Electoral Bonds in India

By Avinash Kumar|Updated : March 9th, 2021

Hello Aspirants,

This article is one of the most important topics in Civil Services Main Examination. This article is helpful in final revision as well as Mains Answer writing.                                                

What are Electoral Bonds?

  • The Electoral bonds are securities/ instruments which can be used to donate money to the political parties. These bonds are like promissory notes or bearer bond in which the (bank) issuer is the custodian and is liable to pay the political parties holding the bonds. The basic features of electoral bonds are:
  • These bonds can be issued only by notified banks.
  • Anyone who wants to purchase these bonds may approach these notified banks.
  • The donor who wants to buy these bonds shall be permitted to buy only through digital payment or cheque.
  • After purchasing these bonds, the donor may donate these bonds to any political party.
  • The political party who will receive these bonds can encash it into their accounts registered with the Election Commission of India.

Recent observations of Election Commission of India

  • Recently, the Election Commission of India has raised the issue of political funding in the Supreme Court stating that the present electoral bonds system is creating a transparency issue in political financing. 
  • The Election Commission of India submitted that removal of the cap on foreign funding is a cause of major concern as foreign corporate powers may impact Indian politics through political donations.
  • Donations received through electoral bonds are a cause of "serious concern" on the transparency of the system and hence needs to be changed.
  • There is a threat of pumping of black money in the political system through electoral bonds which may have disastrous consequences in the long run. 

Important Facts

  • Electoral Bonds were mooted for the first time in the Union Budget, 2017 and finally, the Government of India notified this scheme in 2018.
  • These electoral bonds can be purchased by any Indian citizen or a body/organisation incorporated in India either singe or even jointly with other individuals/organisation. 
  • These bonds can be redeemed into the bank accounts of a political party allotted by the Election Commission of India within 15 days of purchase. 
  • Only those political parties are eligible for getting Electoral Bonds which have secures at least one percent of votes polled in the Lok Sabha election or state elections.
  • All the Donations made under these bonds are exempted from taxes.
  • The bonds can be purchased only by a KYC compliant account.
  • These bonds are issued in multiples of Rs One Thousand, Rs Ten Thousand, Rs One Lakh, Rs Ten Lakh and Rs one Crore.
  • A political party can receive donations in cash only upto Rs 2000/-.

Amendment in the Acts

  • The Finance Act of 2017 has made various amendments in the Representation of People Act (RoPA), 1951, the Companies Act and the Income Tax Act. 
  • The finance act of 2016 makes some changes in the Foreign Contribution (Regulation) Act of 2010.
  • The amendments in the RoPA make provisions for the political parties that keeping the records of fund donations received through electoral bonds to them is not required.
  • The amendment in Income Tax Act allowed anonymous contributions to political parties whose donation amount is upto Rs 20,000/-. The political parties don't need to disclose the details of donations in these cases. Most of the donations of the political parties come under this category.
  • The amendments in the Finance Act of 2016 also allowed the process of donations from foreign companies which are having majority stake in Indian companies.

What was the need for electoral bonds?

  • Earlier, when most of the election donations were known to be taken in cash, it was supposed to be a more transparent mechanism of political funding for political parties to raise finances to meet election expenditures. 
  • The Association for Democratic Rights in one of its reports states that around 69% of political funding comes from unknown sources in India. This was a cause of concern, and hence, electoral bonds were found somehow more transparent alternative of political funding then the earlier one.
  • Electoral bond preserves the anonymity of donors who purchase these bonds and protects them against any post-poll harassment/intimidation by political opponents.
  • As the life of these electoral bonds is only 15 days, it restricts the scope for misuse. Also, political parties need to disclose the amount of the contribution received through these electoral bonds to the Election Commission India. Therefore, these electoral bonds are of some help in cleaning up the political funding system of in India.

Major Concerns

  • The lack of disclosure requirements for those individuals who are purchasing electoral bonds is a cause of concern.
  • This system of electoral funding is more opaque and hence puts no obligation on either the individual/organisation/companies or political parties about political funding.
  • It creates a system in which much more black money will be infused into the political system, which will lead to political corruption. 
  • This system of electoral funding provides a legal channel to the individuals/corporate to park their money and get a tax haven cash to political parties. This will make the corporate lobbies stronger, which may affect the policy formulation for their interest. 
  • Companies/Corporate no longer requires about declaring the funding amount or name of political parties and hence shareholders of these companies won't know anything about their money being donated to any political party.
  • The banks have all details about the person/companies/corporate who are buying these bonds and also about the redeemed amount against any political party. Hence, it gives an easy way to the government in power to take all these details from the public sector banks working under them indirectly.
  • The elimination of a cap of 7.5% with respect to corporate donations, a loss-making company may also donate to any amount, and this may lead to corruption in political funding.

Provisions for Checking the political funding/expenditure

  • Section 29Cof the RPA, 1951 makes it necessary for the political parties to declare the political donations received from any person or company whenever it exceeds the amount of Rs.20, 000/-. The political party may be dealt with under the Income Tax Act, 1961 when it fails to submit the report on time.
  • Under Section 2(e) of the Foreign Contribution Regulation Act, acceptance of any contribution from any foreign source is prohibited punishable with imprisonment of up to five years or fine or both.
  • Section 77 of the Representation of Peoples Act clarifies the issue of what comes under the purview of 'expenditures of the political party'. The expenditures include all expenses incurred by a candidate of any party by himself or through his authorised agent during the election from the date of nomination till the date declaration of the result. 
  • Under the Conduct of Elections Rules, 1961, the election expenditure of a political party during an election has been fixed and will be dealt with accordingly.

Need of the hour and way forward

  • The cap of Rs 2000 for cash donations gives an opportunity to the political party to use black money during the elections. Hence, the Election Commission of India has suggested that donation in cash to any amount may be eliminated altogether.
  • When the country is going towards digital transactions, it is necessary that all political funding must be through digital payment or cheque only. This will create transparency in political funding.   
  • During elections, all measures need to put in place to ensure that election expenditure incurred by the candidates and political parties are in line with the conduct of election rules, 1961. 
  • The concept of National Electoral Fund as an alternate may be considered for political funding during elections, as this may be the best tool to stop corruption in political funding.
  • Simultaneous elections may also be explored for restricting the election expenses of the political parties.
  • The political parties must disclose all the money received either through digital transaction/cheque or electoral bonds. 
  • The Election Commission of India may be given more powers to take decisions to curb any political corruption.


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