ADR Speaks » Electoral Bonds

Apprehensions persist over electoral bonds

Prof. Jagdeep Chhokar — Fri, 14 Jan 2022 10:51:33 +0000

Only 15 regional parties received donations through electoral bonds, the highest amount being BJD’s Rs264 crore. For the Opposition parties, electoral bonds pose the fear of omission (being starved of funds) and the fear of commission — being traced and harassed by the ED and CBI.

How would you like to play a game in which one of the players can change the rules at will? If you point out it is not a fair game, the answer comes, ‘but the playing field is level!’ This is not altogether an imaginary situation about Indian elections, indeed as made clear by a press release dated December 30, 2021, which said that the State Bank of India (SBI) had been authorised to issue and encash electoral bonds from January 1 to 10, 2022. Elections are round the corner in five states and preparations for the next General Election are already underway.

Electoral bonds were first announced by the then Finance Minister (FM) in his budget speech on February 1, 2017, as an innovation to bring “transparency in electoral funding”. The same afternoon, the FM, in a media interaction, said, “These bonds will be bearer in character to keep the donor anonymous.” The scheme was notified on January 2, 2018. Since then, ‘anonymous’ funding and a ‘transparent’ election process has continued to co-exist peacefully in this land of democracy.

The chronicle of the crime was foretold in full public view, almost like that famous Gabriel Garcia Marquez novel. The only difference, it was not magic reality, a la Marquez, but Indian electoral reality.

The government decided to issue electoral bonds as part of a ‘Money Bill’. This was unconstitutional as electoral bonds are not covered by the definition of a ‘Money Bill’ given in the Constitution.

The Reserve Bank of India (RBI), the sole authority to issue currency (bill of exchange, promissory note or engagement for the payment of money payable to bearer on demand) under Section 31 of the RBI Act, advised against the electoral bond scheme for “encouraging money laundering”.

The RBI was approached four days before the announcement of electoral bonds, “requesting early comments”, not agreement. And, the RBI’s views were overruled by the Finance Ministry saying, “RBI has not understood the proposed mechanism of… for the purpose of keeping the identity of the donor secret…”, and that “We may go ahead… because… the Finance Bill was already printed.” Convincing argument?

The Election Commission of India (ECI), when asked for its reaction to the proposed scheme, responded that “it will have a serious impact on transparency aspect of political finance/funding of political parties… This is a retrograde step as far as transparency of donations is concerned.” It further clarified that this would “lead to increased use of black money for political funding through shell companies” as “this opens up the possibility of shell companies being set up solely for the purpose of making donations to political parties with no other business of consequence having disbursable profits.”

And yet, after a series of meetings, a Secretary in the Finance Ministry recorded on file that “it is my understanding that the (Election) Commission was reasonably satisfied about the electoral bonds being a fair and more transparent system of political donations” although there is nothing on record to show that the claim was true. On the contrary, the ECI filed an affidavit in the Supreme Court in March 2019 saying that electoral bonds, in their current form, should be scrapped.

What is instead on record, however, is a question asked by a member of the Rajya Sabha, Mohammad Nadimul Haque, in the Winter Session of Parliament: “Had the Election Commission of India raised concerns about electoral bonds?” The Minister of State for Finance, P Radhakrishnan, flatly replied that the government had not received “any concerns from the Election Commission on the issue of electoral bearer bonds”.

As notified, the funding window was to be opened only four times a year, ten-day window each time but “an additional period of 30 days (could be allowed) in the year of General Elections to the House of People.” Despite this clear stipulation of “General Election to the House of People”, the Prime Minister’s Office ordered that the scheme be opened for state assembly elections, breaking a rule that it had made itself, soon to be followed by another rule broken by the Finance Ministry when it ordered the SBI to encash bonds worth Rs 10 crore, which had already expired crossing the 15-day validity period.

The anonymity of the donor of electoral bond was protected in so far as the SBI is the only bank authorised to sell electoral bonds and that it will collect “Know Your Customer” (KYC) particulars of the buyers of electoral bonds, but not share this information with anyone unless demanded by a court order.

None, it was stressed, other than the donors will know to which political party they have contributed, because the electoral bonds will not have serial characteristics. This, too, turned out to be a false claim, as proved conclusively by The Quint, in an outstanding example of investigative journalism. Each bond actually carried a unique alpha-numeric number visible only under ultraviolet light. Such surreptitious identifiability made it even more difficult for parties in the Opposition to attract funds.

This apprehension was proved justified in the very first year when actual data for sale of electoral bonds became available. Of bonds totalling Rs 215 crore sold in 2017-18, as many as Rs 210 crore (95%) were donated to the ruling party, the BJP, a trend which continues with the BJP alone receiving about 82 per cent of all the bonds sold in the three years for which data is available.

The electoral bonds scheme is cleverly designed to provide an incentive for all parties to not really oppose the scheme, in the hope that they might be the beneficiary of the scheme as and when they obtain a majority in their state legislature. However, this is like the proverbial carrot that is dangled before the donkey, which never gets the prized thing.

Only 15 regional parties received donations through electoral bonds, the highest amount being the Biju Janata Dal’s Rs 264 crore, over the same three-year period. For Opposition parties, electoral bonds pose the fear of omission (being starved of funds), and the fear of commission — being traced and harassed by the ED and the CBI.

This paralysing fear has to be broken. The Supreme Court is seized of the matter since August 2017 through two petitions. The first substantial hearing was held on April 12, 2019, following which, the court said, in an interim order, “Rival contentions give rise to weighty issues which have a tremendous bearing on the sanctity of the electoral process in the country. Such weighty issues would require an in-depth hearing…”

The law would take its own course and time, but political parties in the Opposition will have to fight the elections in the meantime. Will they decide to enter the boxing ring with one hand tied to the back, or choose to come together at least on this issue to press for repealing this scheme?

This article was originally published in The Tribune.

Authors of the article: Shri Amit Bhaduri, Ex-professor, JNU and Shri Jagdeep S Chhokar

Have electoral bonds made a bad system worse?

ADR — Fri, 06 Dec 2019 12:52:10 +0000

In disallowing voters from knowing the identity of donors, the scheme is even more opaque now

Last month, an investigative series on electoral bonds by independent journalist Nitin Sethi, with the help of Right to Information (RTI) activist Commodore Lokesh Batra (retd), exposed how the BJP leadership misled the Election Commission (EC) and Parliament on key features of the electoral bonds scheme and overruled the Reserve Bank of India (RBI)’s objections in its hurry to implement it. In a conversation moderated by Anuradha Raman, Jagdeep Chhokar (founding member, Association for Democratic Reforms) and Milan Vaishnav (senior fellow and director of the South Asia Program at the Carnegie Endowment for International Peace) speak of the flawed design of the scheme. Edited excerpts:

The Modi government had introduced the electoral bonds scheme with the promise of bringing in transparency in political funding. But information under the RTI Act shows that it is anything but transparent. In a series of papers in 2017, you, Milan, had flagged several concerns, all of which have been proven true. Do you feel vindicated?

Milan Vaishnav: I think we should start from the original premise that the introduction of electoral bonds was a victory for transparency. Actually, by their design, electoral bonds legitimise opacity in how elections are funded. There is concern that electoral bonds could become vehicles for money laundering for shell companies, for foreign donations, which are prohibited. We now know that the RBI and the EC shared those concerns. One of the big threats to electoral funding worldwide is that it becomes difficult for voters to hold their elected representatives accountable when they cannot see who is financing whom. That is the central flaw of this scheme.

How important is it for voters to know who is financing whom?

Jagdeep Chhokar: This is the most fundamental piece of information that voters need to know. When persons who donate money are not philanthropists and are commercial profit-making entities, they donate only when there is a more-than-adequate rate of return. So, when a corporation donates money to a political party, there is obviously a quid pro quo, whether it is known or not. If voters do not know whose money a candidate is using to fund his or her election, they won’t know subsequently whether a decision made by the government is based on the interest of the constituents, in national interest, or in the interest of whoever donated the money.

Prior to electoral bonds, political parties had to maintain records of donations above ₹20,000. The cheque number and PAN card of the donor had to be provided to the EC, which put it out in public domain. But we know how parties and donors gamed the system. So, when electoral bonds were announced, did you see them as a ray of hope?

Milan Vaishnav: Far from it. This is an extremely regressive scheme. Essentially whatever modicum of transparency might have been under the previous system [is not there now]. Granted, [there was very little transparency then] because even though anything above ₹20,000 had to be disclosed, there were ways to circumvent that. Corporations/ individuals gave cheques/ payments that were ₹19,999! But be that as it may, there was limited transparency. Now, even the incentive to give through that route is gone because the government has essentially said it is perfectly legitimate for you to give anonymously any amount to any party from anywhere.

Jagdeep Chhokar: Former Finance Minister Arun Jaitley had said electoral bonds will be in the nature of bearer bonds and the identity of the donor will be anonymous. How do anonymity and transparency go together? They are the anti-thesis of each other.

Mr. Chhokar, did the earlier system provide a modicum of transparency in political funding?

Jagdeep Chhokar: Certainly not. But this is much worse. In that system, no company could donate more than 7.5% of its profits to a political party. Now that limit has been completely removed. Today, a company can donate 100% of its profits… I would imagine there is no bar if the company also decides to donate its capital. This opens up the possibility of any foreign company or entity opening a shell company in India, with the money coming to it through a banking channel from Costa Rica or wherever, and then giving [that money] to the political party in power. Therefore the possibilities of unaccounted, illegal money controlling the policies and decision-making of the Indian government is now alive.

Milan Vaishnav: I think any analysis of electoral bonds has to be viewed in the broader context of a number of legislative changes which were made. The first was the removal of the cap on corporate donations. The second was the elimination of the requirement that companies must disclose details of their political funding. And the third is the complete rewriting of the Foreign Contribution (Regulation) Act, 2010, to redefine what a foreign firm is, and this is because both the Congress and the BJP have been guilty of taking donations from foreign firms. So, rather than confessing to their crimes, or being held accountable, they just decided to redefine what a foreign company was. All these three things go hand in hand with electoral bonds.

How concerned are you that the concerns of the RBI and the EC were swept away?

Milan Vaishnav: One of the biggest takeaways for me is how leading institutions seem completely unmatched when compared to the power of the executive. We know that the RBI, the EC and even Parliament had significant concerns. Those were dismissed in a variety of ways. And their concerns really match what groups like the ADR [Association for Democratic Reforms] had been saying, what independent analysts had been saying, which was that you are essentially going to create a system that is even worse than the status quo. Now, it is true that the executive has a lot of power, and it’s not clear what the EC could have done to stop it, but it surely could have done more than what it did in terms of going to the public raising concerns, even considering resignations.

Should the EC have done more?

Jagdeep Chhokar: First, the EC is a constitutional institution so it can’t be easily played around with. Second, the RBI Act under Section 31 says that any currency or similar documents or instruments can be issued only by the RBI. That bit was also changed to say that the State Bank of India will issue bonds. Lastly, the concerns of the RBI and EC were flippantly and irresponsibly undermined and overlooked.

Now, could the EC have done more? I don’t think so. The EC is kind of hemmed in by Supreme Court decisions and the laws that Parliament makes. So, I think the EC in writing that letter did a wonderful job. Milan talks about commissioners resigning. Whether that achieves any purpose is questionable. If one person resigns, there are 20 more willing to be appointed and do the bidding of the government.

Milan Vaishnav: I think one has to separate two issues. Jagdeep and I agree that the design is fundamentally flawed. But there’s also the question of implementation. And I think what Nitin’s investigation has shown is that we have several fundamental issues with implementation. We know, for instance, that the Prime Minister’s Office intervened to go beyond the regulations to create new windows. We know that pressure was applied to encash expired bonds before State elections. The government has not even come close to answering the allegations on the table about the violation of regulations which they themselves had written.

So, in effect, what the government has managed to do is legalise a system that was seen as a corrupting influence on the democratic process of government formation?

Milan Vaishnav: That’s right. You could argue that we’re going to have too much money in politics and there’s little we can do to stop it. But if that’s your position, let’s at least try to allow voters to be able to connect the dots. If you really believe the rhetoric about the war on cash, why has the government not scrapped cash-giving altogether, which was in their power to do so? But of course, they chose not to do that because they’d like to have their cake and eat it too.

Jagdeep Chhokar: I don’t think the government legalised an illegal system. The point is that the system is not legal because the way electoral bonds were introduced as part of the Budget, as a Money Bill, was unconstitutional. We are hoping that as the whole scheme was pushed as a Money Bill, it will be struck down by the court.

Former Chief Election Commissioner S.Y. Qureshi had suggested the setting up of a National Electoral Fund to address the issue of political funding. Do you think that could be a way out?

Jagdeep Chhokar: The problem is that if political parties are to be given money from the election fund in proportion to the number of votes that they have pulled in the previous election, then they would not be allowed to take money from anywhere else. I will bet whatever anybody wants, parties will not agree to the proposal. It is impractical simply on that count.

Milan Vaishnav: Not under the current status quo. I think injecting funds into the current opaque system would be throwing away good money. There has to be a grand bargain that if you want to put public funding on the table, you’re going to have to insist on much stricter norms and adherence to those norms by parties and candidates so that there should be a requirement that any funds raised be processed digitally. Second, there has to be an independent third party scrutiny of political party accounts. Third, the EC has to be given greater power and authority to go after wrongdoers.

Jagdeep Chhokar: There are two more things. Appointments of Election Commissioners have to be made non-partisan. And it is ridiculous that the EC has no power to de-register a political party.

What is the way out?

Jagdeep Chhokar: Political parties have to understand that they are also governed by the law. The Central Information Commission (CIC) says six national political parties are public authorities under the RTI. The Central Information Commission is the highest statutory authority for the RTI Act. But all the six parties have blatantly defied that. And the government has given an affidavit in the Supreme Court that political parties should not be under the RTI Act.

Milan Vaishnav: You can’t have a situation where six major political parties thumb their nose at the CIC saying, we reject your ruling that we are under your ambit and there’s nothing apparently anyone can do about it.

But we also have to set the default position at a more transparent level, so that citizens, every time they want to know who’s funding whom, don’t have to submit an RTI. In the wake of demonetisation, the government asked every private citizen, companies, entrepreneurs to go digital and shun cash payments. Political parties weren’t asked to comply. There is a fundamental hypocrisy at work here that has to be rectified.

The above article was originally published in The Hindu.

Even in May, no demand for Electoral Bonds worth Rs 1000 and Rs 10000

ADR — Fri, 15 Jun 2018 05:40:35 +0000

There was an intense debate around the introduction of electoral bonds by the government. Data obtained from SBI reveals that there is hardly any demand for electoral bonds of lower denomination even in the month of May. Not a single bond in the denomination Rs 1000 & Rs 10000 was purchased in May, while 99.7% of bonds purchased in terms of value were in Rs 10 lakh & Rs 1 crore denomination.

The Electoral Bonds were first announced in the 2017-18 budget and the scheme was subsequently notified in January 2018. Factly had earlier written about the bonds, their impact on transparency etc.

Factly had earlier analysed the data obtained from the State Bank of India (SBI), the authorized bank to issue electoral bonds, about bonds purchased in March & April to conclude that there was hardly any demand for electoral bonds of lower denomination. The latest data provided by SBI suggests that not a single electoral bond was purchased in the denomination of Rs 1000 and Rs 10000 even in the May 2018 cycle. In terms of value of bonds purchased, 99.7% of the bonds in May are in the denomination of Rs 10 lakh & Rs 1 crore.

Not a single bond purchased in 7 cities in May 2018
The scheme was open for the first 10 days of May 2018 in the SBI branches in Chennai, Kolkata, Mumbai, New Delhi, Bangalore, Gandhinagar, Chandigarh, Bhopal, Jaipur, Lucknow & Jaipur. Among the 11 branches, bonds were purchased only in four (4) branches of New Delhi, Gandhinagar, Bangalore & Mumbai. Not a single bond was purchased in the rest of the seven (7) branches. The number of bonds purchased has reduced with each cycle. Compared to 520 bonds purchased in March 2018, only 204 bonds were purchased in May 2018.

More than 75% worth of bonds purchased in Mumbai & Bangalore
A total of 204 bonds worth Rs 101.4 crore were purchased in the May cycle, taking the total value of bonds purchased to Rs 438.3 crore till the May cycle. In terms of number of bonds purchased in May, Bangalore was way ahead with 123 bonds followed by 40 bonds in Mumbai. It has to be noted that the Karnataka Assembly elections were held on 12^th May. In New Delhi, 20 bonds were purchased while 21 bonds were purchased in Gandhinagar.

In terms of the value, bonds worth Rs 40 crore were purchased in Mumbai, all in denomination of Rs 1 crore. Bangalore followed with bonds worth Rs 38.85 crore. Among these were 25 bonds in the denomination of Rs 1 lakh, 66 in the denomination of Rs 10 lakh and remaining 32 in the denomination of Rs 1 crore. In New Delhi, bonds worth Rs 10.55 crore were purchased while in Gandhinagar, bonds worth Rs 12 crore were purchased.Mumbai along with Bangalore accounted for more than 75% of the bonds purchased both in terms of value and number. Bangalore alone accounted for more than 60% of the bonds purchased in May, possibly because of the assembly elections.

99.7% of bonds purchased (in terms of value) were in denomination of Rs 10 lakh & Rs 1 crore
Data for May 2018 reveals that the bonds of lower denomination were hardly in demand, an indication that citizens may not be purchasing these bonds. Not a single bond was purchased in the denomination of Rs 1000 and Rs 10000. Out of the 204 bonds purchased in May, 30 were in Rs 1 lakh denomination, 81 in Rs 10 lakh denomination and the remaining 93 in Rs 1 crore denomination. Together, bonds in the denomination of Rs 10 lakh & Rs 1 crore accounted for 99.7% of the bonds purchased in terms of value. It is highly likely that the bonds in Rs 10 lakh & Rs 1 crore denomination are purchased by corporates than individuals.

Data from three phases indicates no demand for lower denomination
Data of electoral bonds purchased in the months of March, April & May 2018 clearly indicates that there is no demand for bonds of lower denomination. In terms of value, bonds of Rs 1 crore denomination accounted for Rs 384 crore or 87.6% followed by bonds in Rs 10 lakh denomination that accounted for Rs 53.9 crore or 12.3%. Together, they have accounted for more than 99.9% of total value of bonds purchased till date.