Arun Jaitley, the Finance Minister in 2017-18, was quite passionate about the electoral bonds scheme. He genuinely believed that electoral bonds were the most pragmatic solution for expanding the scale of political funding in India.
He was completely convinced that no one, including the ruling party, should be able to link the bond buyers with the political parties that they donated to. This was absolutely critical, in his judgement, for encouraging the companies and individuals to loosen their purse strings for political funding.
The judgment of the Supreme Court on 15 February declared the electoral bonds scheme unconstitutional and also the amendments made in the related laws. With this, electoral bonds become history.
The data released by the State Bank of India (SBI) on 21 March has blown away the critical non-linking design feature of the bonds by disclosing the invisible and systemically non-existent alpha-numeric code embodied in the bonds for security purposes.
The government, which brought the electoral bonds, curiously, has remained quite inactive in defending the electoral bonds although Home Minister Amit Shah did rue the fact that black money might return to the arena of electoral funding.
Why did the government not protect the electoral bonds scheme? Why did the government not ensure that its critical design feature remained unbroken, at least for the bonds bought and donated under the scheme before it was declared unconstitutional? Did the government let down the donors who trusted the scheme?
The Birth of Electoral Bonds
The electoral bonds scheme was announced in the 2017-18 Budget on 1 February 2017. The Finance Bill, 2017 made elaborate changes in the Companies Act, the Income Tax Act, the RBI (Reserve Bank of India) Act, and the Representation of People Act to build the architecture of the scheme. The Parliament did, after considerable discussion, pass the Finance Bill to lay the legal bedrock for electoral bonds.
Still, electoral bonds were not a reality when I landed as Secretary of Economic Affairs in July 2017, about six months later. The RBI had several misgivings. The Election Commission of India (ECI) had raised objections. Many political parties and civil society organisations were opposing the bonds.
After considerable efforts and persuasion, the RBI and the ECI were brought on board. Electoral bonds became a reality in January 2018. The first bonds were sold in March 2018. It took more than a year to operationalise the scheme. You can read the complete story of the birth pangs of electoral bonds in my book We Also Make Policy.
Arun Jaitley, of course, conceived, designed and piloted the electoral bonds scheme. The larger government also invested considerable political and administrative capital in the scheme.
Electoral Bonds Delivered Rs 16,200 Crore in Political Funding
India has had a fully transparent political contribution scheme in the Companies Act for many years now. Unfortunately, it has been seldom used. Most political donations before electoral bonds were made in the unaccounted and predominantly non-transparent cash mode.
The sad state of affairs existed because the corporations and rich individuals were not interested in making it known which political parties they donated to for reasons that may or may not be justified. So, the government brought in three big changes in the architecture of political funding to meet this key reluctance and make electoral bonds a success.
First, the government ensured that the electoral bonds had no identification number or any other identifier to convince potential donors that the scheme would leave no trace of the link between the donor and the political party.
Second, the government removed the ceiling of 7.5 per cent of a company's average profits of the last three years and also allowed loss-making companies to donate in order to expand the universe of donors and the scale of their donations.
The government did make it a condition that electoral bond contributions would be made only from completely KYC-enabled bank accounts, and adequate disclosures would be made in the company accounts, without making it necessary to disclose which party they donated to.
Third, the government made sure that political parties received the bond proceeds in their KYC-enabled bank accounts and recorded all donations in their books. The political parties were of course not required to disclose from whom they received the bonds.
These key features made the electoral bonds a serious contributor to political funding in the country. Political parties got funding of over Rs. 16,200 crore in electoral bonds in six years of its life. This scale of funding was many times more than the total received by political parties from corporations through all other routes ever.
The Government's Acts of Commission and Omission
The government was expected to defend the electoral bonds scheme before and after the Supreme Court judgment with the kind of passion which Arun Jaitley had brought to the table. It did not do so. Still worse is the fact that it could not even ensure the protection of the companies and individuals who trusted the statutory guarantees that the scheme provided, i.e., the link between their donations and the political parties would never be established.
The government committed many acts of commission and omission.
First, the electoral bonds scheme had one lurking weakness which was an invisible alpha-numeric code embedded inside the body of each bond. This was not supposed to exist for anyone, including the SBI, except to look for in the event of any suspected fake electoral bond making its way to it. It is out in the open now that the SBI meticulously recorded the alpha-numeric code against each application with respect to purchase and deposit.
Why did the government let the SBI do it? Did the SBI have the unspoken approval of someone in the government to do so?
Second, the Supreme Court on 15 February directed to disclose the data relating to the denomination, date, and amount of each electoral bond purchased and deposited. There was no specific direction to provide an alpha-numeric number or any matching link. The SBI had the data that the Supreme Court had asked for readily available. This could have been disclosed in a day.
Instead, the SBI filed a petition in the Supreme Court two days before the deadline of 6 March seeking time until 30 June 2024. Why did the government allow the SBI to make this plea?
The SBI offered to match the buyers of bonds with depositing political parties if this time was granted. Did the government ask the SBI to seek time till the Lok Sabha elections were over? Was the government convinced about the acceptability of the lame excuse that the SBI offered for seeking time?
Additionally, why did the government not direct the SBI to disclose the data that the Supreme Court demanded? If it had reservations, why did it not file a petition of its own to request the Supreme Court for not pressing its direction to reveal data of donors who acted under the legal guarantee provided?
Third, the three features of the electoral bonds described above were the edifice on which the scheme stood. The Supreme Court outlawed all three.
The Government Orphaned the Electoral Bonds Scheme
While Arun Jaitley, convinced of the merits of the scheme as he was, would have deployed all his persuasive skills and intelligence to persuade the Supreme Court to accept the improvements that the scheme brought about, the current government did not even try to defend the scheme.
The least the current government could have done was to protect the buyers of electoral bonds from the retrospective disclosures. The government could have filed a review petition in court, made a presidential reference, or even brought an ordinance if needed to protect the past donations.
The government did not do anything. The SBI became the fall guy and received all the flak. The government orphaned the electoral bonds scheme, and in the process perhaps, caused undeserving consequences for many companies which became flouters of the law ex-post for no fault of theirs.
What now?
It seems unlikely that the government would do anything now. The train has already left the station.
There is one small, non-level playing field still left standing in the electoral bonds saga. The alpha-numeric numbers of the bonds bonds purchased and deposited between March 2018 and 11 April 2019 have still not been disclosed by the SBI as the Supreme Court directions covered the period starting from 12 April 2019.
The government can direct the SBI to disclose this data as well so that similar data for all the electoral bonds of about Rs 16,200 crore issued and deposited in its six-year life are made publicly available.
(The author is the former Economic Affairs Secretary and Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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