India to introduce electoral bonds to regulate political donations

India's Finance Minister Arun Jaitley, seen here at a meeting in 2017, said this week that a new scheme to introduce electoral bonds will help to improve transparency in the funding of political parties in India.
India's Finance Minister Arun Jaitley, seen here at a meeting in 2017, said this week that a new scheme to introduce electoral bonds will help to improve transparency in the funding of political parties in India. PHOTO: REUTERS

NEW DELHI - In an attempt to make political funding more transparent, the Indian government is introducing electoral bonds to replace cash donations.

On Jan 2, Finance Minister Arun Jaitley gave more details on the scheme designed to improve the transparency of politics in the South Asian country, which has hundreds of regional and national political parties.

Under the scheme, a donor can purchase electoral bonds from an authorised bank and deposit it into the registered accounts of a political party.

A finance ministry spokesperson said the exact dates of when the bonds could be purchased would be announced by the government in due course.

But the move has already drawn much criticism, with many doubting that it will lead to cleaner politics in India, where allegations of vote buying are common during state and national elections.

In India, political parties rarely disclose the source of their funding with most donations coming from anonymous sources, and no laws require parties to name their donors.

On Sunday (Jan 7), Mr Jaitley gave a defence of the scheme in a Facebook post.

While online or cheque donations are "ideal" methods, he also noted that these were not popular as donors did not want their identities made public in case of retribution from an opposing party. Many make cash donations instead.

  • How electoral bonds work:

  • Under the scheme introduced by the Indian government, a donor can buy electoral bonds in multiples of 1,000, 100,000, 1 million or 10 million rupees form certain branches of State Bank of India.

    Electoral bonds are interest-free financial instruments to make donations to a political party.

    There is no cap on the amount that can be donated through bonds, which can be redeemed through the bank accounts of political parties.

    The bonds can be purchased during a fixed period of 10 days in the months of January, April, July, and October. But during a year in which there is a general election in India - such as next year (2019), the fixed period will be extended to 30 days.

    The electoral bond can be purchased only by a a citizen of India or an organisation registered in India.

The new scheme can prevent a shift to cash donations, Mr Jaitley argued, as the identity of donors is not made public.

Under the scheme, anyone buying a bond will have to give their details to the banks but the bonds would not bear the name of the donor.

"The present system ensures unclean money coming from unidentifiable sources. It is a wholly non-transparent system," he wrote.

The electoral bond scheme, Mr Jaitley wrote, would bring "substantial improvement in transparency over the present system of no-transparency".

It "envisages total clean money and substantial transparency coming into the system of political funding", he added.

In India, political parties, including the two main national ones - Congress and the ruling Bharatiya Janata Party (BJP) - collect funds to run the party and fight elections.

In a 2016 survey, a non-government organisation (NGO) found that 69 per cent of the total income of 113.67 billion rupees (S$2.38 billion) of India's regional and national political parties from 2004 to 2015 came from unknown sources.

The NGO, the Association for Democratic Reforms (ADR), also found that the income from unknown sources of national parties, mainly Congress and BJP, increased by 313 per cent during the same decade.

The electoral bond scheme is not the first attempt by the Indian government to make political funding more transparent. But current Prime Minister Narendra Modi, who came to power with anti corruption as a key plank of his campaign, has focused more on this issue.

Since taking office, he has taken several measures, including capping anonymous cash donations to political parties at 2,000 rupees.

However, the latest measure by Mr Modi's government has raised doubts, with many arguing that as long as donors remained anonymous, political funding would remain opaque.

Mr Jagdish Chhokar, founder member of ADR, said: "The buyer will purchase it from a bank. Nobody will know the name of the buyer, which will not be on the instrument. Who the buyer gives it to will also not be known. When there is complete anonymity on both sides, how does one call it transparent?"

He added: "What is needed is a simple law saying all political parties will accept donations through digital means."

Mr D. H. Pai Panandiker, president of New Delhi-based think tank, RPG Foundation, said the electoral bond scheme is better than nothing but added that political parties needed to be audited for greater transparency.

"I think it (the electoral bond scheme) is only the first step... and won't make much difference over the current system. It is not going to completely wipe off wrongdoing. But at least there is some attempt towards reducing corruption.''

Some political parties have even asked the government to reconsider the scheme, with the government in turn accusing these parties of being resistant to change and not wanting reforms in political funding.

The parties include Congress, which said that maintaining the anonymity of donors was a "regressive step". The party accused Mr Modi's ruling BJP of introducing the scheme to pressure donors as the government through the State Bank of India could access details of donors.

Another party, the Communist Party of India (Marxist), has also raised concerns about the bonds.

Its chief Sitaram Yechury has written a letter to Mr Jaitley to ask him to reconsider the scheme and to call for more discussions among political parties.

Said Mr Yechury:"This (electoral bond scheme) could give way for the formation of shell companies and legalise money laundering. So it will actually make the system more opaque."