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Lecturrete topic 270 - Electoral Bonds



Electoral funding has long been a contentious issue in democracies worldwide, with concerns over transparency, fairness, and undue influence. In India, the introduction of electoral bonds in 2018 aimed to reform political funding by providing a legal framework for donations to political parties. However, the mechanism and implications of electoral bonds have sparked intense debate among policymakers, civil society, and the public. This article explores the origins, functioning, controversies, and impact of electoral bonds in India, examining their implications for democratic processes and governance.

Understanding Electoral Bonds: Origins and Framework

Introduction of Electoral Bonds

Electoral bonds were introduced by the Government of India through the Finance Act, 2017, as a means to cleanse political funding and promote transparency. The scheme allows individuals and corporate entities to donate money to political parties anonymously through bonds purchased from authorized banks. These bonds can then be redeemed by registered political parties within a specified period.

Objectives of Electoral Bonds

The primary objectives of electoral bonds include:

  • Transparency: Providing a legal and transparent route for political donations.
  • Anonymity: Protecting the identity of donors from public disclosure.
  • Accountability: Ensuring political parties declare and utilize funds in a lawful manner.
  • Reducing Cash Transactions: Minimizing the use of cash in political funding to curb black money and corruption.

Mechanism of Electoral Bonds

Purchasing Electoral Bonds

Electoral bonds can be purchased by any Indian citizen or corporate entity from specified branches of authorized banks during designated periods announced by the government. The bonds are available in fixed denominations, and the donor's identity is kept confidential.

Redeeming Electoral Bonds

Political parties registered under the Representation of the People Act, 1951, can redeem the bonds within prescribed timelines by depositing them into designated bank accounts. The State Bank of India acts as the intermediary for the issuance and redemption of electoral bonds.

Legal and Regulatory Framework

Legal Provisions

Electoral bonds operate under the legal framework provided by:

  • Finance Act, 2017: Initial legislation that introduced electoral bonds.
  • Income Tax Act, 1961: Amendments to ensure tax exemptions for political donations via electoral bonds.
  • Representation of the People Act, 1951: Framework governing political funding and disclosure requirements for political parties.

Regulatory Oversight

The Reserve Bank of India (RBI) and the Election Commission of India (ECI) play crucial roles in overseeing the issuance and redemption of electoral bonds. The RBI manages the sale and issuance process through authorized banks, while the ECI monitors compliance with reporting and disclosure norms by political parties.

Controversies and Criticisms

Lack of Transparency

Critics argue that electoral bonds compromise transparency in political funding:

  • Anonymous Donations: The anonymity of donors raises concerns about undisclosed influence over political decisions.
  • Disclosure Requirements: Political parties are not required to disclose the identity of donors publicly, undermining transparency and accountability.

Potential for Money Laundering and Corruption

Opponents allege that electoral bonds could facilitate:

  • Money Laundering: The use of bonds to launder illicit funds without disclosing the true source.
  • Quid Pro Quo: Donations leading to favors or policies favoring donors, potentially undermining democratic integrity.

Uneven Playing Field

Smaller and regional parties may face challenges in attracting donations compared to larger, well-established parties with greater access to corporate donors and financial resources. This disparity could skew electoral outcomes and democratic representation.

Legal Challenges

Electoral bonds have faced legal challenges in the Supreme Court of India and various High Courts:

  • Constitutional Validity: Challenges regarding the constitutionality of electoral bonds, particularly concerning transparency and fairness in electoral processes.
  • Public Interest Litigations (PILs): PILs filed by civil society organizations and activists seeking greater transparency and disclosure norms for political funding.

Impact on Political Funding and Governance

Increase in Political Donations

Since their introduction, electoral bonds have witnessed substantial participation from corporate donors and individuals. The Government of India claims electoral bonds have led to increased transparency and a reduction in cash donations, thereby curbing black money in political funding.

Financial Transparency and Accountability

Proponents argue that electoral bonds have formalized political funding, encouraging parties to maintain financial records and adhere to regulatory norms. The introduction of digital transactions has reduced cash transactions and improved financial accountability.

Challenges in Enforcement

Despite regulatory oversight, challenges remain in enforcing compliance and ensuring adherence to disclosure norms. Political parties' reporting requirements and the monitoring of fund utilization need robust mechanisms to prevent misuse and ensure transparency.

Global Perspectives and Comparative Analysis

International Practices in Political Funding

Comparative analysis with other democracies reveals diverse approaches to political funding:

  • United States: Relies on private donations, with disclosure requirements varying by state and federal laws.
  • United Kingdom: Public funding for political parties with strict disclosure norms for donations above a certain threshold.
  • Germany: Mix of public and private funding, stringent disclosure requirements, and limits on corporate donations.

Lessons for India

Lessons from global practices underscore the importance of:

  • Transparency: Ensuring robust disclosure norms to maintain public trust in electoral processes.
  • Regulatory Oversight: Strengthening regulatory frameworks to prevent undue influence and corruption.
  • Balancing Privacy and Accountability: Striking a balance between donor privacy and the public's right to know about political funding sources.

Future Directions and Recommendations

Strengthening Regulatory Frameworks

Enhancing transparency and accountability through:

  • Mandatory Disclosure: Requiring political parties to disclose donor identities above a specified threshold.
  • Audit and Compliance: Conducting regular audits to verify fund utilization and adherence to regulatory norms.

Promoting Citizen Awareness

Raising awareness about electoral bonds and their implications for democratic processes:

  • Public Education Campaigns: Informing citizens about the impact of political funding on governance and policy decisions.
  • Civil Society Engagement: Mobilizing civil society organizations to advocate for transparency and electoral reforms.

Legislative Reforms

Reviewing and amending existing laws to address loopholes and strengthen:

  • Anti-Corruption Measures: Introducing safeguards against misuse of electoral bonds for money laundering or quid pro quo arrangements.
  • Judicial Scrutiny: Ensuring robust judicial oversight to uphold constitutional principles and democratic values.


The introduction of electoral bonds in India represents a significant step towards reforming political funding and promoting transparency in electoral processes. However, the scheme has been met with mixed reactions, with concerns over anonymity, potential misuse, and the impact on democratic integrity. Addressing these challenges requires a balanced approach that upholds transparency, ensures accountability, and safeguards democratic principles.

As India continues to evolve its electoral financing mechanisms, ongoing dialogue, stakeholder engagement, and legislative reforms will be essential to strengthen the framework for political funding. The ultimate goal is to foster a democratic environment where electoral processes are fair, transparent, and reflective of the public interest. Electoral bonds, if effectively regulated and implemented, have the potential to contribute positively to India's democratic governance and institutional integrity.