Electoral bonds controversy: Recent criticism of campaign funding rings hollow considering the alternative is cash

  • Traditionally, election funding in India has been through cash, cheque or other forms of bank transfers

  • While cash contributions remain anonymous — and would often feature unaccounted cash, contributions through the banking system, while transparent, resulted in a problem

  • The disclosure that was a consequence of donations through the banking route gave political parties information on the donor and the payee political party, creating a breeding ground for vengeance and harassment by the non-receiving party

Campaign financing has long been a hotly-debated topic in democracies around the world. Political parties need to spread their message to voters, rallies need to be held, travelling and other expenses are incurred.

That political parties need money for their electoral campaigning is not a matter of dispute. The debate is about how they should receive these funds.

Traditionally, election funding in India has been through cash, cheque or other forms of bank transfers. While cash contributions remain anonymous — and would often feature unaccounted cash, contributions through the banking system, while transparent, resulted in a problem.

The disclosure that was a consequence of donations through the banking route gave political parties information on the donor and the payee political party, creating a breeding ground for vengeance and harassment by the non-receiving party.

This led to the introduction of electoral bonds by the Narendra Modi government in early 2017, which sought to strike a balance. While there would be anonymity as regards to the donor, funds higher than Rs 2,000 would have to be routed through the banking channel thereby encouraging entry of fully tax-paid funds in campaign finance.

It is important to note that this introduction came in just a few months after the government's decision to demonetise Rs 500 and Rs 1,000 currency notes with a view to reducing dependence on cash-based transactions. This resulted in a widespread cash crunch.

 Electoral bonds controversy: Recent criticism of campaign funding rings hollow considering the alternative is cash

Representational image. Reuters

The recent criticism to it has largely been around the very decision to issue these electoral bonds, the procedure surrounding it, the exceptions carved out in the run-up to state Assembly elections and their regulated traceability by courts and law enforcement agencies.

Indeed, the RBI and the Election Commission had objections to this decision: Encouragement of money laundering, undermining faith in Indian banknotes and easy transferability which could wipe any trace of ownership as is common with bearer notes.

The Modi government, nonetheless, went ahead with the decision to introduce electoral bonds. While corporate donors would go on to record the purchase of electoral bonds as accounting entries in their books, it won't be public information as to which party received the donation, in order to prevent the abuse of power.

Citing illustrations in the United States of how both Republican and Democrat parties have abused their power to intimidate those who donated to the other, Bradley A Smith, former US Federal Election Commission chairman writes in a piece coincidentally titled In Defense of Political Anonymity that "disclosure has resulted in government-enabled invasions of privacy — and sometimes outright harassment — and it has added to a political climate in which candidates are judged by their funders rather than their ideas".

The EC continues to oppose the electoral bond scheme as evident in an affidavit it filed in the ongoing Supreme Court case on validity of the bond scheme (thereby demonstrating the fact that Modi government has not arm-twisted another agency of the Executive) whereas the RBI, after its initial objection, offered suggestions on making the process as close to the twin goals as possible.

Suggestions included limiting the validity of the bonds to 15 days (to prevent easy transferability), permitting only those holdings accounts with banks verified under KYC norms to buy bonds, issuing bonds twice a year for a short duration and so on — some of which were implemented by the government.

Addressing the media on this controversy, Piyush Goyal, Minister of Railways, and Commerce and Industry, tweeted a report highlighting the distinction between the old system and the current electoral bond system which incorporates some suggestions made by the RBI.

The fact that Modi government didn't align completely with the RBI or at all with the EC is portrayed as a major crime of sorts by the Opposition. This is neither the first time nor the first government that has taken a path different to the one preferred by these agencies.

Much was also made by Opposition parties of the fact that the Modi government sought changes in rules to permit issuance of bonds outside of the windows originally mentioned in the notification for funding state Assembly elections in 2018. Why, one wonders, is this problematic?

Campaign funding during state/local elections too suffers from the same problem of unaccounted illegal cash floating around and dubious funding. Is it the case that regulations are not amenable to change as per the need of the time?

Indeed, as desirable as it is that such measures be elaborately thought through before implementation, big-impact measures introduced by the Modi government such as demonetisation and Goods and Services Tax have witnessed constant changes in implementation to suit the needs as felt from time to time.

Inconvenient, these frequent changes may be. That does not make them illegal.

Another argument has been that the government of the day could gain access to the information from agencies who, pursuant to Section 7(4) of the notification, may get access to the path of the money underneath the electoral bond transaction upon registration of criminal case.

While this is a possibility, there are courts to seek redress of this breach of privacy even if the efficacy of this action may have its own limitations. Regardless, does that mean we go back to the cash-based system where funding goes completely under the radar?

Electoral bonds are what I would describe as quasi-bearer notes. Bearer notes are instruments of value owned by those who hold it at any point of time. This makes it difficult to identify the original owner or even changes in ownership from time to time. However, as noted above, electoral bonds have an element of traceability and the funds in exchange thereof move through the banking route.

What the opponents of the electoral bond scheme conveniently forget is that Indian political funding thus far has been replete with another type of bearer note — cash. Not only is its traceability impossible, the note, once out of the banking system, does not typically go back into the banking channel.

That there is a sustained objection and annoyance to this measure that seeks to introduce legal tax-paid funds and regulated traceability thereof to the otherwise murky world of Indian campaign finance speaks a lot about the desperation of some political sections to go back to the status quo where the impossible-to-trace bearer note ruled.

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Updated Date: Nov 22, 2019 10:37:28 IST