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Sale of ‘less transparent’, physical electoral bonds jumps before polls, show RTI replies

RBI had batted for digital-only bonds for fear of misuse, govt sought physical sales for donor anonymity, show replies

Electoral bonds, Electoral Bond Scheme, digital transactions, Gujarat Assembly elections, Himachal Pradesh Assembly elections, Indian Express, India news, current affairsWhile the first round of sales in March 2018 saw only 11.92% physical transactions, the preference for physical EBs has fluctuated over the years.

Sale of physical electoral bonds, considered less traceable, surpassed digital transactions of these bonds in the run-up to 2018 Assembly elections, 2019 Lok Sabha polls, and the upcoming Gujarat and Himachal Pradesh Assembly elections, Right to Information (RTI) replies show.

On average, from the first round of sale of electoral bonds (EBs) in March 2018 until the 22nd round in October this year, digital transactions have accounted for 54.18% of total 19,520 transactions in which bonds worth Rs.10,791 crore were sold.

While the first round of sales in March 2018 saw only 11.92% physical transactions, the preference for physical EBs has fluctuated over the years.

The 23rd tranche of EBs went on sale on Wednesday. It will close on November 15.

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According to RTI replies from the State Bank of India to transparency campaigner Commodore Lokesh Batra (retired), physical transactions accounted for a majority of EBs sold in eight of 22 rounds of EB sales thus far. These eight instances were in the run-up to the Chhattisgarh, Madhya Pradesh, Mizoram, Rajasthan and Telangana polls in 2018; the Lok Sabha elections in 2019; and before the Gujarat and Himachal Pradesh elections this year.

In fact, July, November and May 2018 tranches of EBs saw 87.80%, 63.42% and 57.84% of physical sales, respectively.

While the Electoral Bond Scheme, 2018, was being formulated, the Finance Ministry and the RBI had discussions in 2017 on the preferable mode of selling EBs — digital or physical. On September 14, 2017, then RBI governor Urjit Patel wrote to then Finance Minister Arun Jaitley about RBI’s concerns with the physical mode.


“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. This can subject RBI to a serious reputational risk of facilitating money laundering transactions. The whole idea of cleansing the funding of political parties is a larger public good. At the same time, the concept of EBs is a novel one. For these reasons, we are keen that we put in place a robust system that minimises the reputational risk. We, therefore, brainstormed this feature…and came to the conclusion that issuing EBs in a digital form will be a superior method,” Patel stated in the letter, obtained by Batra through RTI.

Patel counted several benefits of the electronic form of EBs: “Given that the major objective of the EB scheme is to provide anonymity to persons making a contribution to political parties, we believe this can be better achieved if EBs are issued in electronic form (demat form), with the Reserve Bank as the depository, rather than as a physical scrip. Apart from avoiding use of EBs for money laundering, this arrangement will be more secure and will reduce cost, as the need for printing security features is obviated.

“Moreover, this will be in the fitness of things given the larger objective of digitalisation…”


In the Finance Ministry’s internal communications, an officer wrote on September 29, 2017 that then Economic Affairs Secretary Subhash Chandra Garg had replied to the RBI Governor that “EBs in demat format only may take away a key feature of the scheme to protect the identity of the donor. The fact that information of donor and donee is with RBI will raise apprehensions and make the scheme a non-starter.”

The issue of misuse was flagged even during a meeting Garg had with the Election Commission to discuss the draft scheme. In a note on September 22, 2017, Garg wrote that then Election Commissioner O P Rawat “expressed doubts that the electoral bonds can be misused by shell companies”.

“I explained in detail how the features of the KYC compliance by any company require including source of funds to buy bonds and accounting thereof in the book of accounts would ensure that any company cannot use electoral bonds to launder to black money,” Garg wrote.

On Wednesday, O P Rawat, who retired as Chief Election Commissioner in 2018, told The Indian Express: “The whole scheme is opaque. Only the SBI branch manager would know the KYC details. Many donors would not like to pay from their own company accounts and use some shell companies instead. The system is not capable of preventing fraud in other transactions and here the transactions are opaque,” he said.

Batra said the documents showed RBI was in favour of digital transactions, while the government emphasised protecting the identity of donors, even though it has been stressing upon digitisation.

First published on: 10-11-2022 at 04:12 IST
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