In a clear indication that the government did not want to involve the Reserve Bank of India in the formulation of the draft notification for issuance of electoral bonds, then Secretary (Economic Affairs) Subhash Garg wrote in his own hand in the file concerned on September 1, 2017, “I had specifically directed on file not to issue this until asked. Why has it been done?”
Documents obtained under RTI by transparency activist Anjali Bhardwaj and shared with The Indian Express reveal that Prashant Goyal, then Joint Secretary in the Budget Division under the Department of Economic Affairs, had written a confidential letter to RBI Deputy Governor BP Kanungo and shared the operational details of the electoral bonds.
In his August 30, 2017 letter, Goyal asked the RBI to send a draft notification “incorporating the detailed operational modalities” of the proposed bonds within two weeks. Garg sought an explanation the day-after on September 1, 2017.
The same day, Goyal justified his communication with the RBI stating that the “same process was followed while notifying PM Garib Kalyan Deposit Scheme”. But Garg wrote on September 7 in the file, “We could have prepared the draft notification taking inputs from RBI, if needed, on phone. Anyway, now pl complete the process of draft notification & show me the same.”
When contacted, Garg, who was outside the country, did not deny his noting in the file. He told The Indian Express, “There are much deeper issues involved here. The entire context is so important to understand. I will return in 2-3 days and then we can discuss.”
It was after Goyal’s letter to Deputy Governor Kanungo that the disagreement between the government and the RBI came to a head.
In the next few weeks, then RBI Governor Urjit Patel corresponded with then Finance Minister Arun Jaitley several times in which he repeatedly pointed out the central bank’s objections to the electoral bonds scheme as envisaged by the government.
What the RBI was most concerned about was the government’s demand that electoral bonds be sold in physical form (instead of a digital format). Two, it strongly held that such bonds, which were like a currency note, should not be issued by any other institution other than the RBI as it would undermine its monetary authority.
None of these arguments moved the government. “This is a well thought out scheme to cleanse the political funding system with complete ownership of Government of India and hence the contention of reputational risk to RBI as cited by Governor is not understood,” said a September 15, 2017, note by the Budget Division under DEA.
The government simultaneously approached the State Bank of India (SBI) to issue these bonds. In a meeting of the Committee of the Central Board (CCB) of RBI on October 11, 2017, the RBI noted “If the Government decides to issue EB (electoral bonds) in scrip through SBI, the Bank (RBI) should let it be.” This was seen by the finance ministry as an approval to the electoral bonds scheme by the RBI.
In a handwritten note on November 21, 2017, Garg wrote, “RBI has indirectly agreed for Electoral Bonds to be issued, if issued by SBI, as recorded in the CCB minutes quoted… above. FM may like to approve the notification for issuance.”