In a major and unprecedented bid to address the opaqueness of political funding and election financing, which many believe has promoted black money and corruption in the country the most, the government on Tuesday announced the broad contours of a new system for making donations to political parties through designated banking channels. These contributions can be made via electoral bonds with a validity of 15 days, finance minister Arun Jaitley said in Lok Sabha. The donors can buy these bonds from State Bank of India (SBI) and a receiving political party can encash only through a designated bank account. Jaitley added the bonds won’t name the donor or the political party she is donating to, but these can be bought only through bank accounts after meeting all the KYC norms. These will be bearer instruments in the nature of a promissory note, carrying no interest, and can be bought for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore. The finance minister projected the bonds as an alternative to the shoddy and anonymous cash transactions through which a bulk of political funding currently takes place. When Congress leader Mallikarjun Kharge asked what purpose the bonds would serve when the donor remains anonymous, Jaitley said the bonds would get reflected in the balance sheet of the donors. He said past experiences suggest naming the donors to a political party will only prompt people to go back to the system of cash transactions. Currently, donors, quantum and sources of funds are not known.

Earlier, critics had argued that since the income tax authorities and the EC would not have details of the donor, beneficiary, or even the amount of contribution, the bonds are unlikely to bring in the desired level of transparency. Speaking to reporters, Jaitley later said a beginning has been made and the government will continue to take inputs from stakeholders on how to make the system even more transparent. “When it’s (electoral donation) given in cash, the source is not known, the donor isn’t known and there is no transparency. Now, the donor will have an account which shows how many bonds he has purchased; the political party will be filing returns to the Election Commission, indicating how many bonds they have received,” Jaitley told Parliament. “So there will be clean money and substantial amount of transparency as against the present system of unclean money and no transparency.”

The bonds come at a crucial time. The corporate donations received by political parties in just four years through 2015-16 surged two-and-a-half times the funds collected in the seven years between 2004-05 and 2011-12. According to the Association of Democratic Reforms, which analysed details of all donations above Rs 20,000 to five national parties (BJP, Congress, NCP, CPI and CPM), corporate donations accounted for 89% of all known donations in four years through 2015-16. Together, corporate houses had donated Rs 957 crore from 2011-12 to 2015-16, against Rs 378.89 crore (87% of all donations) from 2004-05 to 2011-12. The bonds will be available at designated branches of SBI for 10 days a month each in January, April, July and October. In an election year, an additional 30 days will be allowed to buy these bonds. The lender will remain the custodian of the donor’s funds until the political parties are paid. A citizen of India or a body incorporated in the country can buy these bonds.

The concept of electoral bonds was first announced by Jaitley in the Budget for 2017-18. He had also announced limiting cash donation to Rs 2,000 instead of Rs 20,000 and allowed parties to receive donations via digital mode. Registered political parties, which have secured at least 1% vote in the last election, will be eligible to receive these bonds. These party will have to give one bank account each to the Election Commission to receive the bonds. The validity period of the bonds is restricted to just 15 days to ensure they do not become a parallel currency.