RBI has not ‘understood’ the scheme of Electoral Bonds, held Revenue Secretary Adhia

On Saturday, January 28, 2017, the Finance Ministry is said to have sent a perfunctory five-line mail to a Deputy General Manager in RBI, seeking an ‘early comment’ on the electoral bond scheme that the Government planned to announce in the Union Budget on February 1, just three days later.

In an investigation carried out by Huffington Post based on documents it accessed under the RTI and with help from Commodore Batra, it is now revealed that the RBI raised serious objections to the scheme on Monday, January 30 itself.

RBI felt the scheme, akin to bearer bonds, had no precedent anywhere in the world. It felt the scheme would help in money laundering. It feared the bonds could be misused and could add to black money. It also said that the bonds would make the system of political funding opaque.

The bond required amendment to the RBI Act and it was clear that the Reserve Bank of India had not been taken into confidence or consulted; that it was practically the first time that RBI had learnt of the scheme, three days before the amendment was going to be announced in the budget.

And sure enough, the then Revenue Secretary Hasmukh Adhia noted in the file, “ It appears to me that the RBI has not understood the proposed mechanism of having pre-paid instruments for the purpose of keeping the identity of the donor secret, while ensuring the donation is made only out of fully tax paid money of a person”.

Although RBI had reacted to the scheme with alacrity, Adhia’s noting to Tapan Ray, the then Secretary for Economic Affairs, stated, “This advice has come quite late at a time when the Finance Bill is already printed. We may, therefore, go ahead with our proposal.”

The notings reproduced by Huffington Post in its report ( the link is provided at the bottom of this report) showed that Ray agreed to the suggestion on record and forwarded it to Finance Minister Arun Jaitley.

What is significant is that the ministry had already printed the budget and was committed to amend the RBI Act without holding any consultation with it.

The amendment did away with three important caveats for corporate donations to political parties in india:

· No foreign company could donate to any political party under the earlier Act.

· No company could donate more than 7.5% of its average annual profit declared in the preceding three years and

· Companies had to disclose details of their political donations in their annual statement of accounts.

The introduction of the electoral bonds did away with all the three restrictions and has allowed on paper , foreign companies and even shell companies to donate to political parties.

Ironically, the then Finance Minister late Arun Jaitley had claimed in his budget speech, “This reform will bring about greater transparency and accountability in political funding, while preventing future generation of black money”.

The scheme has been challenged in the Supreme Court of India but since April, 2019 there has been no hearing in the case.

At the last hearing Attorney General K.K. Venugopal had maintained, “ It is not the voter's concern to know where the money comes from. Transparency cannot be looked as a mantra. What is the realities of the country. This is a scheme that will eliminate black money from the elections The voters have a right to know what? Why are they bothered about where the money comes from?”

Activist & lawyer Prashant Bhushan had then responded by saying, “The scheme of electoral bonds has nothing in it whatsoever to curb the black money. All that you have done through the scheme is to open a banking channel also to donate anonymously. Earlier you could donate cash to the party, now you can donate through bank also.”

The full report can be read here :

The link to Huffington Post India’s investigation is given here