What is truly shocking is that despite the RBI and ECI expressing their reservations about the scheme before it was formalized in 2018, the BJP government has all along been more concerned with safeguarding the anonymity of donors giving money to political parties than with upholding the citizens’ right to knowing who is financing the political parties they vote to power, writes Amit Jugnu.

An analysis of the Electoral Bonds data disclosure put up on the Election Commission of India’s (ECI) website, after several attempts to postpone it until after the general election, throws up many curious patterns.

One of the common links is that a significant number of companies in the top donor list were under the Enforcement Directorate’s or the Income Tax (I-T) department’s scanner at some point of time in the past five years. 3 of the top 5 donors, including lottery company Future Gaming, infrastructure firm Megha Engineering and mining conglomerate Vedanta, bought electoral bonds with ED and I-T knocking on their door. The Future Gaming and Hotel Services PR with a cumulative sum of Rs 1,368 crore was the largest donor to political parties via the electoral bond route. On April 2, 2022, the ED had attached movable assets worth Rs 410 crore under the PMLA in the case of lottery scam against the company and its subsidiaries. Interestingly, five days later, on April 7, 2022, the company made a significant purchase of electoral bonds worth Rs 100 crore in a single day.

There are many cases of companies that have donated electoral bonds, and immediately afterwards gotten huge benefits from the government. Vedanta got the Radhikapur West private coal mine on 3rd March 2021, and in April 2021, they donated Rs 25 crore in Electoral Bonds. Megha Engineering, a Hyderabad-based company with a paid-up capital of Rs 156 crore, purchased electoral bonds worth Rs 966 crore, becoming the second highest donor to political parties. On 11 April 23, the company spent Rs 100 crore in purchasing electoral bonds and within a month it got a Rs 14,400 crore contract from the Maharashtra government suggesting a quid pro quo.

One main concern with the electoral bonds scheme was it removed the restriction that only 7.5 percent of a company’s average profits over the last three years could be donated to political parties. There are cases of entities whose entire share capital is many times less than the amount they spent on buying electoral bonds, raising suspicion of money laundering through shell companies. Qwik Supply Chain Limited, a company whose entire share capital is just Rs 130 crores according to MoCA filings, bought bonds worth Rs 410 crore. The company, a part of the Reliance Group, donated Rs 360 crores to political parties in the financial year 2021-22 in which it made a profit of mere Rs 21.72 crores.

These are precisely some of the concerns that were raised by the Reserve Bank of India (RBI) and the Election Commission of India (ECI) when the Electoral Bond scheme of funding political parties was proposed by the Narendra Modi led union government in 2017. The Electoral Bonds scheme was first proposed by the late Arun Jaitley in his Budget speech of 2017. At that time, both the RBI and Election Commission had opposed the scheme. The two independent constitutional bodies had flagged serious concerns before the scheme’s introduction, fearing it may be seen as ‘facilitating’ money laundering and that it could violate provisions under the Representation of People Act. Many experts too have warned the government of the scheme’s potential for massive, large-scale corruption.

Even the Supreme Court (SC), on 15 February, 2024, while setting aside the Electoral Bonds scheme as unconstitutional for violating Article 19 of the Constitution by not disclosing the source of funding to political parties, also noted in its verdict that major apprehensions were raised by the RBI and the ECI in 2017 before the scheme was formalised.

The then RBI Governor Urjit R Patel had warned of electoral bonds’ misuse for money laundering but was ignored by the government. Despite the scheme being shrouded in controversy right from the beginning,  the Union Finance Ministry had all along staunchly defended the scheme as part of a “conscious legislative policy” to further electoral reforms “to defeat the growing menace of black money, especially when the country is moving towards a cashless-digital economy”. It told the SC that the process envisaged in acquiring and encasing the bonds “will ensure transparency” and “accountability”.

The concerns raised by RBI

The period around the time the electoral bonds scheme was passed was marked by constant friction between the Union government and the RBI. It had started with demonetization in 2016, followed by Electoral Bonds and sharing of Central Bank reserves. These led to the resignations of then RBI Governor Urjit Patel in 2018 and then Deputy Governor Viral Acharya in 2019 before the completion of their tenures.

The RBI, during consultations over Electoral Bonds with the Finance Ministry, had expressed concern with some aspects of the scheme. RBI Governor Patel wrote to the then Finance Minister Arun Jaitley on September 14, 2017:

“We are concerned that the issue of EBs as bearer instruments in the matter currently contemplated has the possibility of misuse, more particularly through use of shell companies. This can subject the RBI to a serious reputational risk of facilitating money laundering transactions… For these reasons, we are keen that we put in place a robust system that minimises the reputational risk. We, therefore, brainstormed this feature in the Senior Management Team and came to the conclusion that issuing EBs in a digital form will be a superior method.”

The RBI also opposed “non-sovereign entities” such as commercial banks being allowed to issue bearer bonds, which was the sole prerogative of the RBI. RBI said that the bonds should be issued in demat form and not as bearer bonds, and also suggested that the objective of electoral bonds could be met via existing channels, such as cheque, demand drafts, and electronic/digital payments. The RBI also flagged the possibility of shell companies misusing bearer bonds to facilitate money laundering. “The electoral bond may not only be seen as facilitating money laundering but could also be projected (albeit wrongly) as enabling it,” warned the RBI. 

The government said that the core purpose of electoral bonds was to ensure anonymity while ensuring donations were made only through taxpayer money. It argued that electoral bonds in demat form will take away the key feature of the scheme to provide anonymity of the donors vis-à-vis political parties.

The Narendra Modi-led Union government ignored RBI’s money laundering concern, and in the face of the RBI’s rigid stance and objections, simply amended Section 31 of the RBI Act to allow other authorities, apart from RBI, to issue bearer instruments. The bonds were eventually implemented as bearer bonds, as the government wanted, and when the scheme was notified on January 2, 2018, it was SBI that was authorised to issue Electoral Bonds, not the RBI. The scheme allowed individuals and domestic companies to present these bearer bonds — issued in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore — to political parties of their choice, which have to redeem them within 15 days. Buyers of the bonds were to submit full KYC details at the time of buying. But the beneficiary political party didn’t need to reveal the identity of the entity that has given it the bond(s). Moreover, political parties were granted exemption from paying income tax on the funding they received through these bonds.

The concerns raised by ECI

Not only the RBI, the Election Commission of India (ECI), tasked with conducting free and fair elections, also warned the government that electoral bonds would help political parties hide illegal donations from foreign sources and might even “lead to increased use of black money for political funding through shell companies,” according to a report by the Reporter’s Collective published in Huffington Post. The report underlined that the ECI wrote to the Ministry of Law in this regard on May 26, 2017.

The ECI also flagged concerns about amendment in Section 29C of the Representation of Peoples Act (RPA) 1951, as after the amendment political parties did not have to report to the Commission regarding the donations received through electoral bonds. ECI said it will not be possible for it to ascertain if political parties have taken donations from government companies and foreign sources, which is prohibited under Section 29B of RPA.

The government also undid the part of the Companies Act, under which corporates had to disclose details of their political donations in their annual statement of accounts. Now they were no longer required to do so. More significantly, the government changed the company law removing the cap on corporate funding to 7.5 percent of average net profits for the last three years.

The EC termed these changes as undesirable, and called the scheme formalizing anonymous corporate donations to political parties a “retrograde step as far as transparency of donations is concerned”.

In an affidavit to the Supreme Court filed on March 25, 2019, the ECI said that “any donation received by a political party through an electoral bond has been taken out of the ambit of reporting under the Contribution Report”, and if information on the money received through such bonds is not reported, “it cannot be ascertained whether the political party has taken any donation in violation of provisions” of the Representation of the People Act, which “prohibits the political parties from taking donations from government companies and foreign sources”.

The scheme was eventually opened to any political party registered with the ECI that had received 1% of votes in the previous election, and there was no cap as to the amount which companies can spend on purchasing bonds.

What is truly shocking is that despite the RBI and ECI expressing their reservations about the scheme, thousands of crores of bonds were issued between 2018 and 2024, purchased by many dubious entities and redeemed by political parties, with the ruling BJP party alone receiving about 50 percent of  total bonds worth Rs 12,155.51 crore issued between April 12, 2019 and February 15, 2024, The government has all along been more concerned with safeguarding the anonymity of donors giving money to political parties than with upholding the citizens’ right to knowing who is financing the political parties they vote for.

After a protracted legal battle, the information on electoral bonds is finally out in the public domain. The Supreme Court had on March 15 sought a response from the State Bank of India (SBI) on non-disclosure of the unique alphanumeric numbers of individual electoral bonds to the Election Commission of India (ECI) for publication on its official website. After this information is also revealed by the SBI it can be used to precisely match each bond purchased by the donor to the political party that redeemed it in its account.

True, the Electoral Bonds have been declared unconstitutional by the country’s highest court. But this will in no way stop corporate financing of political parties. The Electoral Bond scam is a revelation of the corporate-criminal-corrupt nexus that runs mainstream political parties in India, including the ruling BJP party. This nexus can’t be broken by depending solely upon the judiciary and other state institutions.