The Supreme Court has finished hearing arguments on electoral bonds and will hopefully deliver a judgment soon. I say hopefully because it has now been six years since the scheme was introduced in the 2017 Budget.
Many readers will not know the background to the bonds and what they are. In brief, it allows unlimited, anonymous donations to any registered political party. The scheme also allows anyone, including foreign governments, criminal gangs and of course corporate interests, the ability to influence political parties because parties could accept money without revealing who gave it.
The process to fund a party anonymously was made easy. Bonds would be available in denominations of up to Rs 1 crore at State Bank of India branches in 29 cities. A donor could purchase them through their bank account and hand them over to the party or individual of their choice, who could encash them. They would be valid for 15 days.
The manner in which the scheme was introduced should alert us to the fact that something was off from the start. Four days before Budget 2017, a bureaucrat spotted the scheme in then finance minister Arun Jaitley’s speech, and noted that the RBI’s assent was required. This was because the introduction of bonds required changes to the RBI Act, something that the government apparently did not know.
The officer drafted a proposed amendment to align the law with the change and sent the file up the ranks for the finance minister to see. The same day, January 28, 2017, a Saturday, the RBI was sent a five-line email seeking its comments. The reply came on Monday, January 30. The RBI said it was a bad idea as it went against the RBI’s authority as the sole issuer of bearer instruments, meaning cash. These bonds, as they were anonymous, could become currency and undermine the faith in India’s cash.
On this point, the RBI was unambiguous: amending the law to facilitate this “would seriously undermine a core principle of central banking legislation and doing so would set a bad precedent”.
The second objection the RBI had was that “even the intended purpose of the transparency might not be achievable as the original buyer of the instrument (bond) need not be the actual contributor to the party”. If person A purchased the bond and then sold it, at face value or more, to any entity, including a foreign government, that entity could gift it to a party. The nameless bond was as good as cash. “The bonds are bearer bonds and transferable by delivery”, the RBI said, “hence, who finally and actually contributes the bond to the political party will not be known”.
The last point it made was that what was proposed through the electoral bond scheme — transfer of money from bank accounts of entities to political parties — could be done through a cheque, bank transfer or demand draft.
“There is no special need for, or advantage by, the creation of an Electoral Bearer Bond, that too by disturbing an established international practice.” The man charged with steering the thing through was Hasmukh Adhia, an IAS officer from Gujarat with a Ph.D. in yoga. (He had earlier chaperoned the GST Bill, and after he retired, was made chairman of the Bank of Baroda and chancellor of the Central University of Gujarat). He dismissed the RBI’s objections on two grounds.
First, he said: “It appears the RBI has not understood the proposed mechanism of having pre-paid instruments for the purpose of keeping the identity of the donor secret, while ensuring the donation is made only out of fully tax-paid money of a person.” By this he meant because the original purchaser had to acquire the bonds through their official account, it made the donation clean. This was not a response to the RBI’s specific objections. Adhia said the 15-day time limit for redemption would mitigate against the RBI’s other fears, without explaining how.
Second, he said: “Also this advice has come quite late at a time when the Finance Bill is already printed.” It had actually come within hours of being sent for. It was hardly the RBI’s fault that the advice had not been sought earlier. This was deceit, but Adhia concluded: “We may, therefore, go ahead with our proposal”. His colleague, economic affairs secretary Tapan Ray, concurred with Adhia the same day, and on Wednesday, February 1, Jaitley announced the scheme which became law with the passage of the Union Budget.
Asked by journalist Nitin Sethi of Huffington Post (which carried a six-part investigation into electoral bonds, based on documents procured by RTI activist Commodore Lokesh Batra) why the government had ignored the RBI’s objections, the finance ministry said it had taken the decision “in good faith and in the larger public interest”.
When the law was passed, the details were not made public. This came in June 2017, when Tapan Ray revealed how the bonds would work in practice: “The information regarding purchaser and payee shall be kept secret by the issuer bank. These details would be beyond the purview of RTI.” (Ray was made chairman of the Central Bank of India after he retired in 2018, and in 2019 was also made CEO and managing director of Gujarat International Finance Tec City.)
The next body to say the electoral bonds scheme was dangerous was the Election Commission. In an affidavit to the Supreme Court, it said that to exclude the reporting of donations received by political parties through electoral bonds would have “serious repercussions on the transparency aspect of political funding of political parties”.
Despite this, for six years, India’s politics has been funded anonymously. It is time to end this.