What are Electoral Bonds?

• An electoral bond is designed to be an interest-free bearer instrument like a Promissory Note — in effect, it will be similar to a bank note that is payable to the bearer on demand.
• It can be purchased by any citizen of India or a body incorporated in India. 
• The electoral bonds were announced in the 2017 Union Budget.
• The bonds will be issued in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and will be available at specified branches of State Bank of India. 
• They can be bought by the donor with a KYC-compliant account. 

Features

• The bonds will be available for purchase for a period of 10 days each in the beginning of every quarter, i.e. in January, April, July and October as specified by the Central Government.
• The donor will remain anonymous. The electoral bonds will not bear the name of the donor. The intention is to ensure that all the donations made to a party will be accounted for in the balance sheets without exposing the donor details to the public.
• Political parties are allotted a verified account by the Election Commission and all the electoral bond transactions are done through this account only.
• Only political parties registered under Section 29A of the Representation of the Peoples Act, 1951 and have secured no less than one per cent votes in the last Lok Sabha or State elections are eligible to receive electoral bonds. 
• A donor will get tax deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.
• The information furnished by the buyer shall be treated confidential by the authorised bank and shall not be disclosed to any authority for any purposes, except when demanded by a competent court or upon registration of a criminal case by any law enforcement agency.

Criticisms

• The key critique is that, for something meant to bring transparency to the system, electoral bonds actually make political funding more opaque – but only for the public. Companies don’t have to say who they are donating money to and parties don’t need to say from whom they’re getting the cash. 
• Experts have said this undercuts the freedom of political information, which is an integral element of Article 19(1)(a) of the Constitution (the free expression clause). 
• Prior to 2017, Companies Act, 2013, stipulated that a company can donate only up to 7.5% of its average profit of the last three years. Now, through the electoral bonds, there is no limit to the amount companies can donate, and the requirement for such firms to have existed for the last three years on a profit-making basis has also been deleted.
• The implication is that even loss-making companies or shell companies can be used to purchase electoral bonds.
• In 2016 and 2017, amendments were made to the Foreign Contribution (Regulation) Act (FCRA), 2010, with retrospective effect. Thus, enabling the Indian subsidiaries of foreign companies to make donations to political parties through electoral bonds.
• This allows anonymous financing by foreign entities opening Indian elections to the influence of foreign interests.
• The Reserve Bank of India (RBI) and the Election Commission had both said the sale of electoral bonds had become an avenue for shell corporations and entities to park illicit money and even proceeds of bribes with political parties.
• The Election Commission of India criticised electoral bonds saying it would wreck transparency in political funding and allow for unchecked foreign funding of Indian political parties.
• However, the government defended the scheme, saying it allowed anonymity to political donors to protect them from “political victimisation”.

Why in News?

• According to a Right to Information reply by the State Bank of India, it has sold electoral bonds worth ₹695.34 crore from April 1 to April 10, when the elections to the Assemblies of Tamil Nadu, Puducherry, West Bengal, Assam and Kerala were in full swing.
• The amount sold was the highest-ever for any Assembly elections since the scheme started in 2018.
• Predictably, the sale of electoral bonds shot up during the elections in comparison to the previous tranche in January when bonds worth ₹42.10 crore were sold.

Reference:

1. https://www.thehindu.com/news/national/electoral-bonds-worth-695-crore-sold-during-recent-assembly-polls-highest-amount-in-kolkata/article34583437.ece