Electoral Bonds: Not really investments!
Electoral bonds are not regular interest paying Bonds. They are tools for making political donations introduced to ‘cleanse the system of political funding in the country.’
Announced in the Finance Bill of 2017, electoral bonds came into existence in 2018. Since then, electoral bonds worth more than Rs. 10,000 crores have been purchased by political donors.
Electoral bonds were introduced with the objectives:
- Curb the use of black money in political donations
- Protect the identity of donors who may be targeted by specific political parties
- Enable common citizens to fund the political parties of their choice
Read More: Government Bonds India
What are electoral bonds in India?
Electoral bonds are not ‘bonds’ in the usual sense of the word.
In general, a bond is an investment instrument that represents a loan given by the buyer of a bond to the issuer of the bond. Issuance of a bond is a win-win situation:
- The bond issuer gets money to conduct and expand their businesses
- The bond buyer gets interest on his money by making a relatively safe investment
However, electoral bonds do not work like this. Instead, they are financial tools introduced to streamline and make the process of political donations more transparent.
Read More: Types of Bonds in India
How do electoral bonds work?
Electoral bonds work in a simple yet effective way. Here’s the process:
- Donor buys electoral bonds from one of the SBI branches
- Donor receives the electoral bonds
- Donor donates the bonds to the political party of his/her choice
- The political party encashes the bonds and receives the money
- Electoral bonds can be purchased from select branches of SBI (State Bank of India) only
- Electoral bonds have a life of only 15 days, i.e, the political party must encash the bonds within 15 days of purchase
- Electoral bonds have neither the name of the buyer nor the receiver thereby protecting the identity of the donor and allowing them to donate anonymously
Features of electoral bonds
|Available at||Select SBI branches|
|KYC||KYC is required to buy electoral bonds at SBI branches. This isn’t different from the KYC required for stocks and mutual fund investments|
|Modes of investment||Cheque or online transfer (cash is not allowed)|
|Purchasing Window||Electoral bonds are available for purchase for 10 days each quarter (Jan, Apr, July, Oct). An additional period of 30 days during years of the general election|
|Eligibility criteria for investors||Indian citizens and corporations|
|Eligibility criteria for political parties||Political parties that received at least 1% of total votes in the last general election or legislative assembly. The political party must also be registered under Section 29A of Representation of the Peoples Act, 1951|
|Restrictions on encashment||Electoral bonds can only be encashed in a designated bank account that belongs to the political party|
|Minimum donation||Rs. 1,000|
|Maximum donation||No ceiling|
|Denominations available||Rs. 1,000, Rs. 10,000, Rs. 1,00,000 (1 lakh), Rs, 10,00,000 (10 lakhs) and Rs. 1,00,00,000 (1 crore)|
|Validity||15 days from issuance. The receiving political party must encash the bond within 15 days of issuance|
|Credit||Money via electoral bonds is credited to the political party’s designated bank account on the same day they deposit the bonds|
|Tax benefit||All the donation amount can be deducted under section 80G and 80GGB of Income Tax Act.|
Criticism of electoral bonds
While the intention behind electoral bonds is not under question, they have attracted a fair bit of criticism. NGOs like the Association for Democratic Reforms (ADR) and constitutional bodies like the Election Commission of India (ECI) have criticized several aspects of electoral bonds. Below are some of them:
Don’t regulate small donations
Donations under Rs. 20,000 can still be accepted in cash and are not well-regulated. Corrupt political parties can simply create a fake list of donors with amounts less than Rs. 20,000 and get away with it.
Promote crony capitalism
Crony capitalism is a system where corporations offer kickbacks (bribes) to politicians in power to get favors like contracts, subsidies, relaxation in regulations etc.
A political party in power may solicit donations via electoral bonds and offer favours to corporations. The political party can then use the donations to win elections via aggressive promotions and return to power for another term. And the cycle goes on.
Give advantage to incumbent government
State Bank of India is a public sector bank owned by the government. It means the government in power can solicit information regarding electoral bonds. It can even target individuals and corporations who donated to rival political parties.
The Supreme Court is currently reviewing electoral bonds and its aspects that have attracted criticism from experts and petitioners. It will be hearing the pleas of multiple petitioners in March 2023.
Most political experts and activists believe that electoral bonds are great and solve many problems. But they demand changes to be made in how they function right now.
From the donor point of view, tax-paying citizens can use electoral bonds to claim tax exemptions by donating to their favorite political parties.