Introduced with the Finance Bill 2017, Electoral bonds are instruments/securities that are used to donate funds to political parties. The Electoral Bonds were notified in the year 2018.

• These bonds are on the lines of bearer bonds or promissory notes wherein the issuer (bank) is the custodian and pays the one who holds the bonds (political party).
• An Electoral Bond is like a promissory note that may be purchased by a person who is a citizen of India or incorporated or established in India. 
• A person being an individual can buy Electoral Bonds, either singly or jointly with other individuals. 
• The bonds are like banknotes that are payable to the bearer on demand and are interest-free.
• Only the Political Parties registered under Section 29A of the Representation of the People Act (RPA), 1951 (43 of 1951) and which secured not less than one percent of the votes polled in the last General Election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the Electoral Bonds. 

Procedure

• The State Bank of India (SBI) has been authorized to issue and encash Electoral Bonds through its 29 Authorized Branches.
• The bonds are sold by the SBI in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore.
• One can purchase these bonds only digitally or through cheques.
• The Electoral Bonds can be encashed by an eligible Political Party only through a Bank account with the Authorized Bank.
• The Electoral Bond deposited by an eligible Political Party in its account is credited on the same day.
• Electoral Bonds shall be valid for fifteen calendar days from the date of issue and no payment is being made to any payee Political Party if the Electoral Bond is deposited after the expiry of the validity period. 

Benefits of Electoral Bonds

• More Transparency: It helps the political parties to operate in a more transparent manner with the election commission, regulatory authorities, and the general public at large.

• Ensures Accountability: Donations through Electoral Bonds will only be credited to the party bank account disclosed with the ECI. As encashment of all the donations is through banking channels, every political party shall be obliged to explain how the entire sum of money received has been expended.

• Discouraging Cash: The Purchase will be possible only through a limited number of notified banks and that too through cheques and digital payments. Cash will not be encouraged. 

• Maintains Anonymity: The individuals, groups of individuals, NGOs, religious and other trusts are permitted to donate via electoral bonds without disclosing their details. Therefore, the identity of the donor is being preserved. 

Challenges for Electoral Bonds

• Contradicting its Basic Idea: The central criticism of the electoral bonds scheme is that it does the exact opposite of what it was meant to do: bring transparency to election funding. For example, critics argue that the anonymity of electoral bonds is only for the broader public and opposition parties.

• Hindering Right to Know: Voters will not know which individual, company, or organization has funded which party, and to what extent. Before the introduction of electoral bonds, political parties had to disclose details of all their donors, who have donated more than Rs 20,000. The change infringes on the citizen’s ‘Right to Know’ and makes the political class even more unaccountable.

• Shallow Anonymity: Anonymity does not apply to the government of the day, which can always access the donor details by demanding data from the State Bank of India (SBI). This implies that the only people in the dark about the source of these donations are the taxpayers.
• Unauthorized Donations: In a situation where the contribution received through electoral bonds are not reported, on perusal of the contribution report of political parties, it cannot be ascertained whether the political party has taken any donation in violation of provision under Section 29B of the RPA, 1951 which prohibits the political parties from taking donations from government companies and foreign sources.

• Leading to Crony-Capitalism: It could become a convenient channel for businesses to round-trip their cash parked in tax havens to political parties for a favor or advantage granted in return for something. Anonymous funding might lead to an infusion of black money.

• A Blow to Democracy: Through an amendment to the Finance Act 2017, the Union government has exempted political parties from disclosing donations received through electoral bonds. This means the voters will not know which individual, company, or organization has funded which party, and to what extent. However, in a representative democracy, citizens cast their votes for the people who will represent them in Parliament.

• Loopholes: Corporate Entities may not enjoy the benefit of transparency as they might have to disclose the amount donated to the Registrar of Companies; Electoral bonds eliminate the 7.5% cap on company donations which means even loss-making companies can make unlimited donations etc.

Way Forward

• The government may reconsider and modify certain provisions of the Electoral Bonds Scheme to ensure full disclosure and transparency.
• At the same time, the bonds should ensure that the funds being collected by the political parties are accounted for clean money from the appropriate channels without any obligation of giving and taking.
• Voters can also help bring in substantial changes by demanding awareness campaigns. If voters reject candidates and parties that overspend or bribe them, democracy would move a step higher.