme was eventually opened to any political party registered with the ECI that had received 1% of votes in the previous election. In RTI replies provided so far, SBI has said 25 parties have opened accounts to cash EBs. Parties submit the sum of donations received from all sources, including EBs, to the ECI every year.