The electoral bonds scheme floated by the NDA government has come under scrutiny after reports revealed how the Finance Ministry brushed aside objections raised by institutions such as the Reserve Bank of India and the Election Commission of India and pushed ahead with the scheme without addressing any of their concerns.
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.
According to a HuffPost India report, the 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.
As per the report, RBI’s concerns were dismissed by then Revenue Secretary Hasmukh Adhia in a single short paragraph the same day the finance ministry received the RBI letter.
Two days later, on February 1, 2017, then Finance Minister Arun Jaitley proposed the creation of electoral bonds and the amendment to the RBI Act. The next month, the proposals became law with the passage of the Finance Bill 2017. In response to queries from The Indian Express seeking comments on issues related to the electoral bonds scheme, former RBI Deputy Governor Viral Acharya did not comment, citing “one year cooling off period.”
In May 2017, the Election Commission of India (ECI) wrote to the Union Ministry of Law and Justice, warning that electoral bonds would help political parties hide illegal donations from foreign sources, as dubious donors could now set up shell companies to funnel black money to politicians. It wanted electoral bonds and other legal changes made to reduce transparency in funding of political parties to be rolled back.
As late as October 2018, the Law and Justice Ministry records showed, ECI continued to insist upon the rollback of the bonds and other anti-transparency provisions. ECI’s continued objections became public knowledge when, in March 2019, it reiterated its opposition to the bonds in an affidavit submitted to the Supreme Court.
Contrary to the government’s assertions that donor details will remain anonymous, State Bank of India (authorised to sell electoral bonds) uses an alphanumeric code to keep track of who bought how many bonds, and the political party to whom the bond was eventually donated. This mechanism of tracking these bonds, the documents reveal, was approved by the Finance Ministry. The rules governing electoral bonds require SBI to share this data with law enforcement agencies if required.
The government specified four 10-day windows in January, April, July and October each year when SBI would sell these bonds. The rules also allowed for an additional 30 days in years when a general election was scheduled.
However, the Prime Minister’s Office (PMO) directed the Finance Ministry to break its own rules to approve the unscheduled sale of electoral bonds ahead of state Assembly elections on two separate occasions. These state elections — in Karnataka, Madhya Pradesh, Chhattisgarh, Mizoram, Rajasthan and Telangana — were the last round of polls before the Modi government’s first term ended. The PMO’s intervention to open extra windows for political donations via electoral bonds is significant because the limited sale periods were intended as a precaution against money laundering. The RBI had initially recommended that the bonds be sold twice a year for a short duration.
Justifying the electoral bond scheme in his Facebook post on April 7, 2019, Jaitley said the NDA had, in 2017, created the instrument “based on the principle of masking the identity link between the party and the donor”.
“This instrument provides for a complete white money donation. The bond as a banking instrument of SBI, a Party had to deposit it in a single declared account by the political party. Both at the hands of the receiver and the donor, it is white money through a declared channel. As far as the transparency is concerned, as against the original system of cash which was non-transparent throughout, there is improved transparency in the electoral bonds. The donor declares in his balance sheet the quantum of bonds that he has bought. The SBI has a record of the donors.
The recipient party declares the amount of bonds it has received. The link between the donor and the identity of the party is masked in the same way as is done in the case of electoral trust,” he said in the post.
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