EC moves SC over electoral bonds: Here’s your primer on campaign finance laws in India

Political campaigning can be an expensive affair especially when your archrival spends over Rs 53 lakh a week, on Facebook ads alone. The fact that campaign finance violations and collusion with foreign powers to manipulate the public mandate in 2016, almost got US President Donald Trump indicted, isn’t easily forgettable either.

But such concerns don’t seem to perturb most Indian politicians as the nation edges close to ‘anything-but-general’ elections, campaign for which is underway in full swing.

The Election Commission was moved to file an affidavit on Thursday, March 28, to curb the impact that electoral bonds and unlimited foreign corporate donations would have on transparency in political funding.

Election Commission slams govt for bringing electoral Bonds which has allowed 1000s of Crs of opaque money (kickbacks, Black money) to be given to BJP. EC also slammed govt for allowing foreign funds to Parties & removing cap on Corporate funds to parties

— Prashant Bhushan (@pbhushan1) March 28, 2019

Contrary to government assurances regarding the removal of cap on foreign funding, the EC raised legitimate concerns of interference from foreign corporate powers in swaying Indian policies and the outcome of the upcoming polls. Having notified the Law Ministry of the flaws in the electoral bonds scheme in 2017, the EC once again flagged the possibility of pumping in black money for political funding through shell companies via this scheme.

But what are electoral bonds?

Introducing the electoral bonds scheme on January 2, 2018, the government had described it as an “electoral reform” as the country leaps towards a “cashless-digital economy”.

An alternative to cash donations made to political parties, electoral bonds are in the nature of bearer instruments like a Promissory Note that any Indian citizen or a body incorporated in India is capable of purchasing. A person can buy electoral bonds, either singly or jointly, with other individuals. 

According to the Economic Times, the identity of the donor will be known only to the bank, which will be kept anonymous.

Registered political parties that have secured not less than 1 of the votes polled in the last election of the Lok Sabha or legislative assembly will be eligible to receive electoral bonds. State Bank of India (SBI) is the only lender to issue such bonds, whose validity extends to 15 days after issuance.

Electoral bonds aggregating to Rs 1,056.73 crore were purchased by citizens or entities till the completion of phase of issuance of electoral bonds in November 2018. 

A government affidavit on March 14, 2019, in the apex clarified that electoral bonds were introduced to promote transparency in political funding and donations ecosystem. The anonymity of the scheme was intended to protect the privacy of the donor, it claimed.

What are the petitioners saying?

In response to three petitions filed in the Supreme Court, the election body said political parties are “major stakeholders in a democracy and they should be held accountable to the public.”

The Communist party of India(Marxist) and two NGOs including the Association of Democratic Reforms have challenged the validity of the electoral bonds scheme; it is the latter’s application to stay the sale of electoral bonds during the upcoming Lok Sabha polls that the top court has agreed to hear on April 2.

The ADR which circulated EC’s affidavit on Wednesday claiming that certain amendments to the Finance Act virtually derailed guidelines laid down by ECI on August 29, 2014, requiring political parties to file reports on contributions received, their audited annual accounts and election expenditure statements.

How law was contravened

Detailing how donations received through electoral bonds would impinge on the transparency in the funding of political parties, the EC in its affidavit listed electoral reforms which allegedly makes it easier for political parties to elude accountability.

The EC took apart amendments made to key statutes of the Finance Act of 2017, that likely made the law more susceptible to abuse by political parties. The Finance Act of 2017 amended various laws including the People (RP) Act of 1951, the Income Tax Act 2016 and the Foreign Contribution (Regulation) Act of 2010.

In a letter dated May 26, 2017, the EC informed the Ministry of Law and Justice that “by insertion of proviso to Section 29C of the Representation of the People Act, 1951, vide Section 137 of the Finance Act, 2017, it is evident that any donation received by a political party through an electoral bond has been taken out of the ambit of reporting under the Contribution Report as prescribed under Section 29C of the Representation of the People Act”.

It essentially allows political parties to skip recording donations received by them through electoral bonds in their contribution reports to the ECI. “This is a retrogade step as far as transparency of donations is concerned,” ECI said leaving the poll panel with no way of ascertaining whether the donations were received illegally by the political party from government companies or foreign sources.

The ECI said the amendment introduced by the government in the Income Tax Act allows anonymous donations. Donors to political parties need not provide their names, address or PAN if they have contributed less than Rs. 20,000, which many political parties are exploiting in their audits.

The ECI also flagged the Finance Act of 2016, highlighting how it had amended the Foreign Contribution (Regulation) Act to “allow donations to be received from foreign companies having stake in Indian companies…,” marking a shift from the existing law which barred receipt of donations from foreign sources. 

The election watchdog had brought this issue to the Law Ministry’s notice in May 2017.

The FCRA amendment reportedly also lifts the cap on contributions by companies (not more than 7.5% of the net average profit of three preceding financial years), thus enabling newly incorporated companies to donate generously via electoral bonds. 

When I resigned from #BJP a major reason was them legalizing corruption through electoral bonds! Their claims to honesty are a joke given how much they spend in elections and the policy changes – foreign funding allowed, limits on companies removed, donations made anonymous! 1/2

— Shivam Shankar Singh (@ShivamShankarS) March 28, 2019

The EC annexed these letters written to the Law Ministry, along with its 37-page affidavit filed in the Supreme Court on March 25, 2019, saying these amendments would pump in black money for political funding through shell companies and allow “unchecked foreign funding of political parties in India which could lead to Indian politics being influenced by foreign companies.”

Why should Indians care?

Electoral bonds are a threat to democracy and its anonymity clause merits constitutional scrutiny.

All political parties—national and regional—are “expected to observe transparency as well as accountability with respect to funds raised as well as expenditure incurred by them…,” as per ECI guidelines.

The election body is constitutionally empowered to take “appropriate action” to get political parties to maintain proper accounts of their income and expenditure and make the same “available for the perusal of the general public … to bring about transparency and accountability”. 

The poll panel has “time and again voiced the importance of of donation received by political parties” and their expenditure of the same, its affidavit read. But the electoral bonds scheme has made it very increasingly difficult to for the EC to tackle this problem, and the Supreme Court must work accordingly and swiftly before it’s too late.

Petitioners have prayed to the apex court to take timely action in the view that 95% of the electoral bonds sold since 2018 have been in high denominations (Rs 10 lakh and Rs 1 crore, suggesting purchase by corporations) and made out to one political party, the ruling BJP. 

Several political parties and candidates, notably the Aam Aadmi Party and Begusarai candidate for CPI Kanhaiya Kumar, rely solely on crowdfunded donations for running their political campaigns, keeping the nation abreast of their donors’ identities.

Prarthana Mitra is a Staff Writer at Qrius

Electoral BondsGeneral Elections 2019Lok Sabha Elections 2019PoliticsSupreme Court