November 24, 2019

Electoral Bonds: Danger to Democracy

IF there was any further proof needed about the toxic nature of electoral bonds, it has been provided by the revelation that both the Reserve Bank of India and the Election Commission had strongly objected to the proposal. 

The Huffington Post has carried reports based on RTI queries that set out the objections raised by the RBI and the Election Commission and how the government summarily rejected their views and even lied about the Election Commission’s comments in Parliament.

The objections of the Election Commission to the amendments being proposed to various laws to facilitate electoral bonds were already known, but the RBI’s weighty arguments against the scheme have become known for the first time.

The RBI had, in a letter to the ministry of finance on January 30, 2017, stated that the electoral bonds and amendment to the RBI Act would set a “bad precedent” by encouraging money laundering.  It also rejected the use of bearer bonds which are opaque and “who finally and actually contributes the bond to the political party will not be known”.  Though the RBI had sent its comments a day after being asked to do so, the then revenue secretary, Hasmukh Adhia, commented on record that the RBI does not seem to have understood the concept of bearer bonds. He further stated that the advice had come quite late as the Finance Bill was already printed.  The summary way the RBI’s views was treated shows that the government had already decided to go ahead with the proposal and seeking the RBI’s opinion was only a charade. 

In the case of the Election Commission, it had written a letter to the ministry of law and justice stating that the electoral bonds would help political parties to hide illegal donations from foreign sources.  It had also warned that with the amendment to the Company Law Act doing away with the provision that corporates could donate upto 7.5 per cent of the average of profits of three successive financial years would result in shell companies being set-up to pass black money on to political parties. 

It is significant that both the RBI and the Election Commission warned that foreign companies would be able to provide money to political parties through electoral bonds.

The documents received through RTI show that the minister of state for finance, P Radhakrishnan, had on the floor of Parliament given a false reply that the government had received no comments on electoral bonds from the Election Commission.  The fact was that the Election Commission had sent a letter giving its detailed views on the matter.  Officials in the finance ministry had to devise ways to backtrack from and circumvent the wrong statement made by the minister.

The Finance Bill of  2017 was passed incorporating various amendments to the RBI Act, Representation of the People Act and the Companies Act to enable the electoral bonds.  This, in itself, was an illegal method. By tagging the amendments to various acts with the Finance Bill, the government avoided the electoral bonds having to be approved in the Rajya Sabha by cloaking it as a `Money Bill’.

The government continued to bypass rules and resort to illegal methods to implement the electoral bond scheme in the interests of the ruling party.  The Huffington Post expose has shown how the rules notified for electoral bonds on January 2, 2018 were violated under instructions of the prime minister’s office.  The rules had provided that electoral bonds could be issued for ten-day periods in four instalments a year, i.e., January, April, July and October.  In a general election year, an additional 30 days could be provided.  However, in order to raise money for assembly elections, electoral bonds were ordered to be issued in March and again in May 2018.  This was done presumably with a view to the assembly elections in Karnataka. 

From the time the electoral bond scheme came into operation in February 2018, upto October 2019, bonds worth a total of Rs 6,018 crore were issued.  As per the break-up of the first tranche of bonds, for which statements were filed by political parties, 95 per cent of the amount issued through bonds went to the BJP.  The pattern of BJP getting over 90 per cent of the amount through bonds seems to have continued.  This explains why the Modi government was determined to push through the electoral bond scheme by making changes in the law to facilitate dubious funding and protection of money laundering. 

A number of petitions, including by the CPI(M), were filed in the Supreme Court against the scheme.  The Supreme Court bench, headed by then chief justice Gogoi, heard arguments in the case before the Lok Sabha elections.  The question of electoral bonds being used by the ruling party to collect funds anonymously and get undue advantage was an urgent matter.  But, after hearing the arguments, the court sought details of funding through bonds from the political parties to be given to the Election Commission in a sealed cover by May 30, i.e., after the polling was over.  After that nothing has happened further in the case.

This form of “judicial evasion” has enabled the government to get away with a wrong and harmful policy so far.  The electoral bond scheme is arguably the single most dangerous measure for parliamentary democratic system in India.  The sooner it is scrapped, the better it will be for democracy in India. 

(November 20, 2019)