In a bid 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 details of the scheme meant to improve the transparency of politics in the South Asian country, which has hundreds of political parties.

A donor will be able to buy electoral bonds from authorised banks and deposit them in the registered accounts of political parties. Details of when the bonds could be released would be announced in due course, the finance ministry said.

But the move has already drawn criticism, with many doubting that it will lead to cleaner politics in India, where allegations of vote buying are common. In India, political parties rarely disclose the source of their funding, with most donations from anonymous sources.

On Sunday, Mr Jaitley defended the scheme in a Facebook post. While online or cheque donations are "ideal", he noted 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, which will remain legal, instead.

Electoral bonds can prevent a shift to cash donations, Mr Jaitley argued, as the identity of donors is not made public. 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," he wrote.

• How the new approach will work

• Under the scheme, a donor can buy electoral bonds in multiples of 1,000 (S$21), 100,000, 1 million or 10 million rupees from certain State Bank of India branches.

  The bonds are interest-free financial instruments for making donations to political parties.

  There is no cap on the amount that can be donated this way, 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, such as next year, the fixed period will be extended to 30 days.

  Electoral bonds can be purchased only by Indian citizens or organisations registered in India.

  Nirmala Ganapathy

He said the new scheme would bring "substantial improvement in transparency over the present system of no-transparency".

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, the Association for Democratic Reforms (ADR) found that 69 per cent of the total income of India's regional and national parties from 2004 to 2015 was from unknown sources.

The NGO also found that income from unknown sources of national parties, mainly Congress and BJP, went up by 313 per cent in the decade.

The electoral bond scheme is not the first bid to clean up political funding. But Prime Minister Narendra Modi, who made anti corruption a key plank of his campaign, has focused more on this issue.

He has taken several measures, including capping anonymous cash donations to political parties at 2,000 rupees (S$42).

But many remain doubtful of the new electoral bond measure.

Mr Jagdish Chhokar, founder member of ADR, said: "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 scheme "won't make much difference" but at least there is some attempt to reduce corruption.

Some political parties have asked the government to reconsider, but it accuses them of being resistant to change.