Why in news?

• A five-judge bench of the Supreme Court led by CJI will start hearing petitions challenging the constitutional validity of the Centre’s electoral bonds scheme from October 31.
• In response to these petitions, the Centre's affidavit told the apex Court that citizens' right to know is subject to reasonable restrictions.

What’s in today’s article?

• Electoral Bonds

What are Electoral bonds (EBs)?

• About
  • Electoral bonds are a financial instrument introduced by the Government of India in 2018 to facilitate anonymous political donations.
  • An electoral bond is a bearer instrument, like a promissory note, that is payable to the bearer on demand to donate their contributions to political parties.
• Who are eligible to receive electoral bonds?
  • Only registered political parties are eligible to receive electoral bonds.
  • However, there are certain criteria that political parties must meet to be eligible to receive electoral bonds. These are:
    • Recognition: The political party must be registered under Section 29A of the Representation of the People Act, 1951.
    • Recent Election Performance: The party must have secured at least 1% of the votes polled in the most recent Lok Sabha or State Assembly election.
• Available denominations
• The Government of India has specified various denominations for electoral bonds, ranging from Rs. 1,000 to Rs. 1 crore.
• Authorized bank
  • SBI is the only bank authorised to sell these bonds.
• Working
  • A citizen of India or a body incorporated in India is eligible to purchase the bond.
  • EBs are issued/purchased for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1,00,000, Rs 10,00,000 and Rs 1,00,00,000 from the specified branches of the State Bank of India (SBI).
  • EBs have a life of only 15 days during which it can be used for making donation only to the registered political parties.
  • The bonds shall be available for purchase for a period of 10 days each in the months of January, April, July and October as may be specified by the Central Government.
  • The bond can be encashed by an eligible political party only through a designated bank account with the authorised bank.
  • The political parties have to disclose the amount to the Election Commission.

What is the Rationale behind the introduction of EB?

• Encouraging Digital Transactions:
  • The electoral bond scheme was intended to promote a shift from cash-based political donations to digital transactions.
  • By facilitating donations through banks, the government aimed to reduce the use of unaccounted or black money in political funding.
• Anonymity of Donors:
  • It aimed to provide anonymity to donors. The donor's name is not mentioned on the bond.
    • Donors who contribute less than Rs 20,000 to political parties through purchase of electoral bonds need not provide their identity details such as PAN, etc.
  • It was argued that this would protect individuals or entities from potential backlash or reprisals due to their political affiliations.
• Formalizing Political Contributions:
  • The introduction of electoral bonds aimed to formalize political contributions by channelling donations through the banking system.
  • This move aimed to establish a documented trail of donations, making the process more transparent and accountable.
• Enhancing Transparency:
  • While the donors' identities remain anonymous, the electoral bond scheme aimed to enhance transparency in political funding.
  • It does so by mandating political parties to disclose the details of electoral bond donations in their financial statements.

Criticisms of Electoral Bond

• Lack of Transparency:
  • While the scheme requires political parties to disclose the amount of donations received through electoral bonds, the identity of the donors remains anonymous.
• Potential for Money Laundering:
  • Critics argue that the anonymity provided by electoral bonds can be misused for money laundering or routing black money into the political system.
• Unequal Advantage to Ruling Parties:
  • The fact that such bonds are sold via a government-owned bank (SBI) leaves the door open for the government to know exactly who is funding its opponents.
  • This, in turn, allows the possibility for the government of the day to either extort money, especially from the big companies, or victimise them for not funding the ruling party.
• Bypassing Election Commission Scrutiny:
  • Unlike other forms of political funding, electoral bonds do not require ECI approval or verification, which can undermine the ECI's oversight role in regulating political funding and ensuring a level playing field.
• No upper limit on funding
  • Before the electoral bonds scheme was announced, there was a cap on how much a company could donate to a political party: 7.5 per cent of the average net profits of a company in the preceding three years.
  • However, the government amended the Companies Act 2013 to remove this limit, opening the doors to unlimited funding by corporate India.
• Concerns raised by RBI and EC
  • RBI and the ECI have raised concerns about electoral bonds. They said that electoral bonds could:
    • Increase black money circulation, money laundering, cross-border counterfeiting, and forgery;
    • Set a bad precedent by encouraging money laundering and undermining faith in Indian banknotes;
    • Erode a core principle of central banking legislation;
    • Legitimize opacity in how elections are funded;
    • Become vehicles for money laundering for shell companies and foreign donations.
    •