Electoral Bonds have been proposed as a way of reforming election funding in the Union Budget 2017.
What is an Electoral Bond?
Electoral bonds will be issued by a notified bank for specified denominations.
Those who want to donate to a political party, can buy these bonds by making payments digitally or through cheque.
Then they are free to gift the bond to any registered political party.
The bonds will likely be bearer bonds and the identity of the donor will not be known to the receiver.
The party can convert these bonds back into money via their bank accounts.
The bank account used must be the one notified to the Election Commission and the bonds may have to be redeemed within a prescribed time period.
Electoral bonds are essentially like bearer cheques.
The issuing bank will remain the custodian of the donor’s funds until the political party redeems the bond.
Why is it important?
Most political parties use the negligent regime on donations to accept cash donations from anonymous sources.
Nearly 70% of the Rs.11,300 crore in party funding over the past 11-year period came from unknown sources.
Currently, political parties are required to report any donation of over Rs.20,000 to the IT department.
But there has been a trend of more donations flowing by way of hard cash in smaller amounts.
To fix this, the Budget has proposed to reduce the disclosure limit to Rs.2,000 and insists that any amount over this must be paid through cheque or the digital mode.
The idea is that electoral bonds will prompt donors to take the banking route to donate, with their identity captured by the issuing authority.
What are the problems in electoral bond?
But there are loopholes to electoral bonds too.
While the identity of the donor is captured, it is not revealed to the party or public. So transparency is not enhanced for the voter.
Also income tax breaks may not be available for donations through electoral bonds.
This pushes the donor to choose between remaining anonymous and saving on taxes.
Also privacy of the donor is compromised as the bank will know their identity.
