Electoral bonds scheme should alert us to the weakness of our institutions

Many will not know how diabolical the electoral bonds enterprise really was. This article is for their benefit, writes Aakar Patel

File photograph of Opposition MPs protesting the Electoral Bonds scheme in New Delhi
File photograph of Opposition MPs protesting the Electoral Bonds scheme in New Delhi
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Aakar Patel

India’s electoral bonds scheme has been declared illegal, a rare win in court for those resisting authoritarianism.

But many elections, including the last general one, have been fought with these unlawful funds. It would have been appropriate to have heard and adjudicated on the issue earlier, but the court chose not to do so. Asked why he had delayed adjudicating on the issue, former chief justice of India Ranjan Gogoi, rewarded with a Rajya Sabha seat post-retirement, said he did not remember the issue coming up before his court.

Many will not know how diabolical the electoral bonds enterprise was. This article is for their benefit.

The scheme was announced by the Modi government through the Budget in 2017. The bonds would be a way for political parties to receive money through anonymous donors. The donor would have to reveal their identity to the bank while making the bond purchase, but the identity would not be revealed on the bond itself. Political parties could accept the money without being required to reveal who gave it. Voters would, therefore, not know who was funding and influencing political parties.

The scheme would allow foreign companies and even shell companies to donate to India’s parties without having to inform anyone of the contribution or having their names revealed. It also undid that part of the Companies Act under which corporates had to disclose details of their political donations in their annual statements of account. Now, they were no longer required to do so.

Corporates had previously also been limited to donating a maximum of 7.5 per cent of their average three-year net profit to political parties. No longer, because they could now simply take the electoral bond route as that cap had been lifted legally.

The process to fund a party anonymously was made easy. Bonds would be available in multiples of up to Rs 1 crore at State Bank of India branches in 29 cities. A donor could purchase them through their bank account and hand them over to the party or individual of their choice, who could then cash them. They would be valid for 15 days.

Four days before the 2017 Budget was to be presented, a bureaucrat spotted the section in finance minister Arun Jaitley’s speech, and noted that the assent of the RBI was required for such a large shift. This was because the introduction of bonds required changes to the RBI Act, something the government apparently did not know. The officer drafted a proposed amendment to align the act with the change, and sent the file up the ranks for the finance minister to see.

The same day, 28 January 2017, a Saturday, the RBI was sent a five-line email seeking its comments. The reply came the next working day, Monday, 30 January. The RBI said it was a bad idea because it went against the RBI’s authority as the sole issuer of bearer instruments, meaning cash. These bonds, because they were anonymous, could become currency and undermine the faith in India’s cash.


On this point, the RBI was unambiguous: amending the law to facilitate this "would seriously undermine a core principle of central banking legislation and doing so would set a bad precedent".

The second objection the RBI had was that "even the intended purpose of the transparency might not be achievable as the original buyer of the instrument (the bond) need not be the actual contributor to the party". If person A purchased the bond and then sold it, at face value or more, to any entity, including a foreign government, that entity could gift it to a party. The nameless bond was as good as cash.

"The bonds are bearer bonds and transferable by delivery," the RBI said, "hence, who finally and actually contributes the bond to the political party will not be known." This would affect the money laundering law as well, the RBI said.

The last point it made was that what was being proposed through the electoral bond scheme — the transfer of money from bank accounts of entities to political parties — could be done through a cheque, bank transfer or demand draft. "There is no special need for, or advantage by, the creation of an Electoral Bearer Bond, that too by disturbing an established international practice."

The next body to say the electoral bonds scheme was dangerous was the Election Commission of India (ECI). In an affidavit to the Supreme Court, it explained that to exclude the reporting of donations received by political parties through electoral bonds would have "serious repercussions on the transparency aspect of political funding of political parties".

The ECI remained opposed to the law even after it was enacted, and continued to resist, though the Supreme Court gave the government a pass.

The two most important institutions related to the bonds, therefore, tried to do their work and resisted the scheme. They were unable to do so.

Though the RBI had responded immediately, one reason the government gave to dismiss its concern was that "this advice has come quite late at a time when the Finance Bill is already printed".

The electoral bonds episode reveals the limits of institutional checks in our democracy. When a strong executive decides it wants something, even something that is dangerous and unconstitutional, there is little resistance from within to stop it.

The Supreme Court has now held the scheme unconstitutional, something that was obvious to anyone familiar with the most basic details of what the bonds were for. But this should also alert us to how weak our institutions are and how, when they mean well for the country, they can just be ignored.

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