Even at the time the government had brought in demonetisation to clean up black money in the country—how effective demonetisation was is another matter—it was always obvious political funding was a major lacunae. After all, if political parties need money to fight elections and to look after their armies of supporters when they were not in power, this has to come from the corporate sector. So, even if you assume away what the corporate sector needs to give as bribes to bureaucrats to get its work done, the corporate sector needed to generate this in cash to pass on to political parties. That is why, when the government brought in demonetisation, it promised that it would come out with electoral bonds to ensure all donations to political parties are made by cheque—and therefore, by definition, have been declared to the taxman. On Tuesday, as part of this, the government put out details of the scheme. Non-interest bearing bearer bonds will be issued by the central bank, and these can be bought by corporates who wish to donate money to political parties. Within 15 days of buying the bond, which is then handed over to the political party, the party has to deposit that bond in its bank account. The political party will declare the amount received via the bonds, but the corporate who buys the bond does not have to specify which party it gave the bond do—it will, though, declare to the taxman that it bought electoral bonds of a certain value.
The good thing about the bond, naturally, is that a large part of political funding becomes legit. There is, of course, still a cash loophole which allows parties to collect amounts in cash and claim they came from small donors whose names don’t have to be declared to the authorities. The problem with the bond, however, is that since the political party does not declare which corporate it got the money from, this makes it impossible to prove a quid pro quo—if Company A gave a cheque to the ruling party, after which import duties rose on the products it made, the quid pro quo would be obvious; in the bonds case, this cannot be established.
That’s a clear negative, but it is important to put this in perspective. Till the bonds scheme was announced, all donations were made in cash, so tracing a quid pro quo was never really possible anyway. To that extent, for all practical purposes, the bonds scheme doesn’t do anything to reduce the opacity of donations but it helps bring them into the white economy. As time goes by, and Indian politicians stop punishing corporates who give donations to the other side, perhaps the anonymity can be done away with. For now, let the scheme work and see whether the cloak of anonymity emboldens India Inc to give its political donations in white.