ADR Report on Political Fundings

In News

• Over 55% of the donations received by regional parties in FY 2019-20 came from “unknown” sources, the Association for Democratic Reforms (ADR) said in a report.

Highlights of the report

• Huge share from “unknown” sources: Electoral bonds accounted for nearly 95% of the donations from “unknown” sources.
  • The report noted that donations received by national parties from “unknown” sources added up to 70.98% of their income.
• Parties from the south topped the list: Parties in the south such as TRS, TDP, YSR Congress Party, DMK and JD(S) topped the list of regional parties with the highest incomes from “unknown” sources.
• Share from “known” donors: The donations received by regional parties from “known” donors is 22.98% of their total income.
• TRS declared the highest income: Among the regional parties, Telangana Rashtra Samithi (TRS) declared the highest income from unknown sources.
• Recommendation made: It suggested that any organisation that receives foreign funding should not be allowed to support or campaign for any candidate or party.
  • The mode of payment of all donations income from the sale of coupons, membership fees, etc. should be declared by the parties in audit reports, submitted to the I-T department and ECI.
  • It is suggested that the ECI publicizes on its website details of the action taken (if any) against political parties that fail to provide required details(such as name and address) of individuals, companies or entities making donations in cash.
  • Parties not adhering to the deadline fixed by the Election Commission of India should be penalized by making them liable to pay tax on 100% of their income from various sources.
  • The National and Regional political parties must provide all information on their finances under the Right to Information Act. This will go a long way in strengthening political parties, elections and democracy.

What is the Electoral Bonds Scheme?

• Features:
  • Introduced with the Finance Bill, 2017, the Electoral Bond Scheme was notified on January 29, 2018.
  • An Electoral Bond is like a promissory note that may be purchased by a person who is a citizen of India or incorporated or established in India.
  • A person being an individual can buy Electoral Bonds, either singly or jointly with other individuals.
  • The bonds are like banknotes that are payable to the bearer on demand and are interest-free.
  • Only the Political Parties registered under Section 29A of the Representation of the People Act (RPA), 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.

• Procedure:
  • The State Bank of India (SBI) has been authorised to issue and encash Electoral Bonds through its 29 Authorized Branches.
  • The bonds are sold by the SBI in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore.
  • One can purchase these bonds only digitally or through cheques.
  • The Electoral Bonds can be encashed by an eligible Political Party only through a Bank account with the Authorized Bank.
  • The Electoral Bond deposited by an eligible Political Party in its account is credited on the same day.
  • Electoral Bonds shall be valid for fifteen calendar days from the date of issue and no payment is being made to any payee Political Party if the Electoral Bond is deposited after expiry of the validity period.

Benefits of Electoral Bonds

• More Transparency: It helps the political parties to operate in a more transparent manner with the election commission, regulatory authorities and the general public at large.
• Ensures Accountability: Donations through Electoral Bonds will only be credited in the party bank account disclosed with the ECI. As encashment of all the donations is through banking channels, every political party shall be obliged to explain how the entire sum of money received has been expended.
• Discouraging Cash: The Purchase will be possible only through a limited number of notified banks and that too through cheque and digital payments. Cash will not be encouraged.
• Maintains Anonymity: The individuals, groups of individuals, NGOs, religious and other trusts are permitted to donate via electoral bonds without disclosing their details. Therefore, the identity of the donor is being preserved.

Challenges for Electoral Bonds

• Hindering Right to Know: Voters will not know which individual, company, or organisation has funded which party, and to what extent. 
  • Before the introduction of electoral bonds, political parties had to disclose details of all their donors, who have donated more than Rs 20,000. It makes the political class even more unaccountable.
• Shallow Anonymity: 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). This implies that the only people in the dark about the source of these donations are the taxpayers.
• Unauthorized Donations: In a situation where the contribution received through electoral bonds are not reported, on perusal of the contribution report of political parties, it cannot be ascertained whether the political party has taken any donation in violation of provision under Section 29B of the RPA, 1951 which prohibits the political parties from taking donations from government companies and foreign sources.
• Leading to Crony-Capitalism: It could become a convenient channel for businesses to round-trip their cash parked in tax havens to political parties for a favour or advantage granted in return for something. Anonymous funding might lead to the infusion of black money.
• Loopholes: Corporate Entities may not enjoy the benefit of transparency as they might have to disclose the amount donated to the Registrar of Companies; Electoral bonds eliminate the 7.5% cap on company donations which means even loss making companies can make unlimited donations etc.

Way Forward

• The government may reconsider and modify certain provisions of the Electoral Bonds Scheme to ensure full disclosure and transparency.
• At the same time, the bonds should ensure that the funds being collected by the political parties are accounted for clean money from the appropriate channels without any obligation of giving and taking.

Source: IE