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Electoral Bonds: In Search of Transparency

December 12, 2019 | Expert Insights


A flurry of RTI applications by activists recently raised questions on the electoral bond scheme in India. This scheme was introduced during the budget of 2017. The electoral bonds is a promissory note akin to a banknote that is payable to the bearer on demand and is free of interest. It can be purchased at select State Bank of India branches, by any citizen of India or a body incorporated in India. The bond has to be encashed within 14 days by the political party. The donors are anonymous to ensure discretion. 


Political parties’ worldwide need to generate funds for expenses incurred during elections. The architecture of political parties in India, with their ranks and hierarchy, makes them institutions by themselves. With prominent political parties backing their candidates in elections from the lowest level, that is Universities and College Student Unions and going up through the hierarchy of the political process right up to the parliamentary elections, funding of political activities is a bonafide financial activity to keep the wheels of democracy turning.

Prior to the introduction of the electoral bond, political parties were required to maintain records of donations above Rs. 20,000 and were supposed to furnish details of the donor such as cheque details, pan card no. etc. The cap on donations from corporate entities was limited only to 7.5% of the company’s profit. In the case of electoral bonds, there is no limit on how much of a body corporate’s profits may be donated to a political party. 

To enable the functioning of electoral bonds, the central government has amended some key legislation. First, under the Reserve Bank of India (RBI) act 1934, Section 31, any currency or similar document could only be issued by the RBI. By the Finance act of 2017, this was amended to allow for select State Bank of India branches (a National bank) to issue electoral bonds. Secondly, Political parties are not covered under the ambit of the Right to Information Act, and similarly, companies are exempt from disclosing who they politically fund. Finally, the Foreign Contribution (Regulation) Act, 2010 has been amended to redefine what a foreign firm is.

When the scheme was announced, concerns were raised both by the RBI and the Election commission (EC). Prior to the 2019 general elections, in a petition before the Supreme Court of India, the EC stated that allowing of anonymous political funding has only reduced the transparency of electoral funding.


  • By keeping donor names anonymous, the system allows for black money and unaccounted wealth to enter the political sphere. This makes it difficult for voters to make their elected representatives liable for their actions when they do not know who is funding them. India’s election campaign is largely privately funded, and this only strengthens a politico-corporate nexus.
  • As a democratic and constitutional right, every individual must be able to participate as a candidate in elections. Merely having less money power than another candidate must not be the reason for non-participation. Corruption and a flawed funding system can make political parties misuse the government’s discretionary powers to raise funds for election campaigns. This can cause the absence of a level playing field for conducting a fair election.
  • There must be absolute transparency and disclosure as to who is funding political parties, in order to ensure that governance is not compromised and is not heavily influenced by foreign corporate donors.
  • In its present form, there is an inherent burden on the economy and political parties must limit their spending for elections.
  • State funding, a concept that has been explored and recommended by some previous reports, has not been explored due to a lack of political will. State funding has the advantage of limiting interested money.
  • The current system of electoral bonds requires a re-look, and legislators must make a comparative study to see what works for India. For e.g. In the US system, there are strong disclosure norms, strict statutory limits on election expenses and ceiling on corporate donations.

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