The mysterious electoral bond market, which has brought in hundreds of millions of dollars for political parties—particularly the ruling Bharatiya Janata Party (BJP)—was outlawed by the Indian Supreme Court on Thursday.
In response to an ongoing petition demanding the cancellation of the bonds, the court rendered a decision. The highest court stated in November that the bonds “put a premium on opacity” and potentially be “misused for money laundering,” putting the scheme under investigation.
The court’s decision may have a significant impact on who has the financial means to control the political scene, how untraced money is used in the upcoming general elections in India, which are scheduled for March through May.
Prime Minister Narendra Modi’s government instituted an electoral bond system in 2018, which allows anonymous donations to political parties but requires these bonds to be purchased via the State Bank of India.
Though legally anonymous, donors utilising electoral bonds have access to the State Bank of India’s data because it is a publicly held institution. Critics have predicted that this may deter major contributors from giving to opposition parties with electoral bonds.
Additionally, the Reserve Bank of India, the nation’s central bank, forewarned the Modi administration in 2017 that the bonds might be used by shell corporations to “facilitate money laundering.” The approach was dubbed “a retrograde step as far as transparency of donations is concerned” by the nation’s Election Commission in 2019.
Via these bonds, covert donors have donated political parties around 16,000 crore Indian rupees (more than $1.9 billion) since 2018. The nongovernmental organisation Association for Democratic Reforms (ADR) conducted an analysis between 2018 and March 2022 and found that the BJP under Modi received almost $600 million, or 57% of donations made through electoral bonds.
With over 900 million voters expected to cast ballots in India between March and May to choose a new government, these monies have enabled the BJP to establish itself as a powerful electoral force. The BJP has benefited greatly from electoral bonds, which have given it a significant financial boost over its competitors. Among other things, these bonds have allowed the BJP to fund tens of thousands of WhatsApp groups that spread its ideology and pay for the block booking of private jets.
What is the mechanism of electoral bonds and why are they being called “undemocratic”?
What is a electoral bond?
Similar to banknotes, electoral bonds (EBs) are “bearer” instruments. One million rupees ($12,000), ten million rupees ($120), one hundred thousand rupees ($1,200), and thousand rupees ($12) are the denominations in which they are traded. Individuals, organisations, or groups can acquire these and donate them to the political party of their choosing. The political party has 15 days to redeem the donations without incurring interest.
The identity of donors who give more than 20,000 rupees ($240) in cash must be disclosed by political parties, while contributors who use electoral bonds are exempt from this requirement, regardless of the amount donated.
Since its inception, EBs have taken centre stage as the main source of funding for politics in India; according to an ADR assessment, EBs account for 56% of all political fundraising in the country. They are very well-liked because they allow donations to be made anonymously, but they are also very secretive, which many believe is undemocratic and might be used as a cover for corruption.
The Modi government eliminated several regulations intended to increase political finance transparency together with the new law permitting this kind of fundraising: A previous law that set a cap on corporate donations was repealed, businesses were released from the obligation to reveal their donations in their financial reports, and foreign corporations that had previously been prohibited from financing Indian political parties may now do so through their Indian subsidiaries.
Major General Anil Verma (retired), chief of the ADR, stated that “backroom lobbying and unlimited anonymous donations are legalised by the EB.” Verma stated that it was troublesome because the contributors’ identities were kept a secret. “We don’t know who is donating; it could be major corporations or players using shell companies to launder money illegally.” This has evolved into what many refer to as entrenched and legalised corruption.
How is BJP benefited by electoral bonds ?
Donations of electoral bonds benefit the BJP more than any other party. According to data from the Election Commission of India, the BJP received 5,271 crore rupees, or around $635 million, or 57% of all donations made through EBs between 2018 and March 2022. In contrast, the Indian National Congress, which came in second place, was given 952 crore rupees, or around $115 million.
Under EB regulations, these bonds may only be sold by the State Bank of India, a publicly traded company. Many contend that this eventually grants the current government unbridled authority.
The list of donors and beneficiaries of the bond may be discovered by an unprincipled government, as former Reserve Bank of India governor and economist Raghuram Rajan noted in a Times of India piece published last year. The bond was issued by a public sector bank. Few people or businesses would take the hazard of giving significant quantities of money to the opposition through these bonds given the government’s available rewards and penalties, Rajan continued.
The electoral domination of the BJP has also been aided by EBs. “Even though they are referred to as electoral bonds, the regulations do not stipulate that the funds can only be utilised for electoral purposes,” stated retired Indian Navy commodore Lokesh Batra, who has been leading a drive to increase electoral funding transparency. Thus, whichever is richer,The funds may be utilised to increase advertising or purchase media space. You can utilise the money anyplace once you have it,” he continued.
Critics point to the discrepancy in the amount of funding collected by the BJP and the Congress, the party’s closest challenger, as evidence of the unfair competition that EBs have brought about. For example, in the southern state of Karnataka, state assembly elections were held in May 2023, pitting the Congress and the BJP against one another. The BJP was able to spend 197 crore ($24 million), whereas the Congress was only able to spend 136 crore ($16 million), according to affidavits submitted to the Election Commission by both parties.
Additionally, the Modi administration has the authority to schedule the bond auctions. Although bonds may only be sold during the first ten days of each new quarter, as stipulated by EB regulations, in January, On the brink of two significant elections in May and November of 2018, the government disregarded regulations and permitted donors to purchase these bonds in April, July, and October. This is a component of the case that the Supreme Court is presently considering.
What other reasons exist for criticising electoral bonds?
Electoral bonds’ opponents claim that by enabling unlimited, anonymous payments from any source, they “legalise corruption” and provide corporate donors the ability to essentially fund the ruling party and have a role in policy decisions.
“It is evident that donors view these anonymous contributions as a financial investment,” Verma added.
He went on to say that questions about how free and fair elections actually are have also been raised by the introduction of electoral bonds. “The idea of equality in electoral politics has been eroded by electoral connections. Regardless of who is in power, the majority of donations go to the ruling party, he claimed.
According to Batra, “it appears that the government’s top goal was to keep the identities of the donors and parties secret from the day it was introduced.”
With whom is the Supreme Court hearing arguments regarding Electoral Bonds?
The Communist Party of India (Marxist) and two NGOs, ADR and Common Cause, submitted two distinct petitions before the Supreme Court in 2017 and later in 2018, pleading with the court to abolish the electoral bonds system.
Six years after the cases were filed, the court has now issued a decision. The court said in November 2023 that the hearings on the petitions against the bond system had come to an end.
At the time, it was stated that because the EB plan places “a premium on opacity,” it had “serious deficiencies,” had produced a “blackhole” in information, and “has to be removed.”
This hasn’t prevented these bonds from being sold widely. From January 2 to January 11, the most recent batch of EBs was being sold at 29 different places around the nation. Prior to this year’s general elections, this money is probably going to make up the majority of the funding for the political campaigns of the various parties.
