Electoral bond scheme: Hidden bonds

Print edition : December 20, 2019

Commerce Minister Piyush Goyal speaks to mediapersons on the issue of electoral bonds, in New Delhi on November 21. Photo: PTI

A sample of the electoral bond issued by SBI.

A media expose shines the light on the Modi regime’s subterfuge in preserving the opaqueness of the electoral bond scheme, which ensured that only the ruling party benefited from the largesse extended by corporate entities.

THE open secret of the world’s largest democracy is the extent to which money power dominates the electoral process. But even diehard cynics were shaken when the Indian edition of Huffington Post, in an expose, showed the extent to which the electoral bond scheme was abused at every stage to blatantly favour the ruling Bharatiya Janata Party (BJP) at the expense of its rivals.

Announced with great fanfare by former Finance Minister Arun Jaitley during his Budget speech of February 2017, the bonds were touted as the silver bullet that would curb the influence of big money in politics. Instead, Nitin Sethi, aided substantially by the Right to Information (RTI) activist Lokesh Batra, revealed in a series of reports in a website that the Finance Ministry thwarted every effort of multiple institutional agencies and ran the scheme in utter opacity, all in the name of ensuring transparency.

A large cache of documents unearthed by multiple and persistent RTI requests revealed that even before Jaitley made his statement in Parliament, officials realised that the scheme, which would open the door for Indian and foreign companies (through their Indian subsidiaries) to donate anonymously unlimited amounts of money to political parties, needed at least the pretence of a nod from the Reserve Bank of India (RBI).

The documents revealed that although the Ministry sought the RBI’s go-ahead in January 2017, it chose to ride roughshod over strong objections raised by the central bank, which pointed out that the bonds were “bearer” class, that is, anyone who held it could pass it on without the authorities having a clue about the trail of ownership.

RBI objections

The RBI objected to the scheme on the grounds that the person, or entity, “who finally and actually contributes the bond to the political party will not be known”. It made perfect sense for the central bank to assert this simple tenet of financial propriety because the scheme went against the very know-your-customer (KYC) norms that are mandatory for ordinary citizens.

There was yet another, more serious problem raised by the RBI. It pointed out that the bearer bond, by virtue of being freely transferable, enjoyed the status of a quasi-currency. But the Finance Ministry reacted quickly, indicating that it had made up its mind to go ahead with the scheme, with or without the RBI’s concurrence.

Shockingly, the then Revenue Secretary, Hasmukh Adhia, noted in the files that the RBI “has not understood the proposed mechanism of having pre-paid instruments for the purpose of keeping the identity of the donor secret, while ensuring the donation is made only out of fully tax-paid money of a person”.

Even more preposterous was Adhia’s contention that the RBI’s response came “quite late”, after the Finance Bill had “already been printed”. The bureaucracy in the Ministry moved fast; within two days, on February 1, Jaitley announced the scheme, despite the grave and substantive apprehensions raised by the central bank.

The RBI’s misgivings rested on three foundational pillars of its remit. First, the “bearer” nature of the bonds meant that it posed grave risks to its authority in ensuring that it had a transparent view of the money trail.

The second objection arose from the manner in which the bonds undermined its status of being the sole issuer of currency; the fact that the bond, by its very design, threatened to act as a parallel currency was an affront to its undisputed authority in this realm.

The third substantive objection arose from the fact that the bond, again by design, posed the danger of acting as a vehicle for the transfer of slush money, thereby undermining the RBI’s role as the pre-eminent authority of the Indian financial system. This was because the legislation on electoral bonds now made it possible for any individual, company or group of persons to donate any amount without having to reveal their identity.

Earlier, no entity could donate more than 7.5 per cent of its average turnover in the preceding three financial years to a political party; this cap was removed during Jaitley’s tenure. More significantly, foreign companies, through their Indian subsidiaries, could also participate in the game. The anonymous nature of the donor and the removal of the cap meant that slush money could possibly come into the country, masked as donations, to fund political parties. It is not difficult to imagine how this route could be easily used for terror financing. It beggars belief that this possibility escaped the notice of the Modi government which constantly talks about national security.

ECI overruled

If the RBI was treated with disdain, the Election Commission of India (ECI) came in for treatment that can only be termed as grossly contemptuous. The documents showed that the then Union Minister of State for Finance, P. Radhakrishnan, lied when he asserted in the Rajya Sabha, in reply to a question, that the ECI had not raised “any concerns” about the electoral bonds. The member who raised the question, Mohammad Nadimul Haque, filed a breach of privilege complaint against the then Minister.

In May 2017, the ECI had written to the Ministry of Law and Justice that the electoral bond scheme suffered from serious loopholes that would result in significant damage to the sanctity of the electoral process.

The removal of the requirement that political parties declare such donations in their profit and loss statements was another blow to transparency in political funding, the ECI observed. It added that the scheme would gravely undermine the people’s right to know the source of funding of parties participating in the electoral process. It noted: “This is a retrograde step as far as transparency of donations is concerned and this proviso needs to be withdrawn.”

Significantly, the ECI echoed the RBI’s grave apprehensions about anonymous corporate funding. It said the removal of the cap on how much a corporate could donate to a political party opened up the sinister possibility “of shell companies being set up for the sole purpose of donations to political parties, with no other business of consequence having disbursable profits”.

The changes in regulations “would lead to increased use of black money for political funding”, it said.

The record of the interaction between Finance Ministry officials and the RBI and the ECI—now in the public domain owing to the relentless efforts of Lokesh Batra—revealed that officials of the RBI and the ECI were not satisfied with the explanations offered by the Finance Ministry.

Despite the discord on record, a senior Finance Ministry official falsely asserted that the ECI was “reasonably satisfied” that the bonds constituted a “fair and transparent” system for political donations.

This is also evident in the fact that more than a year later the ECI continued to insist that the scheme’s key provisions be discarded. The Finance Ministry continued to pretend that all was well. In defending Radhakrishnan’s statement in Parliament, it ingeniously maintained that the ECI had only voiced its concerns to the Law Ministry and that the Finance Ministry was not in the know of these objections.

However, the unearthed documents revealed that the ECI’s missives to the Law Ministry had been circulated to all the Ministries, including the Finance Ministry. The documents also revealed that the trail went far beyond the Finance Ministry, and even up to the Prime Minister’s Office (PMO).

On January 2, 2018, the government notified the rules of the electoral bonds scheme, which specified a 10-day window at four quarterly intervals in a year, apart from a 30-day window before a general election.

Documents unearthed by Lokesh Batra showed that the PMO intervened in breaking the rules the government had set, by directing the Finance Ministry to open an unscheduled window just before several States—Karnataka, Chhattisgarh, Madhya Pradesh, Rajasthan, Mizoram and Telangana—went to the polls. The windows were restricted, ostensibly to check money laundering (in fact, the RBI had suggested that there be only two such windows in a year).

The breaking of the rule enabled State Bank of India (SBI)—the sole issuer of the bonds—to open its sale window in March 2018, instead of April. The sale of bonds fetched Rs.222 crore in that round and 95 per cent of the bonds went to the BJP. In April too, bonds worth Rs.114.90 crore were purchased. This rule-breaking was repeated in May 2018 just before the Assembly election in Karnataka.

The unearthed documents revealed that bureaucrats in the Finance Ministry were fully aware that the instructions from the PMO were completely out of order. To make matters worse, SBI was forced to accept bonds that had “expired”, soon after the election in Karnataka, which resulted in a hung Assembly (the bonds had a 15-day validity after their issue, within which period they had to be encashed).

Early on, even as the scheme was being planned, SBI had objected to keeping the identity of the bond purchasers anonymous as it would be a travesty of prudential financial conduct at the bank.

Media revelations last year showed that the bonds did indeed have serial numbers, but they were visible only in ultraviolet light. This has been confirmed by the latest cache of documents unearthed by Lokesh Batra.

This kicks the last stool on which the advocates of the bonds have been standing—that anonymity is necessary to protect those donating money to political parties from vindictive political retribution.

It turns out that the government has complete knowledge of which party received how much and from whom. Jaitley, who earlier asserted that the anonymity clause was a demand raised by those making donations, later, in response to an RTI request, stated that nobody objected to the invisible serial numbers on the bonds.

Minister of Railways and Commerce Piyush Goyal asserted during the thick of the revelations that the bonds facilitated “small” donations. However, table 2 shows that a mere 47 bonds of a total of 12,313 bonds sold had a face value of Rs.1,000, the lowest denomination. The highest denomination of Rs.1 crore accounted for 92 per cent of all bonds sold between March 1, 2018 (when they were first issued) and October 10, 2019.

Cynics may argue that the value of bonds sold, Rs.6,129 crore, is laughably small given the extent of corruption believed to exist in Indian politics. After all, just one MLA from Karnataka who quit his party to join the BJP has seen a tenfold increase in his assets between the 2018 election and the byelection he is now contesting, an indicator of the extent of money power in Indian politics.

However, this tunnel vision of politics misses the point that the bonds represent a new, and dangerously hidden, nexus between big business and politics. It is one in which the notion of quid pro quo between political authorities and donors (read stakeholders) takes on an entirely new dimension.

Protected from the searching gaze of public scrutiny, public policy can now be conducted in the dark realms of utter opacity.

The distance the so-called mainstream media has traversed in the past three decades is best illustrated by its contrasting treatment of the electoral bonds scandal compared with how it shone the light relentlessly on the Bofors scandal. Although the original scoop, followed by a series, appeared in The Hindu, other media outlets also pursued it, refusing to treat it as a mere “story” unearthed by a rival publication. But the fact that most mainstream media outlets have chosen not to dig deeper into the electoral bond scandal is another seamy side-story in this dark drama.

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