Explained: What are electoral bonds? Meaning, purpose, latest news, other important things to know

What is the electoral bond scheme? Electoral bonds are a relatively new concept in the realm of political funding in India. Introduced in 2017, electoral bonds enabled individuals and corporate groups to donate unlimited amounts of money to any political party anonymously. Until a landmark decision by the Supreme Court in mid-February to scrap the seven-year-old election funding system, just weeks before Lok Sabha elections due in April-May this year, the bonds were purchased by donors in fixed denominations from State Bank of India (SBI) and handed over to any political party, which could cash them using a bank account. The bonds did not require the beneficiary political parties to disclose the name of the donor to anyone, even the Election Commission of India (ECI). 

Some of the country's biggest companies were among its top political funders over the last five years under the political funding system, as per official data released by the Election Commission of India (ECI) on March 15. Under the system, an individual or firm could buy electoral bonds from PSU lender State Bank of India (SBI) and donate them to a political party.

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As per the electoral bond scheme, an electoral bond was issued in the nature of a promissory note, which was bearer in character. A bearer instrument does not carry the name of the buyer or payee, hence no ownership information is recorded, and the holder of the instrument is presumed to be its owner, according to the Association for Democratic Reforms (ADR).

In light of the concerns raised about electoral bonds, there were calls for reforms to ensure greater transparency and accountability in political funding. Some had suggested the need for stricter regulations and disclosures to prevent any misuse of these instruments.

Here are 10 things to know about electoral bonds: 

1. Anonymity

One of the key features of electoral bonds was the anonymity they provided to the donor. When an individual or entity purchased these bonds, their identity remained confidential, ensuring that the process of political funding was free from any potential biases or influences.

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2. Legal framework

Electoral bonds were introduced in India through the Finance Act, 2017. The government claimed that these bonds would promote transparency in political funding by channeling donations through banking channels. However, critics raised concerns about the lack of transparency regarding the source of these funds.

3. Which parties were allowed to receive funding through electoral bonds?

“Only the Political Parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last General Election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the Electoral Bonds,” according to an official statement dated November 4, 2023. 

4. How did eligible political parties receive funds through bonds?

The concerned parties were required to encash the electoral bonds within a limited timeframe through a bank account with the authorised bank. Failure to enchase the amount within 15 days led to the donation getting deposited into the Prime Minister's Relief Fund.

5. Denominations

Electoral bonds were available in multiple denominations, ranging from as low as Rs 1,000 to as high as Rs 1 crore. 

6. When were electoral bonds available for purchase?

Donors were able to purchase these bonds from designated branches of authorised banks during specific periods announced by the government. The bonds were available for 10 days each four times a year, in January, April, July and October, and an additional 30 days in general election years. 

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7. Validity

One important aspect to note about electoral bonds is their expiry period. These bonds had a validity of 15 days.

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8. Transparency concerns

While the government had touted electoral bonds as a mechanism to enhance transparency in political funding, critics argued that the lack of disclosure regarding the identity of donors posed a threat to the democratic process.  They argued that without knowing the source of these funds, there was potential for corruption and undue influence.

9. Impact on political funding

The introduction of electoral bonds had a significant impact on the way political parties received donations. By providing a legal route for contributions, these bonds had become a preferred mode of donation for many individuals and entities looking to support political causes.

As per the electoral bond scheme, an electoral bond was issued in the nature of a promissory note, which was bearer in character. A bearer instrument is one which does not carry the name of the buyer or payee, no ownership information is recorded and the holder of the instrument is presumed to be its owner, according to the Association for Democratic Reforms (ADR).

10. How will political funding work now?

Parties are still able to collect donations directly from individuals and companies, within the limitations on value and anonymity. Donors can still contribute to parties through to entities called electoral trusts, which are that bodies collate funds and distribute them. The trusts have to name the donors and the parties have to say how much in total they received from these trusts, though the disclosures do not make a direct link between each donor and a party. 

Critics say parties can still break larger donations into smaller chunks of less than Rs 20,000 to mask their donors, and pay for things in cash to circumvent election expenditure limits.

With inputs from agencies