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Electoral Bonds Scheme and The Challenges

Oct 01, 2022

Electoral Bonds Scheme

Upgrade your UPSC CSE preparation with our daily dose of Current Affairs. Today we will discuss Electoral Bonds Scheme and The Challenges. Read further to upgrade your UPSC CSE knowledge and also understand the topic’s relevance to the UPSC syllabus.

For Prelims: The Supreme Court, Electoral Bonds Scheme, State Bank of India, Companies act, Income tax act.

For Mains: The electoral bonds scheme and the challenges, Criticism for the Electoral Bond Schemes

Probable Question 

Why did the government introduce the Electoral Bonds Scheme? Also, throw some light on the criticism it is facing.


 The petition filed by the Association for Democratic Reforms (ADR) challenging the Center’s electoral bonds Scheme, has recently appeared on the cause list of the Supreme court.

About the Electoral Bonds Scheme

  • The scheme was first announced during the 2017 budget session and was notified in January 2018. 
  • Features:
    • Electoral bonds are money instruments like promissory notes. 
    • The bonds are non transferable.
    • The electoral bonds are anonymous, not consisting of the name of the donor.
  • Procedure to Purchase these Bonds:
    • In every quarter these bonds go for sale in 10-day windows, besides an additional 30-day period specified by the Central Government.
    • It can be bought by companies and individuals in India from the State Bank of India (SBI) and donated to a political party, which can then encash these bonds within 15 days. 
    • Under the scheme, bonds are available in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore and can be bought through a KYC-compliant account. 
    • There is no maximum number of electoral bonds that a person or company can purchase.
  • Objective:
    • It was introduced to ”cleanse the system of political funding in the country” by eradicating the “menace of unaccounted money coming into the country’s economy through political funding”. 
    • It was introduced to make political donations transparent and protect the identity of the donor.

Criticism for the Electoral Bond Schemes

  • Concerns about electoral corruption: The amendments would “legitimize electoral corruption at a huge scale”, and would have “serious repercussions on the Indian democracy”. 
  • Amendments to Finance Acts: 
    • The Center has amended the Finance Act 2017 and the Finance Act 2016 to bring in the scheme.
    • This was challenged as being “unconstitutional”, “violative of doctrines of separation of powers” and violative of some fundamental rights. 
    • The ECI said the amendments would pump in black money for political funding.
  • Amendment to the Representation of the People Act, 1951: The amendment in Section 29C of the Act, 1951, exempts political parties from informing the ECI about the details of contributions through electoral bonds, impacting transparency.
  • Companies Act amendment: 
    • The amendment to the Companies Act 2013 disable companies from giving details of political contributions in their annual profit and loss accounts, which would increase “opacity” and the danger of “quid pro quo” (favor in return of something).
    • Previously companies were only permitted to make political donations of up to 7.5 % of net profits in the previous three years. But now there is no such limit that can create unscrupulous companies only to route funds for political parties.
  • Amendment to the FCRA Act: 
    • The amendment to the Foreign Contribution Regulation Act, 2010 (FCRA), allows foreign companies with subsidiaries in India to fund Indian political parties.
    • It would invite foreign corporate powers to influence Indian politics.
  • Income Tax Act, 1961 amendment: It would allow anonymous donations only less than Rs. 20,000. 
  • Infringing the ”Right to Know”: The amendments infringed upon the citizen’s fundamental ‘Right to Know’, would make political parties more “unanswerable and unaccountable” to the citizens at large.
  • Derailing of ECI guidelines: Disclosure of expenditure and contributions received by political parties is necessary for “better transparency and accountability in the election process”.
  • RBI’s concerns: The former RBI Governor said that the bonds in the physical form or as bearer instruments would actually not serve the purpose of transparency. The bonds should be issued in digital (Demat) format.
Political parties can also receive cash donations of less than ₹2,000 from anonymous sources through cheque or digital mode, in addition to electoral bonds.

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