All about Electoral Bonds!

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Let’s understand electoral bonds

The government, through the budget 2017-18 speech has introduced the idea of the electoral bonds for the sole purpose of funding of the political parties. There is a lot of confusion about the concept. Here, we try to clear the topic with regards to any question being asked on electoral bonds, in any of the upcoming examinations.

What are bonds?

A bond is a debt security. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.

What are electoral bonds?

An instrument that will be used to donate money to political parties. The parties involved will be a donor, the political party and the RBI, which acts as the intermediary.

How these electoral bonds will be purchased and how will they be used to fund a political party?

Electoral bonds will be issued by a notified bank for specified denominations. If you are keen to donate to a political party, you can buy these bonds by making payments digitally or through cheque. You are then free to gift the bond to a 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.

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 The donor will buy electoral bond digitally from RBI.

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 The donor will then donate this electoral bond to his desired political party.

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The political party can then redeem that electoral bond to its account (which would have already been notified to Election Commission), by submitting it to RBI.

 But this does not sound like a bond? What’s the principal and where’s the interest?

The electoral bond is more like a bail-bond than a Government or corporate bond. 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. So, only the RBI will most likely be allowed to issue these bonds, to be sold through notified banks.

What is the ultimate use of introducing these bonds?

Today, most political parties use the lax regime on donations to accept cash donations from anonymous sources. Nearly 70 per cent of the ₹11,300 crore in party funding over an 11-year period came from unknown sources, according to the Association for Democratic Reforms (ADR).

Currently, political parties are required to report any donation of over ₹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 reduced the disclosure limit to ₹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.

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