When electoral bonds were ushered in by the Finance Act, 2017, Finance Minister Arun Jaitely waxed eloquent over clean money bankrolling the funding needs of political parties. They are made available at the designated points of time in a year —January, April, July and October — as well as a few months in the run up to the general elections — this time around in the months of March, April and May 2019 i.e., in three tranches.
State Bank of India (SBI) has been mandated with this role. It issues electoral bonds, a bearer instrument, in the form of a promissory note in the denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore. That almost all bonds sold thus far have been of Rs 10 lakh and Rs 1 crore denominations has been cited by petitioners challenging the scheme before the Supreme Court as proof of the scheme being hijacked by corporates and thus making the government dance to their tunes. Be that as it may.
Within 15 days of their purchase through payment vide cheque or digital payment, they have to be donated to the designated account of political parties (only those which have secured at least 1 percent of the vote in Lok Sabha or state Assembly elections held recently and they have to choose one KYC-compliant bank account of theirs for this purpose) of the choice of the buyer. Indian citizens and companies incorporated in India are alone entitled to buy them.
A lot is set store by the KYC-compliant bank accounts. Yet experience shows that Know Your Customer (KYC) compliance alone does not exorcise the ghost of black money forming the bedrock of bank accounts. The government itself should know given the fact that it has frozen the bank accounts of as many as 2 lakh shell companies.
The Election Commission (EC) is entirely justified in its objections before the Supreme Court that lack of disclosure of donors by the political parties (thanks to amendment to Section 29C of the Representation of People Act, 1951) and donees by the donors in their annual accounts could be the undoing of these bonds.
The EC opposed the amendments made to various key statutes through the two consecutive Finance Acts of 2016 and 2017.
The poll panel in its affidavit before the apex court said these amendments would bring black money for political funding through shell companies and allow “unchecked foreign funding of political parties in India which could lead to Indian politics being influenced by foreign companies.”
Association for Democratic Reforms (ADR) had recently filed an application in the top court seeking stay on the Electoral Bond Scheme, 2018 which was notified by the Centre in January last year. The Supreme Court on Tuesday said it would hear on 2 April the petitions.
After all, government companies and foreign companies are barred from making political contributions in India. The EC rightly wonders how it would verify that the donations have not come from these two in the absence of mandatory disclosure of donors. How can the EC discharge its duties with its hands tied behind its back?
The United Progressive Alliance (UPA) II opened the floodgates of foreign donations by saying that foreign firms holding majority stakes in Indian companies can make political donations. Furthermore, the cap of 7.5 percent of profits as the upper limit for political donations under the Companies Act, 2013 does not apply to electoral bonds.
In the event, even loss-making and shell companies can make political donations. The latter thus comes as handmaiden for political parties to help launder black money of the donors through shell companies.
The bottom line is electoral bonds would be cloaked in secrecy, with only the SBI knowing who the donors are. It remains a moot question if it would open itself to scrutiny by the tax sleuths in case it suspects that the donors, mainly shell companies, were laundering their black money in cahoots with political parties.
Either the SBI must be mandated to share all the details of the bond purchasers with the Income-Tax Department or the retrograde amendment to the Representation of People Act, 1951 providing cloak of secrecy to purchasers of electoral bonds must be reversed. The latter would be advisedly better.
Electoral bonds scheme, which came into effect in January 2018, had clocked in over Rs 600 crore political funding by October 2018.
The ruling Bharatiya Janata Party (BJP) has been the biggest beneficiary of the scheme it launched earlier this year in a bid to infuse ‘clean money’ into political funding. Of the electoral bonds worth Rs 222 crore that were purchased in March 2018, Rs 210 crore went to the BJP. This is one of the main charges of ADR which has gone to the Supreme Court challenging the electoral bonds.
(The writer is a senior columnist and tweets @smurlidharan)
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Updated Date: Mar 29, 2019 12:31:53 IST