This Article is From Feb 19, 2024

Opinion: Electoral Bonds-Beyond The Supreme Court's Brake, A Few Questions

Latest and Breaking News on NDTV

The Supreme Court's recent decision to strike down the electoral bonds scheme introduced in 2016-17 has undone the most significant change to electoral finance laws in recent years. Central to the court's decision is the tension between privacy and disclosure, a tension that animates all laws on electoral funding. While voters have a right to know about their candidates and parties, donors also need some privacy of political affiliation to express their support freely.

Electoral bonds, now a defunct financial instrument, were designed as anonymous bearer instruments, issued exclusively by the State Bank of India. These bonds, accessible to Indian citizens and entities and redeemable by political parties meeting certain vote thresholds, ostensibly aimed at streamlining political donations by directing them through formal banking channels. The introduction of these bonds was accompanied by a reduction in the limit for cash donations. Bonds were issued in specific denominations ranging from Rs. 1,000 to Rs. 1 crore and were valid for a period of 15 days from the date of issuance.

While introducing the scheme, former Finance Minister Arun Jaitley had argued, “Donors have also expressed reluctance in donating by cheque or other transparent methods as it would disclose their identity and entail adverse consequences…”. However, the Election Commission of India had opposed the scheme strongly as, in addition to providing confidentiality of contributions through bearer bonds, the legislative changes that introduced the scheme also removed requirements imposed on companies to disclose their contributions in their annual accounts. In addition, these changes also removed the earlier limit on corporate donations.

Why The SC Struck Down The Scheme

The court struck down the scheme on two grounds. First, it held that the scheme did not adequately balance informational privacy with the right of voters to information about political parties and their donors. In the court, the government had submitted that informational privacy is important for free political expression. The petitioners on the other hand had argued that voters have a right to relevant information about their candidates. While the court accepted the need for informational privacy of political affiliation as an important value, it held that under the scheme, while donors were assured of complete confidentiality, voters would never know the details of donors and contributions through electoral bonds.

The court reasoned that other existing mechanisms like electoral trusts maintain this balance much better. In the case of trusts, the details of donors are known and the details of recipient political parties are known, but there is no way to know which donor contributed to which party, since the contribution is made by the trust.

Secondly, the court found the removal of limits on corporate donations under the Companies Act to be arbitrary, reasoning that equating corporate entities with individuals in the context of political contributions ignores the disproportionate financial influence of corporations.

On The Confidentiality Issue

The decision of the court leaves campaign finance laws in the same state it was before 2017-18. Contributions below a threshold of Rs. 20,000 do not have to be accounted for by political parties, companies are subject to the overall limit of 7.5% profits, and the erstwhile disclosure requirements have been restored. The court's decision restores transparency requirements and also reduces the specific kind of confidentiality that the electoral bonds sought to provide.

In theory, the confidentiality of political affiliation has significant value in competitive politics. The court in its judgment agrees with the importance of this value. Confidentiality allows citizens to vote with their money discreetly. This is an important part of the free exercise of political preferences. However, in practice, this confidentiality was not complete. As investigative reports found, each electoral bond had a serial number that can be tracked to identify its purchaser, raising concerns about confidentiality. This when the objective of the electoral bonds scheme was to ease the reluctance of donors from donating through formal channels.

The electoral bonds scheme attempted to move money through formal banking channels and reduce the prevalence of cash, but for all practical purposes, it ended up giving asymmetric informational power to the government.

A Complex Picture

Did this create a serious imbalance of power between the ruling party and the opposition? An Association for Democratic Reforms (ADR) report found that the Bharatiya Janata Party (BJP) received more than half of all contributions made through electoral bonds. This points to a clear lop-sided benefit to the ruling party. Was the BJP the sole beneficiary of electoral bonds? On this, data by ADR presents a mixed picture. While 52% of BJP's total reported donations came from electoral bonds between FY 2016-17 and FY 2021-22, for the Congress, 61.54% came from electoral bonds. Meanwhile, the All India Trinamool Congress received 93% of its reported donations through electoral bonds, and the Biju Janata Dal (BJD) and the Dravida Munnetra Kazhagam (DMK) 90% each. While the BJP clearly benefited the most, many major parties profited from the opacity of the scheme. The important question is counterfactual - how much more would opposition parties have received through electoral bonds were it not for the potential ability of the government to learn the identities of contributors?

Lastly, the Supreme Court's decision has two additional consequences: it reinstates spending caps on corporate donations, likely leading to a resurgence of smaller, undisclosed contributions, and it negates the modest advancements made in promoting formal banking channels for political donations. In essence, while the judgment rectifies informational imbalances, it does not offer a comprehensive solution to the complexities of electoral funding.

(Anirudh Burman is a Fellow and Associate Research Director at Carnegie India.)

Disclaimer: These are the personal opinions of the author.

.