SC judgement on electoral bond brings transparency, but unqualified brouhaha is meaningless

In mid-February earlier this year, after a long legal campaign, the Supreme Court of India banned electoral bonds, a source of funding for elections. According to the system of electoral bonds, these bonds must be bought from the State Bank of India but can be donated to political parties anonymously.

This scheme, which had been under scrutiny for a while, was criticised by the top court for “putting a premium on opacity” and for its potential to be used as a means for money laundering.

Since the verdict, after many nudges from the Supreme Court, the State Bank of India has finally released their data on the electoral bonds, the names of the purchasers, and the political parties they had donated to.

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Since this information has been made public, there has been considerable brouhaha, with some pointing fingers at our current administration for having received a large amount of donations through the now banned electoral bond scheme and insinuating that this amounts to corruption. While we, as a democracy, should welcome the verdict of the highest court of our land and embrace transparency, the surrounding buzz feels misplaced.

What were these electoral bonds? They were a form of political donation, and though the reason for banning them, which was a lack of transparency and the already mentioned possibilities of misuse, is valid, it hardly amounts to bribery or corruption.

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In the realm of politics, financial contributions play an important role in the shaping of democratic processes.

Though some feel that money plays an outsized role in elections, the reality is that an adequately funded campaign is often directly related to successful election outcomes.

Political spending by individuals or organisations supporting candidates, parties, or causes makes such donations an essential component of electoral campaigns and policy making.

While the noisy criticism is targeting our government by using the data released by SBI, in reality, in most democracies around the world, individuals, organisations, and corporations are allowed to make such donations. Running a political campaign and the administration of a nation cost money.

The political donor database often serves as a crucial element for candidates who do not come from generational wealth or political dynasty families and rely on these contributors to fund their campaigns.

Funds are often used to cover essential expenses like advertising, travel, staff salaries, and voter outreach. Without adequate funding, independent or fresh politicians will always struggle to reach their constituents and communicate their platforms effectively.

In fact, if data shows that a particular party or candidate has received a larger number of donations than the others, instead of proving any other point, what it demonstrates is who the citizens of this country and its economic ecosystem are willing to put their money behind.

As John Brumby, a member of the Australian Labour Party and the former Premier of Victoria, once said, “It is the democratic right” of businesses and people to donate to the party.

Numbers and names released by the SBI are being tossed around by the Indian mainstream media right now, with people using the information that the Centre’s ruling party is the highest beneficiary of these donations to accuse them of corruption. These claims are unsubstantiated, misled, and, above all, show a worrying mistrust of our solid democracy. Let us examine political donations and their actual influence on policy.

In a 2017 study by Jorg Spenkuch, a professor of managerial economics and decision sciences at Kellogg School of Management, US, and two co authors, Northwestern’s economics doctoral student Harritz Garo and University of Chicago’s political scientist Antony Fowler, used an innovative approach to put the quid pro quo or the trade of systems to the test.

To their surprise, they found no evidence that campaign contributions in the US produce any big benefits for corporations. Just tabulating the amount of money in politics does not tell us anything about what the political process would be like if corporations weren’t allowed in,” Spenkuch said.

To understand whether companies were impacted when they backed a winning party, the authors of the study turned to a tried and tested metric: the company’s stock price.

The authors wanted to see whether, in the days following an election, the stock of companies that gave money to winners performed better across the board than those that gave money to losers. Their rationale was that shareholders would know which candidates the companies had supported and how that would impact the companies post-election.

Thus, shareholder expectations are a good proxy for how an election would support the company’s future success. Going into the study, they expected that companies would derive significant favours from these donations, but they were in for a surprise. On average, the victory of a company’s preferred candidate led to its stock price increasing by just 0.05 per cent. This number is so insignificant that it might as well just be considered a fluke.

Moving back closer home, Megha Engineering and Infrastructures Limited (MEIL), a major infrastructure company headquartered in Hyderabad, is the second biggest buyer of these electoral bonds, having donated 1,200 crores in the past five years. Their company valuation actually decreased 20.1 per cent YoY (year-over-year growth that compares a company’s recent financial performance with its numbers for the same month one year ago) at the end of 2022 and has had no unusually remarkable or unexpected jumps in valuation since.

All major democracies in the world have their own systems of political funding; countries like the US prefer schemes such as traditional Political Action Committees (PACs), social welfare organisations, and Super PACs that facilitate anonymity and mostly receive contributions through shell corporations. The US is currently struggling with “dark money”, which refers to political contributions received from anonymous donors that these Super PACs make possible.

Though a 2010 US Supreme Court decision prohibited the use of corporate money in elections, since then “dark money” or corporate contributions have added enormously to election spending while information identifying the contributors has become less available.

We, as a democracy, have managed to cross these hurdles and provide full transparency to our citizens with regards to political financial contributions. This should be celebrated and not just used as a weapon for political mudslinging.

As citizens who are invested in the integrity of our democracy, it is imperative to remain informed about election finance regulations, request transparency from our representatives, and engage in meaningful discussions about necessary reform.

To prudently discuss the topic of corporate money in politics, we need to evaluate the entire picture and not just non-conformist anecdotes.

The author is a freelance journalist and features writer based out of Delhi. Her main areas of focus are politics, social issues, climate change and lifestyle-related topics. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.