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OPINION: Electoral Bond Scheme undermines transparency in political funding

Earlier this month, the Union Government, in a bid to “cleanse the system of political funding in the country” finally outlined the contours of the much touted electoral bonds scheme – a full eleven months after Finance Minister Arun Jaitley announced the government’s intention to introduce it in his budget speech in February last year.

Explaining the rationale for the introduction of the scheme Mr. Jaitley told reporters, “Till today, people did not get explicit information on how much funds political parties got from which source and how they spent it. In 2001, we introduced a change to enable funding through cheque. But the share of anonymous funding is still high. The electoral bonds scheme is meant to change this.”

Laudable as the intention of cleaning up the system of political funding is, an analysis of the contours of the scheme leads to the inescapable conclusion that instead of being a step closer to ensuring transparency in the system of political funding in the country, it actually is a step in the opposite direction and stymies whatever transparency it was intended to bring in the first place.

The scheme, as framed is simple enough: Electoral bonds, which are interest-free banking instruments having a validity of 15 days, can be bought by donors having a KYC compliant account from specified branches of the State Bank of India in multiples of Rs 1,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore and donated to any registered political party of their choice as long as it has secured at least 1 per cent vote in the previous election. The political party, in turn can encash these bonds through a designated bank account maintained in their name. The electoral bonds will be made available for purchase for a period of 10 days each in the months of January, April, July and October, as specified by the government. Additionally, a 30-day period will be specified by the central government in the year of the general elections.

To make all this possible, the Government adopted the convenient though questionable mode of using the Finance Act, 2017 to introduce a slew of amendments to assorted laws, namely, the Representation of People Act, the Income Tax Act, the Companies Act, and the Reserve Bank of India Act.

The USP of the scheme, in the words of the Finance Minister himself is that “These bonds will be bearer in character to keep the donor anonymous” (emphasis added). In other words, they will not carry the donor’s name (even though the purchaser would have to fulfill KYC norms at the bank). This is where the scheme begins to shun all pretence of ushering in transparency, and embraces opacity.

Though the Finance Minister was quick to clarify (in response to Congress leader Mallikarjun Kharge’s query as to what purpose the bonds would serve when the name of the donor is not disclosed) that the amount donated will figure in the balance sheet of the donors, the balance sheet would not show which political party has been the beneficiary of the donation. This is because sub-section (3) of Section 182 of the Companies Act 2013 which made it obligatory for the company to disclose the name of the party to which money has been contributed, was substituted for a heavily watered down one which exempts companies from disclosing the name of the political party/parties to which they may have made a contribution.

Contrast the pre-amendment provision which reads :

“Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party to which such amount has been contributed”,

with the substituted one:

“Every company shall disclose in its profit and loss account the total amount contributed by it under this section during the financial year to which it relates.”

The substituted provision is certain to pave way for companies to avoid public scrutiny by enabling them to route contributions to unspecified political parties through the electoral bond route. The amendments therefore only serve to make the process of political funding opaque rather than transparent. To make matters worse, the Government has also removed the limit on the maximum amount that a company can contribute to a political party. Until now, companies were prohibited from donating more than 7.5% of their average net profits made during the immediately preceding three financial years, to a political party. But that has now been done away with by amending Section 182 of the Companies Act and removing the cap. The amendment therefore effectively allows companies to contribute any amount to a political party without making its name public.

It is however baffling and quite incongruous with the stated intent of the scheme that the Government has deemed it appropriate to withhold from citizens the details of donors who have contributed to political parties through the medium of electoral bonds. It is rather difficult to understand why the public should be denied the information pertaining to contributions made via electoral bonds. The scheme is therefore not only opaque, but equally undemocratic.

But this is not all. At the other end of the transaction, namely, that of the recipient; the Government has removed the obligation of political parties to record and report the identity of electoral bonds-style donors to the Election Commission as well as the Income Tax Department. Until 2017, all registered political parties were required to disclose to the Election Commission, the identity of individuals and private entities donating more than Rs.20,000 every year. By amending Section 29C of The Representation of the People Act, 1951 via The Finance Act, 2017, the Government has now removed the obligation of political parties to keep a record of the identity of donors who give any sum of money through electoral bonds or report the same to the EC annually.

Similarly, under Section 13A of the Income Tax Act, 1961, all political parties registered with the Election Commission were required to maintain details of donations of Rs 20,000 and above, received from any source, and have them audited. These were essential requirements for every political party to get exemption from paying income tax every year. The Finance Act, 2017, absolves all political parties from the duty of keeping records of donations received through electoral bonds by exempting them from the purview of this requirement altogether, meaning effectively that these donations will not be audited either.

Only contributions over Rs 20,000 received through cheques or digital mode of payment will be required to be reported to the Income Tax department and the Election Commission of India. However given the obvious advantages of routing contributions through electoral bonds, corporate entities are less likely to make contributions through cheques or digital payments.

While the Union Government has ostensibly sought to usher in a modicum of transparency by trying to ensure that registered political parties raise funds through legitimate means, the half-hearted effort is undone by absolving political parties from the necessity of reporting the details of the amounts raised by them through electoral bonds to the Election Commission as well as the Income Tax Department and thereby curtailing the power of these regulatory bodies to that extent. This is ironic since the Finance Minister in his Budget speech last year had announced the electoral bond plan as a way to increase transparency in political funding.

The upshot of the above discussion is this: While the long over-due efforts to kick-start reforms in political funding  are to be whole-heartedly welcomed, the electoral bond scheme as currently framed does little to advance the cause of transparency in political funding; on the contrary, it undermines it.

The Finance Minister in a post put by him on his Facebook page defending the scheme hastened to add that ‘the Government is willing to consider all suggestions to further strengthen the cleansing of political funding in India’. It is hoped that he will revisit and undo the dubious provisions of the electoral bonds scheme which are plainly at odds with the Government’s proclaimed intention of ushering in transparency in political funding in India.

Ajith S is an Advocate practising in the High Court of Kerala. Views expressed are personal of the author. The Indian Jurist does not take responsibility for the views expressed or facts stated.

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