Electoral Bonds: No Solution to Illegal Political Funding

How do donations via electoral bonds funded by legal or illegal money help curb undue influence on policy makers? Electoral bonds provide an additional of such funds.

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The Union Government initiated the Electoral Bonds scheme, which was announced in the Union Budget 2017–18, on January 2, 2018. The aim was “to cleanse the system of political funding in the country”. While many other issues are also germane, the moot question is will this goal be achieved.

These are bearer bonds that private entities can buy from a designated bank (presently the State Bank of India) and donate them to a political party. They are supposedly an anonymous way of donating funds to political parties, since the identity of the donor is not disclosed. The bonds become available around the time of elections, presumably to provide ‘legitimate’ funds to political parties.

Data shows that most of the funds go to the ruling party and help them consolidate their hold over power.

The scheme

To maintain anonymity of donations, the income tax department cannot investigate the donations, the Election Commission cannot ask for their details, and the public will not know who is donating. The then Election Commission was not in favour of such non-transparency. The Reserve Bank of India did not approve of such a scheme. In fact, neither of the two were consulted prior to the announcement of the scheme. In the Parliament, the Finance Minister had mentioned that people wanted anonymity but when asked through the Right to Information Act who these people were, there was no response.

Given the opacity of the bonds (for the public), a quid pro quo is possible between the ruling party and the donor for favours bestowed. In effect, it can be a bribe in white.

While the public and the Election Commission cannot find out who is donating to whom, the party in power can access this information. The bank issuing the bonds has a record of the entity donating and the party encashing the bond. Given that the bank managements are largely under the control of the Union Ministry of Finance, the information can be accessed by the ruling party.

Further, given the opacity of the bonds (for the public), a quid pro quo is possible between the ruling party and the donor for favours bestowed. In effect, it can be a bribe in white. Since there will be no investigation, the donated money could be illegal.

Given these asymmetries and the opacity, public spirited entities went to court against the scheme in 2018. Since then, the matter has been sub judice. The Supreme Court, in its wisdom, has refused to grant an interim stay on the scheme.

Black money in elections

To fight Indian elections, whether for local bodies or state or national legislatures, much illegal funds are used. In a survey of 14 successful Parliamentarians in the 1998 Lok Sabha Elections, this author found that the average expenditure was eight times the allowed expenditure. This multiple has increased over time. The Parliamentarians interviewed added that the donors expected favours from them if they won.

Since any expenditure above the election expenditure limit is illegal, it has to be surreptitious. It cannot enter into the book of accounts, and has to be from illegal sources/black incomes. The Election Commission’s checking during elections has made little dent.

The quid pro quo results in subversion of policies and marginalisation of the common voters, who usually receive a bribe to vote for certain candidates. However, what the voters get at the time of elections is peanuts compared to their loss when policies are subverted against them. In contrast, the vested interests funding the candidates make a multiple of their illegal donation. It is the best investment for businesses since they get favourable policies, contracts, and protection from prosecution for wrong doing, among other things.

Clearly, the welfare of the nation and the common people requires freeing the politicians running the government from the influence of the black economy. How do donations via electoral bonds funded by legal or illegal money help curb undue influence on policy makers? The bonds provide an additional of such funds.

Why the bonds?

Can the use of Electoral Bonds serve the larger purpose of curbing black income generation in the country? A couple of lakh crore rupees are used in various elections in a five year cycle – about Rs. 40,000 crores per annum. Of the current Gross Domestic Product (GDP) of about Rs. 270 lakh crores, it comes to 0.15 per cent. The electoral bonds of a few thousand crore rupees issued annually are an even smaller percentage, both of the GDP and of the black economy. Since electoral bonds are only an addition, they cannot be the solution to the problem of use of black incomes in elections.

Election expenditures over and above the election limits have to be via illegal funds. The electoral bonds can neither be used to fill this need nor do they accrue to the individual candidates, so the need for illegal funds does not disappear.

Auditing of accounts of political parties can hardly stop the use of black incomes in elections. Companies’ accounts are audited, yet they generate black incomes through various means. Political parties also adopt the same devices to hide the actual sums surreptitiously received. Thus, even if the electoral bonds are based on legitimate funds, they cannot prevent the use of illegal funds raised by political parties.

Crucially, election expenditure limits are applied to the candidates and not political parties. The Electoral bonds can only be donated to political parties and not individual candidates. So, the individual candidate’s huge expenditures over and above the election expenditure limit has to be met through illegal funds. The winning candidates will have to continue to honour the quid pro quo and illegality will persist – bonds or no bonds.

What makes Indian elections expensive?

The rich who donate substantial sums to politicians and parties do so in black since they do not want their name to be up front. They donate to all parties but don’t want the ruling party to know this. The political parties also do not want the public to know which businessmen are obliging them since in a poor country that could tarnish their image. Why do candidates need so much money to fight elections?

Electoral democracy has come to India when feudal consciousness persists. People vote for a variety of reasons, and not just on the basis of the candidate’s performance in the constituency. Often, people vote for candidates of their caste and community, however corrupt they may be. They expect this person to do their right or wrong work. Nowadays, work, whether right or wrong, requires pull. Often, bullies get elected because they can deliver. People say that they do not want to waste their vote, irrespective of the performance or the honesty of the candidates.

Seldom do NGO leaders who help people in myriad ways win elections. At times, candidates who do not even belong to a constituency win because of their equations within the constituency. Clearly, the public is looking for something other than performance when voting.

Candidates try to demonstrate to the people in their constituency that they have clout and can deliver. To show clout, big rallies, road shows, posters, cut-outs, flooding of social media, maintenance of vote banks, and so on are required. Cash and gifts are distributed just before Election Day. All these require a lot of funds.

Delhi Chief Minister Arvind Kejriwal has advised people to take gifts from political parties, but vote for his Aam Aadmi Party’s supposedly honest candidates, but this did not succeed because of the prevailing feudal consciousness: ‘namak khaya hai’.

Electoral bonds cannot achieve their ostensible goal

Indian elections have become expensive since feudal consciousness prevails in society and voting is seldom based on the performance of candidates. So, elections become expensive. Election expenditures over and above the election limits have to be via illegal funds. The electoral bonds can neither be used to fill this need nor do they accrue to the individual candidates, so the need for illegal funds does not disappear.

For political parties, the bonds give additional funds over and above what they collect illegally. Auditing of party accounts cannot help since that is only of the declared funds. Thus, the electoral bonds scheme cannot succeed in cleansing political funding.

Arun Kumar is a Retired Professor of Economics at the Jawaharlal Nehru University.