The electoral bond scheme was introduced by then Finance Minister Arun Jaitley during his Budget speech of 2017-18

Long before the Supreme Court struck down electoral bonds, that allowed individuals and corporations to anonymously donate unlimited funds to political parties, calling the scheme “unconstitutional”, Finance Minister Arun Jaitley had defended the system as “legitimate and transparent”.

The electoral bond scheme was introduced by then Finance Minister Arun Jaitley during his Budget speech of 2017-18 as an alternative to cash donations to political parties in a bid to enhance transparency in political funding.

Last month, a five-judge Constitution bench, led by Chief Justice DY Chandrachud, deemed the electoral bonds scheme unconstitutional, citing violations of citizens’ right to information. The court directed the State Bank of India, designated for issuing electoral bonds, to disclose details of each bond encashed by political entities to the Election Commission of India.

After the EC made the data public on Thursday, Finance Minister Nirmala Sitharaman defended the system and criticised the previous donation framework, particularly the electoral trusts scheme introduced by the UPA government in 2013, labeling it “completely imperfect.”

Remembering her predecessor, Arun Jaitley, she said, “When he brought this electoral bonds scheme, he had said “this is better than the previous systems as the money is going from accounts to party”s account.”

Acknowledging its imperfections, Sitharaman claimed it has curbed the previously rampant discretionary donations to political parties. “It”s not a perfect system, but we have moved from a system where everyone did what they want to do. A system which was not perfect, from a system which was completely imperfect, was brought in.”

Arun Jaitley – The Prime Mover of Electoral Bonds

Expressing the necessity to “purify the system of political funding in India,” Arun Jaitley had pitched it as a transparent alternative to political funding. While limiting cash donations to Rs 2,000 from a single entity, he proposed the electoral bond scheme. Jaitley emphasised in January 2018 that the electoral bond scheme aimed for “completely clean money and significant transparency”.

“A donor can purchase electoral bonds from a specified bank only by a banking instrument. He would have to disclose in his accounts the amount of political bonds that he has purchased. The life of the bond would be only 15 days.  A bond can only be encashed in a pre-declared account of a political party. Every political party in its returns will have to disclose the amount of donations it has received through electoral bonds to the Election Commission,” he had said.

Despite opposition parties raising concerns about the scheme”s lack of transparency, the government proceeded to enact it, officially notifying the scheme on January 2, 2018. This entailed amending the Reserve Bank of India (RBI) Act, enabling the State Bank of India (SBI) to issue such bonds.

The first batch of electoral bonds was sold in March 2018. Over the past six years, SBI has issued 30 tranches of electoral bonds amounting to Rs 16,518 crore.

In 2018, Jaitley defended the electoral bond scheme, asserting that revealing donors” identities would revive the use of cash and black money in political funding.

“If you ask people to disclose that (identity of a donor) also, then I am afraid the cash system will be back.”

Highlighting the scheme”s objectives, Jaitley emphasized its potential to enhance transparency and accountability in political funding, thereby curbing black money. He underscored that the scheme would facilitate the infusion of “clean, tax-paid funds” into the political system through regulated banking channels.

As part of earlier political funding reforms, Jaitley, during his tenure as Law Minister in the Atal Bihari Vajpayee government, spearheaded a Bill to legalise donations by cheque, with the stipulation that such contributions be declared to both the income tax authorities and the Election Commission. The government incentivized these contributions by making them deductible from the donor”s Income Tax liability.

Jaitley also praised Pranab Mukherjee”s reform efforts during the UPA-II era in 2010, acknowledging his foresight in addressing donors” concerns about revealing their identities. Mukherjee introduced the concept of a pass-through electoral trust, allowing donors to contribute to a registered electoral trust, which would then donate to political parties, thus masking the identities of individual donors.

However, even within the Finance Ministry, doubts lingered about the scheme”s efficacy, including from former finance secretary, Subhash Chandra Garg.

In his book “We Also Make Policy”, released in October 2023, Garg revealed his initial skepticism about the electoral bond announcement, viewing it as a potential avenue for channeling company donations to the ruling party through a “devious way.”

Upon assuming the role of Secretary of the Department of Economic Affairs (DEA) in July 2017, Garg found Jaitley deeply invested in the electoral bonds scheme. Jaitley portrayed the scheme as a vital step towards transparency and equity in managing political parties” finances. He highlighted the prevalent practice of parties receiving the majority of their funding in cash, often from corporate sources, which led to convoluted processes to obscure donors” identities.

According to Garg, Jaitley argued that the pre-electoral bonds system facilitated money laundering and the creation of obscure shell companies to obscure transactions, ultimately promoting opacity in political financing. The scheme, Jaitley contended, would enable companies to make donations transparently from their accounts, thereby enhancing corporate accountability.

While Jaitley conceded that the scheme did not mandate disclosing the recipient party of the donation, he asserted that this safeguarded companies” confidence, as their contributions remained confidential. Despite private support from other political parties, Jaitley lamented their hesitancy to publicly endorse the scheme.

Jaitley”s persuasive arguments convinced Garg of the scheme”s potential to improve the existing system.

Challenges also persisted from other quarters. The Reserve Bank of India (RBI) sought assurances that electoral bonds wouldn”t resemble bearer bonds, while the Election Commission (EC) expressed reservations about the scheme”s implications.