An Opaque Bond

Context: Electoral bonds and preceding legislative amendments have so far failed to achieve its state objective of transparency of political funding.

Issues with the electoral bond scheme:

• Possibility of misuse: Recently the Supreme Court flagged a new issue — the possibility of misuse of money received by political parties for activities like funding terror or violent protests.
• Questions over the transparency:
  • Earlier, every transaction of more than Rs 20,000 was reported to the Election Commission. Now even Rs 20 crore or Rs 200 crore could be donated anonymously.
  • Removed requirements for a resolution by the board of directors for a company to make donations to political parties and to declare the political donations in the profit and loss accounts.
• May led to mushrooming of shell companies: The Election Commission of India had earlier identified that It would lead to mushrooming of shell companies to funnel black money into the political system through these bearer bonds.
• Legalized crony capitalism: The limit of 7.5% of its profits which a company could donate, was done away with by amending section 182 of the Companies Act, 2013.
• Issue of foreign funding: The bonds can be used to channel foreign funding since the government in 2016 has retrospectively amended the Foreign Contribution and Regulation Act (FCRA) 1976.
  • Section 3 of the Foreign Contribution (Regulation) Act 2010 bars candidates, legislative members, political parties and party officeholders from accepting foreign contributions.
  • Section 29B of the Representation of the People Act, 1951 prohibits all political parties from accepting any contribution from a “foreign source.”

Way forward: “Without transparency of political funding, free and fair elections are not possible”—Budget 2017 speech.

• Legislative measure: Pass a law as recommended by ECI to make political parties liable to get their accounts audited by the Comptroller and Auditor General (CAG) or ECI.
  • Issue a mandate for disclosure of the donor and the recipient.
• Judicial measures: Courts should declare the laws diluting transparency as ultra vires. E.g. SC in 2002-3 made it compulsory for the candidates to declare their financial dealings and criminal cases.
• Explore alternative ways of funding:
  • Introduce public funding of political parties: It will be only around Rs 10,000 crore every five years to fund political parties - a small price for democracy.
  • Establish National Election Fund: All the donations shall be directed to this fund and then be allocated to political parties on the basis of their electoral performance.