Announced in the 2017 Union Budget, electoral bonds are interest-free bearer instruments used to donate money anonymously to political parties. What is the criticism of the scheme? We explain.

The Supreme Court said on Tuesday that it will hear petitions challenging the electoral bonds scheme on October 31. The 2018 scheme introduced instruments through which money could be donated to political parties in India. However, in April last year, the court had said it would take up the petitions filed by two NGOs — Common Cause and Association for Democratic Reforms (ADR) — challenging the scheme. What exactly are electoral bonds and why are they facing a legal challenge? We explain.

What is the electoral bonds scheme?

Announced in the 2017 Union Budget, electoral bonds are interest-free bearer instruments used to donate money anonymously to political parties. Simply put, anyone can donate money to political parties through them.

Such bonds, which are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, can be bought from authorised branches of the State Bank of India (SBI). As such, a donor is required to pay the amount — say Rs 10 lakh — via a cheque or a digital mechanism (cash is not allowed) to the authorised SBI branch.

The political parties can choose to encash such bonds within 15 days of receiving them and fund their electoral expenses. There is no limit on the number of bonds an individual or company can purchase. If a party hasn’t enchased any bonds within 15 days, SBI deposits these into the Prime Minister’s Relief Fund.

What was the rationale behind the electoral bonds scheme?

When first announced in then Finance Minister Arun Jaitley’s Budget speech of 2017, he had said, “Even 70 years after Independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair elections…Political parties continue to receive most of their funds through anonymous donations which are shown in cash. An effort, therefore, requires to be made to cleanse the system of political funding in India.”

Two main changes were proposed then. One, it reduced the amount of money that a political party could accept in cash from anonymous sources — from Rs 20,000 to Rs 2,000. Two, he announced the introduction of electoral bonds as a way to make such funding more transparent.

However, the fine print of the notification has revealed that even individuals, groups of individuals, NGOs, religious and other trusts are permitted to donate via electoral bonds without disclosing their details.

Why is the scheme facing a legal challenge and what are its larger criticisms?

According to a Livelaw report, the petitions have been filed by the Communist Party of India (Marxist), and NGOs Common Cause and ADR. They have challenged the scheme as “an obscure funding system which is unchecked by any authority”.

Also, before the electoral bonds scheme was announced, there was a cap on how much a company could donate to a political party: 7.5 per cent of the average net profits of a company in the preceding three years. However, the government amended the Companies Act to remove this limit, opening the doors to unlimited funding by corporate India, critics argue.

The petitioners said the amendments to the Companies Act 2013 will lead to “private corporate interests taking precedence over the needs and rights of the people of the State in policy considerations”.

In general, critics argue that the anonymity of donors under the scheme further makes the process opaque instead of meeting its aim of bringing about transparency.

It has been claimed that because such bonds are sold via a government-owned bank (SBI), it leaves the door open for the government to know exactly who is funding its opponents. This, in turn, allows the possibility for the government of the day to either extort money, especially from the big companies or victimise them for not funding the ruling party — either way providing an unfair advantage to the party in power.

Critics such as Anjali Bhardwaj, co-convenor of the National Campaign for People’s Right to Information, have noted that more than 75 per cent of all electoral bonds have gone to the BJP, which is in power at the Centre.

Further, one of the arguments for introducing electoral bonds was to allow common people to easily fund political parties of their choice but more than 90% of the bonds have been of the highest denomination (Rs 1 crore) as of 2022.