GS Paper II

News Excerpt:

Political funding through anonymous electoral bonds shot up by over 400% during the recent Assembly elections in Telangana, Rajasthan, Madhya Pradesh, Chhattisgarh and Mizoram as compared to the last polls in these states in 2018, according to the State Bank of India (SBI) data.

About the data:

• SBI data under the Right to Information (RTI) Act revealed that electoral bonds worth Rs 1,006.03 crore were sold and encashed in the recent 29th tranche of sales.
• In 2018, the total sales added up to Rs 184.20 crore, with elections held in Telangana, Rajasthan, Madhya Pradesh, Chhattisgarh, and Mizoram states from November to December.
• As much as 99% of the total amount was raised by selling Rs 1 crore denomination bonds.
• The electoral bond scheme saw the highest sales in Hyderabad (Rs 359 crore), followed by Mumbai (Rs 259.30 crore) and Delhi (Rs 182.75 crore).
• New Delhi had the highest amount redeemed for encashing poll bonds (Rs 882.80 crore), followed by Hyderabad (Rs 81.50 crore).
• In other states where elections were held, Rajasthan, Chhattisgarh, and Madhya Pradesh sold poll bonds up to Rs 31.50 crore, but none recorded any encashment.
• The data suggests that the most funding came from Hyderabad, Mumbai and Delhi and went to parties in Delhi, pointing to national parties.
• The total amount collected by parties through the poll bond scheme, in 29 phases since 2018, has gone up to over 15,922.42 crore.

The government announced the latest tranche of political funding following the Supreme Court's judgment on petitions challenging the electoral bond scheme's validity, raising concerns about political funding. A fruitful party funding framework requires attention to at least four key aspects:

1. Regulation of Donations:

• Sources: Some individuals or organisations, for instance, foreign citizens or companies, may be banned from donating.
• Limits: They are aimed at ensuring that a party is not influenced by a few large donors — whether individuals, corporations, or civil society organisations.

2. Expenditure limits:

• Safeguard politics from a financial arms race.
• It relieves parties from the pressure of competing for money before they even start to compete for votes.

3. Public Funding:

• A publicly-funded election is an election funded with money collected through income tax donations or taxes as opposed to private or corporate-funded campaigns.
• An attempt to move towards a “one voice, one vote” democracy should be made and  undue corporate and private entity dominance should be removed.
• Jurisdictions such as the United Kingdom, Norway, India, Russia, Brazil, Nigeria, and Sweden have considered legislation that would create publicly funded elections.
• Problem: Unless we ban private funding altogether (which is an extremely difficult task), public funding will keep topping up party funds and will not solve the challenging task of regulating private money.

• Ways of implementing public funding:

• • Predetermined criteria:

• For instance, in Germany, parties receive public funds based on their importance within the political system.
• This is measured on the basis of the votes they received in past elections, membership fees, and the amount of donations received from private sources.
• Also, German “political party foundations” receive special state funding dedicated to their work as party-affiliated policy think tanks.

• • Democracy vouchers:

• This criteria is in place for local elections in Seattle, US. Under this, the government distributes a certain number of vouchers to eligible voters.
• Each voucher is worth a certain amount.
• While the voucher is publicly funded, the decision to allocate the money is taken by individual voters.
• This system may be more egalitarian, but it may also promote more extremist candidates.

4. Disclosure Requirements:

• It is a less intrusive form of regulation, not outrightly preventing parties or donors from receiving or making donations.
• It nudges voters against electing politicians who have used or are likely to use their public office for quid pro quo (something in return of something) arrangements. As such, it may discourage parties/candidates from using public office to benefit their donors.
• As a regulation, it rests on the assumption that the information supply and public scrutiny may influence politicians’ decisions and the electorate’s votes.
• Donor anonymity serves a useful purpose of protecting donors. E.g., donors may face the fear of retribution or extortion by the parties in power. The threat of retaliation may, in turn, deter donors from donating money to parties of their liking.

Challenges regarding political funding:

• No donation limits on individuals. Moreover, the Finance Act of 2017 also removed any official contribution limits on companies.
• No legal expenditure limit for political parties: A party can spend as much as it wants for its national or state-level campaign as long as it does not spend that money towards the election of any specific candidate.
• However, parties are required to disclose donations of more than Rs 20,000, unless they are made through electoral bonds. Parties are not required to disclose the sum or the source of any single donation that is below Rs 20,000.
  • This is where the legal loophole steps in — parties generally break large donations from a single donor into multiple small donations. This practice exempts them from any disclosure requirement.

Major problems with the Electoral bond system: 

• Electoral bonds helped to strike quid pro quo deals without public scrutiny.
• Since 2017, electoral bonds have enabled large donors to hide their donations using official banking channels.  
• The ability of the party in power to access the information about donors of other parties (through law enforcement agencies) undermines the scheme of electoral bonds on its own terms, i.e., to prevent victimisation of donors.

Views on electoral bonds:

• Supreme Court: The Supreme Court had earlier requested that all political parties provide the Election Commission of India (ECI) with a record of all donations made through electoral bonds.
• Additionally, it requested that the Finance Ministry shorten the 10-day timeframe to a 5-day during which electoral bonds may be purchased.
• ECI: The ECI told the Supreme Court of India that it does not approve the system of anonymous donations to political parties.
• Reserve Bank of India (RBI): The central bank had warned the government that these bonds would "undermine the faith in Indian banknotes and encourage money laundering." 

Way Forward:

• Opacity and the unaccounted financing of political parties will have a counter-effect on democracy and should not be promoted. 
• The right to know about political party funding must be balanced with the right to maintain personal privacy.  Also, no right can be absolute. 
• The judiciary must maintain separation of powers from other organs and not transgress the legislative comprehension field.

Mains PYQ

Q. Some of the International funding agencies have special terms for economic participation stipulating a substantial component of the aid used for sourcing equipment from the leading countries. Discuss the merits of such terms and there exists a strong case not to accept such conditions in the Indian context. (UPSC 2014)