India's Supreme Court on Thursday banned electoral bonds, an obscure source of election financing that generates hundreds of millions of dollars in revenue for political parties, especially the ruling Bharatiya Janata Party.
The court announced its ruling on the ongoing petition calling for the bonds to be cancelled. The scheme has come under scrutiny, and the Supreme Court said in November that the bonds “place a premium on transparency” and could be “misused to launder money.”.
The court's ruling could essentially determine how India's next general election, from March to May, will be fought; How much role does undiscovered money play in it? Who has the resources necessary to control the political scene?
While donors using electoral bonds are technically anonymous, the State Bank of India is publicly owned, meaning the ruling party has access to its data. Critics said this was likely to discourage major donors from using electoral bonds to donate to opposition parties.
Moreover, in 2017, India's central bank, the Reserve Bank of India, warned the Modi government that bonds could be misused by shell companies to “facilitate money laundering.” In 2019, the country's electoral commission described the system as “a step backwards in terms of the transparency of donations.”
Since 2018, secret donors have provided nearly INR 16,000 crore (over $1.9 billion) to political parties through these bonds. Between 2018 and March 2022 — the period analyzed by the Association for Democratic Reforms (ADR), an NGO — 57% of donations via electoral bonds (about $600 million) went to Modi's Bharatiya Janata Party.
As India prepares for more than 900 million voters to go to the polls to elect a new government from March to May, this money has allowed the BJP to transform itself into a dominant electoral machine. From funding tens of thousands of WhatsApp groups promoting its agenda to paying for booking private jets, electoral bonds have provided the BJP with a massive infusion of resources, giving it a clear advantage over its rivals.
How do electoral bonds work and why are they criticized as “undemocratic”?
What are electoral bonds?
Electoral bonds (EBs) are “bearer” instruments, like banknotes. They are sold in denominations of 1,000 rupees ($12), 10,000 rupees ($120), 100,000 rupees ($1,200), 1 million rupees ($12,000), and 10 million rupees ($120,000). They can be purchased by individuals, groups or businesses and donated to the political party of their choice, who can then redeem them interest-free after 15 days.
While political parties are required to disclose the identities of all donors who donate more than 20,000 rupees ($240) in cash, the names of donors via electoral bonds must never be revealed, no matter how large the amount.
Since its introduction, ballot boxes have become the primary method of political financing – 56% of total funding in Indian politics comes from ballot boxes, according to a report by ADR. The ability to donate money anonymously has made it popular but it is also shrouded in secrecy, which many say is undemocratic and can provide a cover for corruption.
When the Modi government passed the new law allowing this type of financing, it also removed a number of requirements aimed at improving transparency in political financing: a previous law setting a cap on corporate donations was repealed, and companies are no longer required to disclose their donations. In their statements, foreign companies, which were not yet allowed to fund Indian parties, can do so through their Indian subsidiaries.
“The Executive Board legitimizes behind-the-scenes lobbying and unlimited anonymous donations,” said Major General Anil Verma (Retd), Chairman of ADR. Verma said secrecy surrounding the identity of donors was a problem. “It could be big companies or players funneling illicit money through shell companies – we don’t know who is donating. This has become what many call legal and institutional corruption.
How do electoral bonds benefit the BJP?
The BJP is the largest beneficiary of electoral bond donations. Data from the Election Commission of India Show it 57 percent of total donations between 2018 and March 2022 through EBs went to the BJP, worth Rs 5,271 crore (about $635 million). In comparison, the next largest party, the Indian National Congress, received Rs 952 crore (about $115 million).
EB rules specify that only the publicly owned State Bank of India can sell these bonds. Many believe that this ultimately gives the current government unchecked power.
“Since the bonds are issued by a public sector bank, an unprincipled government may get to know the list of donors and recipients,” says former RBI governor and economist Raghuram Rajan. books In an article for the Times of India last year. “Given the carrots and sticks available to the government, few individuals or companies may have the opportunity to donate significant sums to the opposition through these bonds,” Rajan added.
EBs also contributed to the BJP's electoral dominance. “They may be called electoral bonds, but the rules do not say that the money should be used only for elections,” said retired Indian Navy Commodore Lokesh Batra, who has been leading a campaign calling for greater transparency in election financing. “So, whoever gets more money, the money can be used to buy media space and boost advertising. Once you have the money, you can use it anywhere,” he added.
Critics say the mismatch between the funds received by the BJP and its closest rival, the Congress, demonstrates the unequal playing field created by the Executive Council. For example, in May 2023, the Congress and BJP faced each other in state assembly elections in the southern state of Karnataka. Affidavits submitted by both parties to the Election Commission show that the BJP was able to spend Rs 197 crore ($24 million) while the Congress spent Rs 136 crore ($16 million).
The Modi government also has the power to decide the timing of these bond sales. While central bank rules technically only allow bonds to be sold in the first 10 days of each new quarter – in January, April, July and October – the government violated its own rules and allowed donors to buy these bonds. On the eve of crucial elections in May. and November 2018. This forms part of the case currently being heard in the Supreme Court.
Why have electoral bonds been criticized?
Critics say that by allowing unspecified, anonymous donations from any source, electoral bonds open the doors to “legal corruption,” allowing corporate donors to effectively patronize the ruling party and influence government decisions.
“It is clear that donors view these anonymous donations as an ‘investment,’” Verma said.
He added that the introduction of electoral bonds also raised doubts about how free and fair the elections were. “Electoral bonds have eroded the concept of equality in electoral politics. “Most donations go to the ruling party, regardless of who is in power.”
“Since the day it was introduced, the government's priority appears to have been to keep the identities of donors and parties confidential,” Batra said.
Who challenges EBs in the Supreme Court?
In 2017, and later in 2018, two NGOs – ADR and Common Cause – and the Communist Party of India (Marxist) filed two separate petitions in the Supreme Court, urging the court to put an end to the electoral bond system.
Now, six years later, the court has finally issued its ruling on these cases. In November 2023, the court announced the conclusion of the hearings in the appeals challenging the bond system
She said at the time that the EB plan had “serious deficiencies,” created an “information black hole” and “should be removed” because it places a “premium on opacity.”
This did not prevent widespread sales of these bonds. The latest tranche of EBs was sold from January 2 to January 11 at 29 locations across the country. These funds are likely to constitute the bulk of funding for parties' political campaigns in the run-up to this year's general elections.
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