Electoral Bonds: Benefits, Scheme, Electoral Bonds UPSC

By BYJU'S Exam Prep

Updated on: November 14th, 2023

Electoral Bonds are part of electoral reforms to ensure transparency and accountability in electoral finance. India is one of the most Vibrant Democracies in the world, which ensures free and Fair Elections. However, there are also many challenges to ensuring the fairness of elections and Electoral Bonds were introduced from time to time.

As per the government, Political parties were receiving most of their funds through anonymous donations which are shown in cash. Thus Electoral Bonds were aimed at cleansing the system of political funding in India. In the context of UPSC exam, the Electoral Bonds topic is extremely important as it is mentioned under the General Studies papers

What is an Electoral Bond?

Electoral Bonds are financial instruments that can be used by a person who is a citizen of India or incorporated or established in India to donate to political parties. Electoral Bonds were introduced during the 2017 union Budget. Such bonds, which are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, can be bought from authorized branches of the State Bank of India.

Electoral Bonds UPSC Notes

The donor can give the bond to any political party. In turn, political parties have to redeem Electoral Bonds within 15 days. Only the Political Parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last General Election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the Electoral Bonds.

  • The Electoral Bonds shall be encashed by an eligible Political Party in India  only through a Bank account with the authorized bank.
  • The bonds will be available for purchase for a period of 10 days each at the beginning of every quarter, i.e. in January, April, July, and October, as specified by the Central Government.
  • An additional period of 30 days shall be specified by the Central Government in the year of the Lok Sabha elections. The main aim of the Electoral Bonds was to bring transparency to electoral funding in India.

How does Electrol Bond Works?

  • Notified banks are chosen only.
  • These banks will issue Electoral Bonds.
  • The donor buys Electoral Bonds using digital payments/cheques
  • Donors are given part of the bond within a certain timeframe
  • The party deposits the bond in an account, and its details are with the electoral commission

How Electoral Bonds will ensure transparency?

Now that Electoral Bonds are introduced, all the donations made to a party would be accounted for in the balance sheets without exposing the donor details to the public. The amount of money that a political party could accept in cash from anonymous sources has been reduced from Rs 20,000 to Rs 2,000. Thus it will ensure black money is not used for funding elections, and the use of Electoral Bonds in its place will ensure transparency.

Benefits of Electoral Bonds

First introduced in India in 2018, electoral bonds have sparked significant discussions regarding their effectiveness and potential benefits. The major benefits of Electoral Bonds are as follows:

  • It ensures transparency and helps the political parties to operate in a transparent way with the election commission, general public, and regulatory authorities at large.
  • Donations done through the Electoral Bonds will be credited only to the party bank account.
  • Cash will not be encouraged, as the purchase will be possible only through a certain number of notified banks and also through digital payments and cheques.
  • Groups of individuals, NGOs, individuals, and other trusts can donate via Electoral Bonds without disclosing their details. In this way, the identity of the donor will be safe.

Issues with Electoral Bond scheme?

The main criticism of the Electoral Bonds scheme is that it does the exact opposite of what it was meant to do: bring transparency to election funding.

  • As per the expert’s view that if the Electoral Bonds scheme had been introduced to bring about greater transparency, the government must not restrain from allowing details of such donations to be made public.
  • While Electoral Bonds provide no details to the citizens, the said anonymity does not apply to the government of the day, which can always access the donor details by demanding the data from the State Bank of India (SBI).
  • The majority of funds received by dominant political parties and shareholders of a company will not know to whom the fund is being donated.
  • Before the Electoral Bonds scheme was announced, there was a cap on how much a company could donate to a political party: 7.5 per cent of the average net profits of a company in the preceding three years. However, the government amended the Companies Act to remove this limit, opening the doors to unlimited funding by corporate India, critics argue.
  • The Finance Act 2017, which introduced the system of Electoral Bonds for the purpose of electoral funding, was passed as the Money Bill.
  • Through a constitutional amendment to the Finance Act 2017, the Union government has exempted political parties from disclosing donations received through Electoral Bonds.
  • Before the introduction of Electoral Bonds, political parties had to disclose details of all their donors who have donated more than Rs 20,000.
  • According to transparency activists, the change infringes on the citizens ‘Right to Know and makes the political class even more unaccountable.

What is the View of the Supreme Court and Election Commission on Electoral Bonds?

In 2019 the Supreme Court of India asked all the political parties to submit details of donations received through Electoral Bonds to the ECI. It also asked the Finance Ministry to reduce the window for purchasing Electoral Bonds from 10 days to five days.

The Election Commission told the Supreme Court of India that while it was not against the Electoral Bonds Scheme, it did not approve of anonymous donations made to political parties.

Electoral Bonds UPSC

In recent years, the topic of electoral bonds has gained significant prominence as it encompasses various dimensions of governance, and it public policy. It is also mentioned in the UPSC GS-2 Syllabus under government policies & interventions section. That’s why understanding the importance of electoral bonds and their implications in the UPSC exam is crucial for aspirants seeking to grasp the intricacies of democratic governance.

Electoral Bonds UPSC Questions

Questions: Electoral Bonds were introduced in India in which year? a) 2014 b) 2016 c) 2018 d) 2020

Answer: c) 2018

Questions: Electoral Bonds are issued by: a) Reserve Bank of India (RBI) b) Election Commission of India (ECI) c) Ministry of Finance d) State Bank of India (SBI)

Answer: c) Ministry of Finance

Questions: Electoral Bonds can be redeemed by: a) Individuals b) Political parties c) Corporates and unions d) Only the issuing bank

Answer: b) Political parties

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