The new scheme of electoral bonds has reignited the debate on political funding in India. A large number of commentators have argued that this scheme is opaque because it allows donors to be anonymous. It is true that electoral bonds compromise on transparency. In fact, electoral bonds, by their very design and purpose, are meant to preclude public disclosure of donations. If judged by the singular prism of transparency, the electoral bonds scheme is clearly an undesirable policy. However, transparency does not capture the entirety of the debate.
While sunlight is often the best disinfectant, at times, it may also be a harbinger of pathologies. Similarly, while public disclosure of political funding is undoubtedly an important end, it is not the only factor in analysing the scheme of electoral bonds. In other words, it is important to understand what electoral bonds seek to achieve at the expense of public disclosures.
In a public discussion last year, Finance Minister Arun Jaitley stated there is “an inbuilt conflict between clean money and transparency”. At the outset, the claim may seem bizarre. A 2012 study by M.V. Rajeev Gowda and E. Sridharan, based on confidential interviews with politicians and businesspersons, suggested that although disclosure provides corporations with tax benefits, politically risk-averse donors still avoid transferring money through legal routes due to the fear of “loss of anonymity”. As a result, they do not stop donating. Instead, in order to secure anonymity, they resort to donations through black money, as the black money route will not carry any record in the official balance-sheet of the company. Even the institution of electoral trusts, which received legal sanction in 2009, was aimed at addressing this conflict by providing a certain level of anonymity, albeit not to the extent electoral bonds do.
One may argue that the solution to this problem is not less transparency, but a strict control of black money flow. However, one has to acknowledge that this problem is not peculiar to campaign finance; it is a broader structural problem with the economy. With 70 per cent of transactions (by value) being cash transactions, India is a fertile ground to flout transparency requirements. A good example in this regard is the utter failure in the monitoring of campaign expenditure limits imposed by the law.
What we can draw from this study is that the stricter the transparency norms get, the more opaque the political funding becomes. This is because strict transparency norms push political funding further underground. As a scholar of campaign finance in the US noted, “political money, like water, has to go somewhere. It never really disappears into thin air”. Strict transparency not only incentivises reliance on illicit money but also slays any modicum of transparency. In short, transparency norms do not automatically translate into actual transparency.
Even if we assume that the problem of under-the-table transactions can be curbed along with maintaining strict transparency norms, companies may not be amenable to donate, thus reducing the constituency of donors. India has seen what happens when the legal regime prevents corporate donations. Several scholars have identified the post-1969 era (when Indira Gandhi banned corporate donations) with the growth of rich or criminal candidates who can arrange their own funds or contribute to party coffers. Even with the legalisation of corporate donations in 1985, lack of anonymity prevented many clean donations. Therefore, given the reality of Indian economic and political structures, increased transparency, curbing black money in politics, and broadening the constituency of donors are almost impossible to achieve together.
India faces a political funding trilemma — transparency norms, curbing black money, and broadening the constituency of donors. This trilemma is not borne out of logical necessity, but out of existing economic and political circumstances, such as the general prevalence of black money in the economy and the lack of the Election Commission’s capacity to enforce laws. In the long term, these circumstances could be changed. A short-term reform, however, is unlikely to achieve all three objectives. We have to understand electoral bonds in the context of this trilemma. That said, the electoral bond is not necessarily the best available policy. However, the criticism of the bond scheme should factor in India’s political funding trilemma — transparency is only one of the three factors.