n line with its promise to bring transparency into election financing, the Narendra Modi-led National Democratic Alliance government has outlined the basic contours of the electoral bonds, a scheme announced by it in Union Budget 2017, including their denominations, validity, and eligibility of the purchasers. 

The bonds are, however, designed to significantly reduce cash donations made to political parties.

According to an Association of Democratic Reforms (ADR) analysis, out of the Rs 7,833 crore national and regional parties received as funding between 2004-05 and 2014-15, as much as 69 per cent were from unknown sources. collates useful information for readers about electoral bonds

What is an electoral bond?
The electoral bond will be an interest-free banking instrument, much like a promissory note, that every eligible political party will be able to encash through a designated bank account, Union Finance Minister Arun Jaitley told the Lok Sabha. 

These bonds can be redeemed only through the registered accounts of a political party in a prescribed time frame. The bank account used by a political party must be the one notified to the Election Commission.

Denominations of electoral bonds
The electoral bonds can be bought from specified branches of State Bank of India in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore.

What does the purchaser need to do to buy an electoral bond?
The purchaser will be allowed to buy the electoral bonds only after he complies with the existing Know Your Customer (KYC) norms and makes payments from a bank account. 

Read: Road map for PSU banks: Why recap and reforms must go hand in hand

Who may not purchase these bonds?
At present, a party that could not secure 1 per cent of the vote in the previous election will not be eligible for the electoral bonds. This could pose a funding challenge for new political parties, especially the one that superstar Rajinikanth intends to float soon.

When may such bonds be bought?
Electoral bonds under the scheme will be available for purchase for a period of 10 days each in the months of January, April, July and October. Additionally, a 30-day period would be specified by the Centre in the year of general elections.

What will be the tenure of the bond?
The bonds will not carry the name of the payee and will be valid only for 15 days during which it can be used to make a donation only to certain political parties. The corporate donor is under no obligation to disclose the name of the party to which the donation has been made.

Why to protect donors’ identity?
Though electoral bonds can be purchased by cheque or through electronic money transfer, the transactions will remain a secret. This means, people will have no access to the information on which corporate house has channelled how much money into which political party.

Why is it important?
As of now, most political parties use the lax regime on donations to accept cash donations from anonymous sources. 

Read: 6 things to watch out for before investing in 2018

3 major players of electoral bond

The main player is the donor who wants to donate funds to a political party. It can be a person, an organisation or even a company.

Second player is a national or regional party in the country.

And the third player is the Reserve Bank of India.

Political funding in other countries

In the US, companies are banned from directly funding political parties or candidates. They donate to campaigns through "political action committees" (PACs) set up by groups of supporters, and even firms.

Britain requires companies and individuals to disclose political donations of more than £7,500 (Rs 6.52 lakh) to a central party office or more than £1,500 (Rs 1.30 lakh) to a local party office.

Electoral bonds for India Inc
Companies can buy the bonds with money and show it in their balance sheets. They can then transfer these bonds to any political party without declaring the name.

Until now, companies could not make political contributions amounting to more than 7.5 per cent of their average net profits in the preceding three years. That cap has gone: the sky is now the limit with the added advantage of anonymity.

Jagdeep Chokkar of the ADR was of the view that the bonds aren't likely to make the system of political funding transparent. 

"Details announced by the finance minister on electoral bonds hardly add anything new," said Chokkar, also a professor at the Indian Institute of Management, Ahmedabad.

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