FM Arun Jaitley details nuts & bolts of bonds for political funding

By ET Bureau & Agencies | Updated: Jan 03, 2018, 08.56 AM IST

Clean political funding: FM Jaitley announces details of electoral bond scheme

NEW DELHI: Finance minister Arun Jaitley unveiled the framework for electoral bondsaimed at cleaning up political funding with conditions such as a limited tenure and eligibility restricted to parties with a track record of at least one election.

Jaitley had pledged to establish a system for party donations that would help stamp out black money as a source of funding in his February 2017 Budget in the wake of demonetisation.

"Electoral bonds will ensure clean money and significant transparency against the current system of unclean money," he said on Tuesday.

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Donors can buy these bonds and give them to the party of their choice. The party can encash them through designated bank accounts within 15 days. The bond will be a bearer instrument in the nature of a promissory note that's issued by select State Bank of India branches to valid account holders, Jaitley told the Lok Sabha. "Electoral bonds would be issued/purchased for any value in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1crore from specified branches of SBI."

The bonds will be available at the designated SBI branches for 10 days each in January, April, July and October as specified by the Centre. This will increase to 30 days in the year that Lok Sabha elections are due. They will not earn any interest and only Indian citizens or bodies incorporated in the country can purchase them. Strict conditions will be put in place to check misuse and prevent financial wrongdoing.

"The purchaser would be allowed to buy electoral bonds only on due fulfilment of all know your customer (KYC) norms and by making the payment from a bank account," Jaitley said. "The electoral bond will have a life of only 15 days during which it can be used for making donations only to parties registered under Section 29A of the Representation of the Peoples Act, 1951." Jaitley told reporters that the 15-day period has been prescribed to ensure that they do not become a parallel currency. The scheme was to be notified on Tuesday.

Experts Not Enthused

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Only political parties that got at least 1% of the total votes polled in either the last assembly or general election will be eligible to accept electoral bonds, ruling out those formed after the last poll. This is to prevent the floating of bogus parties just before an election to collect funds.

Although the buyer has to fulfill KYC norms, the bonds will not carry the person's name. Since the name of the payee will not be disclosed to the Election Commission, donations will remain anonymous. This will help in a scenario in which donors may be hesitant to be identified as supporting a particular party. "Every political party will file before Election Commission return as to how much money has come through electoral bonds," Jaitley said. Government sources said the need for electoral bonds was felt as the system of paying donations through cheques was not very effective and dubious funding of parties was still in vogue.

"The bond shall be encashed by an eligible political party only through a designated bank account with the authorised bank (SBI)," Jaitley said. The government intends to have just a few designated SBI branches, most likely only one in a state, for issuing electoral bonds, sources said. No other bank can issue the bonds. The bonds will also put a stop to funds being diverted within political parties, the government hopes.

Congress caught unawares
The Congress, which had opposed electoral bonds in its representation to the government, was caught unawares by Jaitley's statement in the Upper House. Till late evening, the party had not formulated its official position on the issue.

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In the last Budget, Jaitley had announced capping cash donations to parties at Rs 2,000 instead of Rs 20,000 and allowed them to receive digital donations. Jagdeep Chokkar of the Association for Democratic Reforms was of the view that the bonds aren't likely to make the system of political funding transparent.

"Details announced by the finance minister today on electoral bonds hardly add anything new," said Chokkar, also a professor at the Indian Institute of Management, Ahmedabad.

"The electoral bonds continue to be a step towards making electoral and political funding absolutely opaque. When these bonds will be in the nature of bearer bonds and the identity (of the donor) will be anonymous, where is the transparency?" Some said bond buyers may come under scrutiny since their KYC credentials are known, regardless of which party is being funded.

(With inputs from PTI)