ELECTORAL BONDS

• The Supreme Court flagged the possibility of misuse of money received by political parties through electoral bonds for ulterior objects like funding terror or violent protests.
• The court also asked the government whether there is any “control” over how these donations were used by political parties.

Electoral Bond

• Electoral Bond is a financial instrument for making donations to political parties.
• The bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore without any maximum limit.
• State Bank of India is authorised to issue and encash these bonds, which are valid for fifteen days from the date of issuance.
• These bonds are redeemable in the designated account of a registered political party.
• The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
• A person being an individual can buy bonds, either singly or jointly with other individuals.
• Donor’s name is not mentioned on the bond.

Important points:

• The Electoral Bond Scheme acts as a check against traditional under-the-table donations as it insists on cheque and digital paper trails of transactions, however, several key provisions of the scheme make it highly controversial.
• Neither the donor (who could be an individual or a corporate) nor the political party is obligated to reveal whom the donation comes from.
• Because the bonds are purchased through the State Bank of India (SBI), the government is always in a position to know who the donor is.
• This asymmetry of information threatens to colour the process in favour of whichever political party is ruling at the time.
• Elimination of a cap of 7.5% on corporate donations, elimination of requirement to reveal political contributions in profit and loss statements and also the elimination of the provision that a corporation must be three years in existence, undercuts the intent of the scheme.
• A shell company can donate an unlimited amount anonymously to a political party giving it a convenient channel for business to round-trip its cash parked in tax havens for a favour or advantage granted in return for something.

SOURCE: THE HINDU ,THE ECONOMIC TIMES , MINT