What is Electoral Bond: Understanding Its Purpose and Controversy

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In the evolving landscape of political donations, the advent of the electoral bond has sparked a potent mixture of anticipation and scrutiny. As a novel financial instrument, it aims to ensure the transparency and accountability of corporate donations to political parties, revolutionizing the way political funding flows. The electoral bond has not just altered the mechanics of political donations but has also ignited a debate on its implications for democracy and governance. Understanding what is electoral bond, its purpose, and the controversy surrounding it is crucial for anyone looking to grasp the complex interplay between finance and politics.

The article endeavors to demystify the concept and workings of electoral bonds, elucidating their basic framework, the process of using them, and who is eligible. Additionally, it will explore their denominations, validity periods, and the critical issues of transparency and anonymity they entail. The substantive impact of electoral bonds on political funding and the changes they may herald for the future of political donations in India will be scrutinized alongside recent developments and the public reception of these instruments. Through shedding light on the electoral bonds meaning and examining the balance they seek to strike between facilitating corporate donations and maintaining electoral integrity, the article provides a comprehensive overview of this pivotal financial tool.

Understanding What is Electoral Bonds: The Basics

Definition and Purpose

Electoral bonds are interest-free bearer instruments designed to enable anonymous donations to political parties. These bonds can be purchased by both individuals and companies in India from authorized branches of the State Bank of India (SBI). Introduced in 2017, electoral bonds were presented by the government as a tool to increase transparency in political donations by ensuring that all donations pass through official banking channels, thereby reducing the reliance on cash. The purpose of these bonds is to allow donors to contribute to political parties without disclosing their identity to the public or the recipient party.

Legal Framework Establishing Electoral Bonds

The legal foundation for electoral bonds was laid through amendments to several acts via the Finance Act of 2016 and 2017. These amendments modified the Representation of the People Act, 1951, the Companies Act, 2013, the Income Tax Act, 1961, and the Foreign Contributions Regulation Act, 2010. Before these amendments, political parties were required to disclose all donations above Rs 20,000, and corporate donations were capped at 7.5% of their average net profits over the last three years. The changes facilitated by the Finance Acts allowed for the issuance of electoral bonds, thereby creating a new mechanism for funding political parties.

How Electoral Bonds Work

Electoral bonds function similarly to promissory notes and are payable to the bearer on demand. They are available for purchase in denominations ranging from Rs 1,000 to Rs 1 crore. These bonds can be bought during specified windows each year—typically for ten days each in January, April, July, and October, with an additional period during general election years. Once purchased, these bonds can be donated to any registered political party that has secured at least 1% of the votes in the most recent general or state elections.

The political parties can then encash these bonds within a stipulated 15-day period. The transaction remains anonymous; the identity of the donor is not disclosed to the recipient party, although it is recorded by the SBI under the Know Your Customer (KYC) norms. This system ensures that all transactions are traceable by the bank, yet maintains donor anonymity, aligning with the goal of reducing the influence of undisclosed money in politics.

The Process of Using Electoral Bonds

Purchasing Process

Electoral bonds are issued by authorized banks, notably the State Bank of India (SBI), at specific intervals throughout the year, usually a few times annually. These bonds come in fixed denominations starting from as low as Rs 1,000 and can go up to Rs 1 crore or more, catering to a wide range of donors. Individuals or entities, including companies and registered political parties, are eligible to purchase these bonds. The process allows for the acquisition of electoral bonds either through digital channels or by visiting the bank in person, ensuring accessibility and convenience for the donors.

To purchase electoral bonds, a donor must have a bank account that is compliant with the Know Your Customer (KYC) norms. This requirement ensures that all transactions are traceable and adds a layer of security to the process. The bonds can be bought through cheque or digital payment methods, providing flexibility in the mode of payment. The issuance of electoral bonds is designed to be a straightforward process, with the bonds being available at specified branches of the SBI, including 29 designated branches across major cities like New Delhi, Mumbai, and Kolkata.

Donation to Political Parties

Once the electoral bonds are purchased, the donor can then donate them to the political party or individual of their choice. This step is crucial as it represents the transfer of funds from the donor to the political entity, facilitating anonymous contributions to the political landscape. The electoral bonds serve as a legal mode of making political contributions, allowing donors to support their preferred parties without disclosing their identities to the public or the recipient party.

It is important to note that only political parties that are registered under section 29A of the Representation of the Peoples Act, 1951, and have secured at least one percent of the votes polled in the most recent general or assembly elections are eligible to receive electoral bonds. This criterion ensures that only legitimate political entities benefit from the donations made through electoral bonds.

Redemption by Political Parties

For the political parties receiving electoral bonds, the redemption process is time-bound and must be completed within 15 days of the issuance of the bonds. The parties can encash the bonds through their verified accounts, which are registered with the Election Commission of India (ECI). The ECI monitors these transactions, ensuring that the funds received through electoral bonds are credited to the party’s designated bank account. This system maintains the anonymity of the donor while allowing for traceability and accountability of the funds at the bank level.

If the political party fails to encash the amount within the stipulated 15 days, the amount received as a donation gets deposited into the Prime Minister’s Relief Fund. This mechanism ensures that the funds are not misused and contribute to a cause if not claimed by the political parties in time.

The process of using electoral bonds encompasses the purchasing of bonds by donors, their donation to eligible political parties, and the subsequent redemption by these parties. This system aims to streamline political donations, promoting transparency and traceability while preserving the anonymity of the donors.

Eligibility for Electoral Bonds

Eligibility for electoral bonds encompasses specific criteria for both donors and recipient political parties. These criteria ensure that the process of political donations via electoral bonds is transparent, regulated, and accessible to a broad spectrum of donors while maintaining the integrity of political funding.

Eligible Donors

  1. Citizenship and Establishment: Only citizens of India and entities or corporations established in India are permitted to purchase electoral bonds. This criterion ensures that the funding for political parties through electoral bonds is sourced domestically, aligning with the regulatory framework governing political donations.
  1. Purchase Process: Electoral bonds can be acquired individually or jointly with other individuals. The purchase of these bonds is facilitated exclusively through authorized branches of the State Bank of India (SBI), ensuring a centralized and secure transaction process.
  1. KYC Compliance: A mandatory requirement for purchasing electoral bonds is compliance with the Know Your Customer (KYC) norms. This requirement is pivotal in maintaining the traceability of transactions and adding a layer of security and accountability to the donation process. It ensures that all transactions are transparent and reduces the risk of misuse of the electoral bond system.
  1. Eligible Entities: The spectrum of eligible donors is broad, including Hindu Undivided Families (HUFs), companies, firms, Associations of Persons (AOPs), Bodies of Individuals (BOIs), and other artificial juridical persons. This inclusivity allows a wide range of entities to contribute to political parties, thereby democratizing the process of political donations.

Eligible Political Parties

  1. Registration and Vote Share: To be eligible to receive donations through electoral bonds, political parties must be registered under Section 29A of the Representation of the People Act, 1951. Furthermore, they must have secured at least 1% of the votes polled in the most recent general elections to the Lok Sabha or State Assembly. This criterion ensures that only legitimate political entities that have demonstrated a minimum level of public support can benefit from electoral bond donations.
  1. Verified Account Requirement: Eligible political parties are required to have a verified account with the Election Commission of India (ECI). This account is the only channel through which the electoral bond transactions can be processed, ensuring a regulated and transparent mechanism for political donations.

Verification and Validation Processes

  1. Documentary Requirements: The purchase of electoral bonds necessitates the submission of specific documents, including an application form, pay-in-slip, proof of citizenship, KYC documents, and, if applicable, a proforma from the remitting branch declaring the source of funds. These documents are critical in verifying the legitimacy of the donor and the source of funds, thereby safeguarding the electoral bond system against potential misuse.
  1. Timeliness of Transactions: The political party receiving the electoral bond must deposit the bond amount into its verified account within 15 days of issuance. This time-bound requirement is instrumental in maintaining the efficiency and accountability of the electoral bond system. Failure to comply with this stipulation results in the donation being redirected to the Prime Minister’s Relief Fund, ensuring that unclaimed funds are utilized for public welfare.

The eligibility criteria for electoral bonds are designed to ensure a transparent, secure, and inclusive framework for political donations, supporting the democratic process while safeguarding against misuse.

Denominations and Validity

Available Denominations

Electoral bonds are issued in multiples, allowing donors to choose from a range of denominations according to their donation capacity. The available denominations for electoral bonds include Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh, and Rs. 1 crore. This tiered system ensures that individuals and entities, regardless of their financial standing, can participate in the political funding process. The absence of a maximum limit on the purchase of these bonds further facilitates substantial political donations by corporations and affluent individuals.

Validity Period

The validity period of electoral bonds is a critical aspect of their structure, designed to ensure the timely use of funds in the political arena. Electoral bonds are valid for fifteen calendar days from the date of their issuance. This limited validity period mandates that the bonds be utilized within a specific timeframe, thereby encouraging the expedient transfer of funds to political parties. It is essential for donors and political parties to be aware of this period to ensure the bonds are redeemed before expiration.

Terms of Encashment

For electoral bonds to serve their intended purpose, the process of encashment by political parties is strictly regulated. Eligible political parties can redeem these bonds only by depositing them in designated bank accounts maintained with authorized banks, specifically the State Bank of India, which is authorized to issue and encash these bonds. This procedure underscores the system’s aim to maintain transparency in political donations while ensuring that all transactions are traceable. The requirement that electoral bonds be encashed within the 15-day validity period or else the funds are redirected to the Prime Minister’s Relief Fund, emphasizes the system’s accountability and the efficient use of political donations.

Transparency and Anonymity

Electoral bonds, introduced in India in 2017, were designed to allow individuals and organizations to donate to political parties without disclosing their identities to the public or the recipient party. This mechanism was initially hailed by the government as a means to enhance transparency by ensuring donations were channeled through banking channels. However, the anonymity provided to donors has spurred significant debate regarding its impact on transparency and accountability in political funding.

Anonymity of Donors

Under the electoral bond scheme, both individuals and corporate groups can donate unlimited amounts of money to political parties anonymously. These bonds, functioning as promissory notes, do not necessitate the disclosure of the donor’s identity to any party, including the Election Commission of India (ECI). Critics argue that this anonymity undermines transparency and accountability, as it enables potential influence peddling without public scrutiny. While political parties are mandated to disclose the total amount of funds received through electoral bonds, the identities of individual donors remain undisclosed, raising concerns about possible quid pro quo arrangements between donors and political parties.

Transparency in Political Funding

The central critique of the electoral bonds scheme is its perceived failure to deliver on its promise of transparency in election funding. Critics contend that the anonymity afforded by electoral bonds benefits only the broader public and opposition parties, leaving the door open for the government to identify funders of its opponents through the government-owned State Bank of India (SBI). This dynamic potentially allows the government to exert undue influence over donors, thereby conferring an unfair advantage to the party in power. The Supreme Court of India has emphasized the ‘right to know’, especially concerning elections, as integral to the right to freedom of expression under the Indian Constitution. Despite this, the electoral bonds scheme withholds from citizens details about who is funding political parties, thereby contradicting democratic principles of transparency and accountability.

Concerns Raised by Critics

Critics have labeled the electoral bonds scheme as a form of legalized corruption, enabling corporate entities to exert disproportionate influence over policy decisions by anonymously sponsoring ruling parties. This exclusive access to donor information by the ruling party raises significant concerns regarding the impartiality and integrity of the electoral process. Regulatory bodies, including the Reserve Bank of India (RBI) and the Election Commission of India (ECI), have issued advisories highlighting the potential for electoral bonds to be exploited by shell companies for money laundering purposes. The ECI has described the system as a regressive step, detrimental to the transparency of political donations. Moreover, the scheme’s allowance for unlimited political donations by corporations, without shareholder oversight, has been criticized for undermining democratic principles and paving the way for crony capitalism.

In summary, while electoral bonds were introduced with the intent of enhancing transparency in political funding, the anonymity they provide to donors and the resultant lack of disclosure have sparked significant controversy. Concerns regarding the potential for corruption, undue influence, and the undermining of democratic principles continue to surround the scheme, prompting calls for reevaluation and reform.

Impact on Political Funding

Electoral bonds in India, introduced in 2017, marked a significant shift in the landscape of political funding. These financial instruments were designed to allow donations to political parties through banking channels, aiming to enhance transparency and reduce the reliance on cash donations. However, this change brought with it a wave of controversy, primarily due to the anonymity it provided to donors, raising concerns about the potential for corruption and influence peddling without public scrutiny.

Shift from Traditional Methods

Traditionally, political funding in India was dominated by cash transactions, with limited transparency regarding the sources of donations. The introduction of electoral bonds sought to move these transactions to formal banking channels, providing a traceable record of donations. This was seen as a step towards cleaning up the electoral funding process by ensuring that all donations were accounted for and passed through an official banking institution, the State Bank of India (SBI). Despite these intentions, the anonymity feature of the bonds meant that while transactions were recorded by issuing banks, the identities of the donors remained confidential, leading to debates on the effectiveness of the scheme in promoting transparency.

Implications for Political Transparency

The electoral bond scheme’s impact on political transparency is multifaceted. On one hand, it introduced a level of accountability, with political parties required to disclose the funds received through electoral bonds in their financial statements submitted to the Election Commission of India (ECI). This requirement aimed to provide a clearer picture of party finances and promote greater scrutiny. On the other hand, the anonymity granted to donors has been criticized for undermining the very transparency the scheme sought to enhance. Critics argue that this opacity facilitates potential quid pro quo arrangements between donors and political parties, as the public and regulatory bodies are kept in the dark about the identities of individual donors.

Furthermore, instances have been reported where significant government projects were awarded to companies that made substantial donations through electoral bonds. This raised serious concerns about corruption and the erosion of public trust, suggesting that the scheme might encourage rather than curb the influence of money in politics. The lack of regulatory oversight on companies operating in sensitive sectors due to political pressures stemming from electoral bond donations also poses a threat to governance and the integrity of democratic institutions.

Critique and Support

The electoral bond scheme has faced criticism from various quarters, including legal challenges and opposition from the ECI, which argued that the scheme is contrary to the goal of transparency in political finance. Petitioners in the Supreme Court have argued that the scheme legitimizes electoral corruption on a large scale by allowing non-transparent funding and facilitating the flow of black money into the political system. Moreover, the scheme’s provision for unlimited corporate donations, combined with the anonymity of donors, has been criticized for paving the way for crony capitalism and disturbing the democratic balance between ruling and opposition parties.

Despite these criticisms, supporters of the scheme argue that it represents a pioneering step in electoral reforms, aiming to ensure transparency and accountability in political funding by channeling donations through a single authorized bank and requiring KYC details for accountability. The government has defended the scheme as a measure to reduce the unregulated flow of black money into political funding, asserting that it maintains the confidentiality and right to privacy of donors.

In conclusion, the impact of electoral bonds on political funding in India is complex, with the scheme being both lauded for its attempt to introduce transparency and accountability, and criticized for the potential it creates for corruption and undue influence in the political system. The debate over its effectiveness and implications for democracy continues, underscoring the need for ongoing scrutiny and potential reform.

Recent Developments and Public Reception

Supreme Court Rulings

On February 15, 2024, the Supreme Court made a landmark decision by striking down the Electoral Bond Scheme introduced in 2018, ruling it as a violation of the voters’ right to information as enshrined in Article 19(1)(a) of the Constitution. The court also ordered the immediate cessation of the sale of electoral bonds and mandated the State Bank of India (SBI) to submit details of the electoral bonds purchased and redeemed by political parties from April 12, 2019, to the Election Commission of India (ECI), which in turn is required to publish this information on its official website within one week from receipt. This judgment was based on the grounds that the non-disclosure of information regarding the funding of political parties is violative of the right to information of citizens under Article 19(1)(a) of the Constitution. Furthermore, the amendments introduced by the Finance Act 2017, which allowed unlimited funding of political parties by corporate entities, were deemed arbitrary and violative of Article 14 of the Constitution.

Public and Political Reactions

The Supreme Court’s ruling has elicited a variety of responses from different quarters. The government had previously defended the scheme as a pioneering step towards ensuring transparency and accountability in political funding. However, the Election Commission of India (ECI) had filed an affidavit opposing the Electoral Bond Scheme, citing concerns over its implications on transparency in political finance and the potential for unchecked foreign funding of political parties. The decision has also sparked debates in the media and among the public, with many viewing it as a critical step towards enhancing transparency in political funding. Critics of the scheme have argued that the anonymity provided to donors undermines transparency and accountability, allowing for potential influence peddling without public scrutiny.

Trends in Use of Electoral Bonds

Despite the controversy surrounding electoral bonds, they played a significant role in the funding dynamics of political parties. Analysis by the Association of Democratic Reforms showed a 743% increase in donations from electoral bonds to national political parties between 2017-18 and 2021-22, highlighting a significant shift towards “anonymous” funding. This trend was evident in the substantial financial support received by major political parties, with the ruling Bharatiya Janata Party (BJP) and regional parties like Trinamool Congress and Bharat Rashtra Samiti benefitting significantly from electoral bond donations. The scheme’s impact on the electoral trust scheme, which requires corporates to declare donor names and amounts given to a political party, has also been noted, with a marked preference for the anonymity offered by electoral bonds.

The Supreme Court’s ruling and the subsequent public and political reactions underscore the complex interplay between the need for transparency in political funding and the challenges posed by the anonymity provided by electoral bonds. The developments in this area continue to be a subject of keen interest and debate among stakeholders in India’s democratic process.

Future of Electoral Bonds in India

Government’s Stand

In defense of the electoral bond scheme, Finance Minister Sitharaman highlighted the transparency that the scheme brought to political donations, contrasting it with the previous practices of cash transactions that lacked any form of accountability. She emphasized that the scheme, having been established through legislation passed in Parliament, was utilized by all political parties, suggesting a unanimous benefit from its implementation. Despite the Supreme Court’s ruling against the electoral bond scheme, the government maintains that the structure was a step towards reforming the murky waters of political finance, ensuring that all money transferred was accounted for within the banking system.

Potential Reforms

The Supreme Court’s decision to strike down the electoral bond scheme has necessitated a reevaluation of the framework governing political donations in India. Experts suggest several reforms to enhance transparency and reduce the potential for undue influence in political funding:

  1. Mandatory Public Disclosure: Regulations could require the disclosure of all political donations, irrespective of the amount, to ensure transparency.
  1. Donor Transparency: Laws might be introduced to mandate the disclosure of information about donors, including their identities and affiliations, to enable voters to make informed decisions.
  1. Caps on Contributions: Setting strict limits on the amount that individuals and corporations can donate to political parties could help prevent corruption and reduce the risk of quid pro quo arrangements.
  1. Public Financing: Exploring public financing options, such as matching funds for candidates who agree to limit private contributions, could reduce the influence of wealthy donors and special interest groups.
  1. Use of Technology: Implementing blockchain technology could enhance the traceability and security of political donations, making the funding process more transparent and accountable.

Expert Predictions and Analysis

Experts predict that the future of political funding in India will likely involve a combination of stricter regulations and the adoption of advanced technologies to ensure transparency and fairness. The emphasis will be on creating a system that not only addresses the flaws of previous schemes but also incorporates comprehensive stakeholder feedback to foster broad-based support and effectiveness. The goal is to establish a political funding mechanism that upholds the principles of democracy by ensuring that all transactions are transparent, accountable, and free from undue influence.


Throughout this extensive exploration of electoral bonds, their framework, mechanisms, and controversies have been thoroughly dissected, illuminating both their innovative approach to political funding and the multifaceted issues that accompany their use. The discussion underscored the critical balance between the need for transparency in political donations and the pursuit of donor anonymity, a facet that has sparked widespread debate and scrutiny. The insights derived from examining the implementation and impact of electoral bonds, particularly their influence on political transparency and funding dynamics, serve as a pivotal reference for understanding the complex interplay between finance and governance in India’s democratic fabric.

As the discourse around electoral bonds continues to evolve, especially in light of recent judicial rulings and public discourse, it is paramount that future deliberations and reforms are informed by the lessons highlighted throughout this discussion. The drive towards enhancing transparency, accountability, and the integrity of political donations remains at the heart of this discourse, underscoring the need for a balanced and reformed approach that aligns with democratic principles and the public’s right to information. The journey of electoral bonds, from inception to the present challenges, epitomizes the ongoing quest to refine the mechanisms of political financing in a manner that fortifies the foundations of democracy.

Frequently Asked Questions

1. What exactly is an electoral bond?

Electoral bonds are akin to promissory notes and operate as interest-free banking instruments. They can be purchased by any Indian citizen or registered Indian organization after completing the KYC requirements set by the Reserve Bank of India (RBI).

2. Which entity is responsible for printing electoral bonds?

The Security Printing and Minting Corporation of India (SPMCIL) was authorized to print electoral bonds, each valued at ₹1 crore. This occurred three days before the Supreme Court ruled the bonds unconstitutional, following final approval from the Finance Ministry.

3. How do electoral trusts differ from electoral bonds?

Electoral trusts and electoral bonds serve different functions in political financing. There are currently eighteen active electoral trusts, with Prudent Electoral Trust being the largest, supported by multiple corporate donors. In contrast, electoral bonds are promissory notes issued by authorized branches of the State Bank of India, allowing companies or individuals to donate to registered political parties.

4. What should one know about electoral bonds for the UPSC exam?

For the UPSC exam, it is important to understand that electoral bonds are financial instruments similar to promissory notes. These bonds can be purchased from the State Bank of India by both companies and individuals and are used to donate funds to political parties, which can then cash these bonds.
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