Electoral Bonds in India: Transparency, Political Funding & Supreme Court Verdict
The topic of Electoral Bonds and the Supreme Court’s verdict is crucial for UPSC GS Paper 2 (Polity, Governance, Constitution) and GS Paper 4 (Ethics). It covers political funding reforms, transparency, and electoral accountability—key themes regularly tested in Prelims and Mains. Understanding this issue aids in answering questions on judicial activism, right to information, and ethics in governance, while strengthening essay writing on democracy and rule of law.
Introduction
Electoral Bonds, introduced in India in 2018, were touted as a transformative instrument in political funding. Conceived under the Finance Act, 2017, the scheme was launched as a mechanism to bring transparency and accountability to the murky landscape of political donations. The government’s stated intent was to clean up political funding, reduce the use of cash, and encourage donations routed through the formal banking system. Electoral Bonds allowed citizens and corporate entities to support political parties through traceable banking channels, while the donor’s identity — in theory — remained confidential. Despite lofty goals, these anonymity features soon sparked a national debate about the balance between transparency, accountability, and privacy in democracy.
Background & Need for Electoral Reforms
Political financing in India has historically been fraught with serious challenges — black money, opaque donations, and lack of donor disclosure have long undermined the integrity of elections. Reports and recommendations by the Law Commission, Election Commission of India, and expert panels have consistently highlighted the need for reforms that would enhance transparency and curb the influence of unaccounted funds. The Dinesh Goswami Committee (1990), Indrajit Gupta Committee (1998), 2nd Administrative Reforms Commission, and Election Commission have all pointed to rampant misuse of cash, loopholes in corporate donations, and the pervasive role of illegal funding. They advocated for cleaner funding mechanisms, better disclosure norms, and stricter audit requirements to uphold the sanctity of the democratic process.
Structure & Mechanism of Electoral Bonds
Electoral Bonds are bearer banking instruments akin to promissory notes — physical certificates issued in denominations ranging from ₹1,000 to ₹1 crore, available through select branches of State Bank of India (SBI). Any citizen of India or entity incorporated within the country could purchase these bonds after fulfilling Know Your Customer (KYC) norms and making payments via cheque or digital means. The purchaser’s details were recorded by SBI but were not mentioned on the bonds themselves, ensuring anonymity at the public level. Bonds could be purchased within designated time windows before elections, were valid for 15 days from the date of issue, and could only be encashed by recognized political parties through verified bank accounts. Only parties registered under the Representation of the People Act, 1951, and receiving at least 1% of votes in previous general or assembly elections were eligible to receive funds through this route.
Major Criticisms & Concerns
Despite claims of transparency, Electoral Bonds soon became a lightning rod for criticism. Major objections were:
- Anonymity and Lack of Transparency: Although intended to curb black money, the donor identities remained hidden from the public and even from the Election Commission, but could be accessed by the government through the SBI’s KYC records.
- Favouring Ruling Parties: Analysis of redeemed bonds revealed a disproportionate channeling of funds to parties in power, creating concerns of cronyism and quid pro quo.
- Concerns by Constitutional Bodies: Both the Election Commission of India and the Reserve Bank of India registered formal objections. The ECI termed the bonds a “retrograde step” for transparency, warning that anonymous donations perpetuate opacity and increase the risk of undue influence. RBI flagged the potential misuse of a “bearer instrument”, the risk to the financial system, and vulnerabilities to money laundering and shell companies.
- Corporate and Foreign Funding Risks: Amendments to the Companies Act (removal of profit linkage and donation caps), Foreign Contribution (Regulation) Act, and Income Tax laws opened the door for unlimited, anonymous corporate and even foreign contributions to political parties. Critics argued this could undermine Indian sovereignty and distort policymaking.
- Distortion of Level Playing Field: Large, anonymous donations meant well-funded parties, particularly incumbents, enjoyed an electoral advantage, potentially undermining opposition and electoral fairness.
Supreme Court Verdict (2024) – Key Highlights
In February 2024, a five-judge Constitution Bench of the Supreme Court declared the Electoral Bonds Scheme unconstitutional. The Court’s primary observations were:
- Violation of Right to Information and Article 19(1)(a): The Court held that indistinct donor identities and the secrecy provisions violated citizens’ right to information, which is an integral component of the freedom of expression under Article 19(1)(a).
- Impact on Electoral Fairness: The Court recognized that unchecked corporate or individual funding of political parties, without scrutiny, could jeopardize political equality and free, fair elections.
- Transparency and Accountability: SC noted that donors’ right to privacy must be balanced with the public’s right to know sources of political funding, especially where it affects governance.
- Immediate Orders: The SBI was directed to stop issuing further Electoral Bonds, and to disclose all details of previously sold bonds (names of purchasers, amounts, recipient parties, dates) to the Election Commission, which must then publish the data for public access. Unredeemed bonds were to be refunded to the purchaser.
- Restoration of Status Quo: The verdict directed reversion to the pre-2017 statutory position concerning political donations.
Impact on Indian Democracy
The Supreme Court’s ruling is being hailed as a pivotal step toward restoring trust in India’s electoral process. By mandating disclosure and transparency, the judgment strengthens the public’s right to know how political parties are funded. It deters illicit quid pro quo arrangements, reinforces electoral fairness, and asserts constitutional accountability — crucial ingredients for free and fair elections. The decision is expected to spur greater debate and reform in the realm of campaign finance. Vigilant citizenry, robust media scrutiny, and independent institutions will become vital to the evolving landscape of political funding. However, the abrupt withdrawal also presents challenges, such as drying up of legitimate funding channels until new transparent systems are established.
Way Forward & Alternatives
Looking ahead, sustainable reforms in political funding require a multi-pronged approach:
- Transparent Digital Platforms: Leveraging technology to create real-time disclosure portals for all political donations, tracking both source and recipient party.
- State Funding of Elections: As suggested by several committees, partial or total public funding could help curb the role of big money and reduce influence-peddling. Models from France and Germany, where strict disclosure, caps on contributions, and state support have promoted equity, merit serious consideration.
- Donor Disclosure & Audit: Mandating timely declaration of all contributors and sums received, subjecting party accounts to independent audits, and penalizing non-compliance.
- Strengthening the Election Commission: Providing more teeth and autonomy to the ECI to regulate, audit, and monitor political finance, possibly bringing parties under the Right to Information (RTI) Act.
- Campaign Spending Limits: Strict monitoring and enforcement of limits on both parties and candidates, backed by regular audits.
- Encouraging Micro-Donations: Widening the donor base and incentivizing small amounts from a large number of individuals could democratize political funding.
Conclusion
The Supreme Court’s landmark ruling declaring the Electoral Bond Scheme unconstitutional underscores a fundamental democratic principle: transparency is the essence of democracy. Anonymity in political funding undermines the citizens’ right to know, erodes trust, and threatens free and fair elections. Going forward, India’s electoral system must be strengthened through transparent funding mechanisms, vigilant oversight, and stringent reforms to ensure accountability and equity. Protecting democratic values requires a commitment to openness, fairness, and the diligent enforcement of constitutional ideals.
Frequently Asked Questions (FAQs) on Electoral Bonds in India
Q1: What are Electoral Bonds?
Electoral Bonds are bearer instruments issued by authorized banks (primarily SBI) that enable donors to contribute money anonymously to political parties, aimed at promoting transparency and reducing cash donations.
Q2: When were Electoral Bonds introduced and why?
Introduced in 2018 through the Finance Act, they were meant to curb black money in politics by digitizing political donations and making funding traceable through banking channels.
Q3: How do Electoral Bonds work?
Donors purchase bonds from SBI using banking channels, which can then be given to eligible political parties that redeem them through verified bank accounts within 15 days.
Q4: What are the main criticisms of Electoral Bonds?
Critics point to lack of transparency due to donor anonymity, potential misuse favoring ruling parties, increased corporate and foreign funding risks, and inadequate disclosure to the Election Commission and the public.
Q5: What did the Supreme Court rule about Electoral Bonds in 2024?
The Supreme Court unanimously declared the Electoral Bonds Scheme unconstitutional for violating citizens’ right to information and freedom of speech (Article 19(1)(a)), ordering disclosure of details and cessation of bond issuance.
Q6: How does the Supreme Court judgment affect political funding?
It enhances transparency and electoral accountability by mandating public disclosure of donors and political parties receiving funds, thereby deterring illicit funding.
Q7: What is the impact of Electoral Bonds on Indian democracy?
While initially introduced for cleaner funding, the scheme’s anonymity jeopardized electoral fairness and voter rights, but the verdict strengthens democratic processes by enforcing transparency.
Q8: What alternatives exist to Electoral Bonds for political funding?
Possible reforms include state funding of elections, digital transparent funding platforms, mandatory donor disclosures, campaign spending limits, and enhanced monitoring by the Election Commission.
