POLITICAL FUNDING

GUEST COLUMN: Electoral bonds lack procedural clarity to take off

PTI9_22_2017_000040A [File photo] Finance Minister Arun Jaitley | PTI

Initiative aimed at eliminating cash funding has a long way to go

Despite the Centre's push for digital payments, it is a paradox that majority of the funding of Indian political parties are still driven by cash. Cheques constitute only a small portion of this funding.

While demonetisation tried to reduce the use of cash and totally eliminate black money generation, last year’s Union Budget saw Finance Minister Arun Jaitley reducing the cap on political donation in cash from Rs 20,000 to Rs 2,000. Further, any cash transaction above Rs 2,00,000 is also illegal with punitive provisions.

Continuing his drive to further curtail, if not, eliminate the use of cash in the economy, the finance minister brought out an innovative scheme in funding of political parties through electoral bonds. Electoral bond is a novel instrument and vehicle through which political donations are proposed to be made legitimate and through the banking system, but without disclosing the identity of the donor.

When a donor gives cash to a political party, anonymity is maintained as the party does not disclose such donations. Under electoral bond scheme, an individual, corporate or trust can buy these bonds from the State Bank of India (SBI) in multiple denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakhs and Rs 1 crore via a cheque. It will be a bearer bond without any interest and would remain valid for 15 days from the date of issue.

Even though called a bond, it is technically a bearer deposit receipt bearing a date and a currency with a serial number because of zero interest. During the 15-day period, the bond can be circulated as a high value currency note.

The political party that receives the bond will deposit it in its designated bank account and get the credit. Although the party would know the donor, there would be no trail of transfer of money and hence, the donor would hence, be able to maintain his anonymity. The bonds will be available for purchase for 10 days each in the months of January, April, July and October, and the window will be for 30 days in a general election year.

Notwithstanding, the avowed objective of the scheme is to make political funding cashless and thereby, eliminate one of the sources of generating cash economy. However, to take off and generate the desired impact, the scheme needs further clarifications about its procedural aspects.

Several questions emerge about the operation of the scheme. Since the scheme is routed through banking channels, the question is whether it will also permit cash deposit and up to what amount. If this is permitted and no questions are asked on the source, black money can be brought into the banking system.

As the donor has to be KYC-compliant, his identity would be known to the SBI, and further, to the RBI and the government. Can the authorities question donor on the source of funds?

The bonds will have to be serially numbered, and even though plenty are in circulation, the SBI will be able to establish the trail of transfer once it is deposited. In that case, how is the scheme different from a donation via cheque? The only difference is that the bond can circulate as a bearer currency for 15 days.

To avoid this, the SBI can issue bonds without serial number, like a coin. Will the SBI take the risk of issuing numberless bearer bonds? The SBI would then know about the donor, but not who received from whom. It would also be able to ascertain the total funding from the scheme.

The advantage of cash donation over bonds is that the former can maintain the anonymity of both the donor and the receiver. The scheme will work if bonds are without numbers and donors do not mind disclosing their political contributions.

Yet another suggestion is that the election candidates can have their accounts in the SBI designated with the Election Commission in which the bonds can be deposited. This will give full legitimacy and transparency in candidate funding.

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