Politics of Electoral Bonds–I

Maitreesh Ghatak & Anirban Mukherjee

The electoral bond system in India has been controversial from the start. Various political parties and civil society organisations had approached the court on several occasions, questioning the morality of the system and its adverse impact on democracy. As a result, a few months before the national elections in 2024, the system was scrapped on the orders of the Supreme Court. Recently, after the Election Commission made it mandatory to give an account of the income and expenditure of political parties, information about the amount of donations by business organizations and individual donors is now available. Organisations such as the Association for Democratic Reforms (ADR) has been using the Right to Information (RTI) Act to publish all this information on a regular basis. When the amount of all these donations reaches figures of the magnitude of thousands of crores of rupees, it seems natural to suspect that they have motives that transcend ideology and are based on profit calculations.

There is no doubt in the minds of the public that political parties collect large sums of money from industrialists and businessmen long before the introduction of electoral bonds and the government run by them and in exchange, provides various favours and concessions. However, it is difficult to verify who is getting exactly what benefits in exchange for how much money donated as the whole thing takes place bypassing laws and regulations.

But what is the reason behind the protests? If the public is not so much bothered about government favours in exchange of political donations, why is there so much controversy about electoral bonds?

We think there are two reasons for this. The first of is the view that in the last decade, there has been growing resentment about the way some industrial groups have been bypassing the parliament and the democratic system, and so the electoral bond issue throws up uncomfortable questions about the future of democracy in our country.

The second reason for concern about the electoral bond system lies in some of its features. There are two major differences between contributions via bonds and donations through other means: one, the donor’s name is hidden in the case of a bond; and two, there is no upper limit on the amount of money that can be given through bonds. That is, any person or organization can buy a bond of any amount and give it to the party of his or her choice and that party can cash the bond and fill the party coffers with it. In the case of electoral bonds, there is no way of knowing whether the money came from the pocket of an industrialist or a lobbying firm or from an ordinary supporter. Taking advantage of these two features of electoral bonds, the path has been made clearer for big industrialists and businessmen to take unfair advantage of the government in exchange for money. These concerns about electoral bonds cannot be called unreasonable or politically biased against any specific party.

We should note that the rules are different in the case of non-bond donations. For contributions below two lakh rupees the identification of the donor is not required. Also, in the case of corporate non-bond contributions, a maximum limit of 7.5% of net profits of the last three years can be donated and that too with the approval of the Board of Directors. However, it should be noted that this 7.5% upper limit rule was lifted after 2017.

The introduction of the bond system has therefore given rise to fears that the system of government benefits in exchange for money, which had some minimum restrictions, would be made obsolete by this system. The system of giving money through electoral bonds has therefore appeared in the public mind as an attempt to legitimize corruption, and therefore it has crossed the limits of societal tolerance of unethical practices. There are so many things happening around us that we know happen but are unaware of the details, and we learn to accept that there is not much we can do about it. But when suddenly the picture of this dark underbelly of the nexus between businesses and the government becomes visible, the latent discomfort transforms itself into public outrage. The widespread concerns are that the bonds will give undue advantage to ruling parties in the elections and in the current political scenario, a major chunk of this benefit will go to the Bharatiya Janata Party (BJP), which is in power at the Centre and in a large number of states.

Before we get into the details, let us look at the timeline. The electoral bond system was introduced in 2017 and the sale of bonds began in 2018. The CPI (M), various non-governmental organisations and individuals had unsuccessfully sought a stay on the sale of bonds ahead of the 2019 Lok Sabha elections. Even after 2019, there were petitions to postpone the sale of bonds before the elections in various states. However the sale of bonds continued until it was scrapped in February 2024 after several legal challenges. The Supreme Court ordered the State Bank of India to disclose information on all bonds after April 12, 2019. Our analysis is based on the data published by the State Bank of India.

The first question we ask in this essay is simple–who gets the electoral bonds money and why? In other words, is it the case that the ruling parties gained the most from electoral bonds? The significance of this question needs to be explained. The main allegation raised against the electoral bond system is that it opens the way for anonymous political donations. As a result, various businesses will use it to their advantage in terms of government favours by effectively bribing the ruling party through legal means. It is difficult, if not impossible, to present detailed evidence in support of this possibility because the link between grants and specific government favours and concessions is hidden in the labyrinth of government documents. But after the release of the bond data, many commentators have shown statistics that many loss-making companies have bought electoral bonds worth crores of rupees. Many companies have bought bonds worth more than the profit shown on their balance sheets and many companies have bought bonds after the ED or the CBI knocked on their doors.

There is no doubt that the most plausible hypothesis as to the reason for giving money through bonds is that it is a form of investment - the purchaser must be hoping that the government will pay them back in the forms of favours that will increase their future profits. But as we said earlier, it is difficult to get direct evidence of the quid pro quo, even if the bond donation is accounted for. So, we will present some indirect evidence, one of which is to see whether the ruling party is getting the money because the party that is in power has a much greater ability to provide benefits. One problem in examining this possibility is that the Bharatiya Janata Party (BJP) has been in power at the Centre and in many states throughout the period when electoral bonds were in vogue. And, according to various media reports, they alone received more than half of the total bond donations. But it cannot be said with certainty that all this money came from the BJP being the ruling party - at least as a theoretical possibility, that various individuals or organizations have given money to the BJP because their economic policy or political ideology is more acceptable to them. Any person or organization can invest in a political party even if that party is not in power at that moment. For example, in America, either the Democrats or the Republicans are in power in a given year. However, those who are not in power also receive donations and political donations do not stop once a party leaves office. That is why, to examine whether the BJP is getting money because it is in power or because of its policies and ideology, we need situations where there is a change of government and the BJP either gains or loses power. That is, if we compare the bond donations of the ruling BJP with the bond donations received by them when they are not in power, it is possible to shed light on the relationship between the BJP being in power and their bond donations. But unfortunately, all our data is for the period between 2016-17 and 2023-24, when the BJP was in power at the Centre and in most of the states. So, we will need to take a little detour to check this hypothesis.

Our second question is, who gives money through bonds and to whom? A related question is, what are the characteristics of the state from which money is given and to whom money is given? Do the local capitalists of any state back the national parties or do the regional parties also benefit from their donations?

We will also try to understand whether a larger picture emerges from our analysis of the data. This is where we take a different angle from other perspectives on electoral bonds. The existing views on the topic all centre on the theme of the exchange of corporate donations for government benefits. But going beyond this, our analysis of the available statistics on bonds points to an emerging political-economic scenario in India and we will turn to this towards the end.

Now we turn to answering the questions we posed above, one by one.

A few stylised facts about the funding of parties.

We first look at the basic pattern of sources of funds declared by political parties, showing both how much of a given form of funding is going to a specific party, and how much of that party’s funding as declared to the Election Commission comes from bonds as opposed to non-bond sources. 

From the ADR report we can see that between 2016-17 and 2021-22, about 56% of the total funds legally received by political parties came from electoral bonds, about 28% came from corporate donations (including electoral trusts) and 16% from other sources (private donations, members’ subscriptions, collections from meetings, etc). It should be noted that the earliest bond data recorded in the SBI list is from 2019. Therefore, it is expected that over time the relative importance of funds through bonds will increase. 

But are bonds making non-bond forms of donations irrelevant? There is no straightforward answer to this question.

The amount of both bond and non-bond donations to the BJP is huge. Between 2016-17 and 2021-22, the BJP alone received more than Rs 5,000 crore through bonds, while all the other parties together got about Rs. 3,000 crores. That is, about 57 % of electoral bond money went to the BJP. But this supremacy of BJP also applies to non-bond forms of donations–Rs. 4,850 crores, while all other parties together got about Rs 2,398 crore. That is, the BJP collected about 66% of donations from non-bond sources. Of corporate donations, the BJP cornered 71%.

The question of incumbency
Now we turn to the second question: Were the parties that got money through bonds largely those in power? The following table summarises the answer to this question by providing information on party-wise collections from bonds, and their incumbency status.

Table 1: Ranking of parties by electoral bond donation and incumbency status in states

Notes for Table 1: In our calculations, the total bond donation was Rs 11742.6 crores out of which BJP received Rs 5381.01 crores, AITC Rs 1549.67 crore, INC received Rs 1301.65 crores and so on. This calculation is slightly different from some of the calculations published in news media (e.g., https://thewire.in/politics/top-five-political-parties-saw-electoral-bonds-fortunes-turning-with-election-wins-and-losses). According to the reports, the total bond money is Rs 12769 crores out of which BJP received Rs 6060.5 crores, AITC got Rs 1609.5 crores, INC received Rs 1421.8 crores etc. The discrepancy is not very large (7.9%) and is coming from the fact that we have only considered bond donations given by organizations and left out individual donations from our calculation. Also, there were around 87 entries in the SBI spreadsheet that did not have party information and 1680 observations that did not have issue state and other information. We dropped these observations from our tables as well, with one exception. AIADMK received all their money (Rs 6.05 crores) through these “unknown” bonds. Even though we did not use bond information from these “unknown” bonds in any other calculations, we report AIADMK and their bond receipts in Table 1 as they were the incumbent in Tamil Nadu.

From Table 1 we find a somewhat loose correlation between bond donation and incumbency status. During our period of data coverage (2019-24), the BJP got the largest amount of money through electoral bonds, and they were in power in the most number of states.

But there are some nuances that are worth noting. For example, Trinamool Congress was in power in one state (West Bengal) but it received more money through electoral bonds than Congress which was in power in a larger number of states. Another interesting case is the AIADMK. They were in power in Tamil Nadu between 2019 and 2021 but they could only get Rs 6 crore through electoral bonds.

On the other hand, the TDP was not in power in Andhra Pradesh and yet, ranks seventh with Rs 206.33 crore bond donation which was much higher than AAP (rank 10) which was in power in two states and the JMM which was in power in one state.

To look at this issue a bit more in depth, we look at the states where the incumbency status changed during this period (2019–24) so that we can examine if a party comes to power in a larger number of states they start receiving a larger amount of bond donations. For this part of the analysis, most of the parties ranking high in the bond list are not of much use as they stayed in power throughout the period. We look at three parties whose incumbency status changed in the middle of our period of study.

Table 2: Incumbency and Donations from Electoral Bonds for AAP, DMK and INC (April 2019-January 2024, in Rscrores)

Note: Figures in percentages are the share of the total value of EB donations in the country during 2019-24.

Table 2: Incumbency and donations from electoral bonds for AAP, DMK and INC (April 2019-January 2024, in Rs crore)

We see from Table 2 that when a party comes to power in more states, the amount of bond money coming its way increases. For example, even though the DMK managed to get bond funding when it was not in power, the bond collections more than doubled when it came to power in Tamil Nadu. But we see that the degree of increase in bond money when a party comes to power in a larger number of states varies across parties, and the states where it comes to power.

[To be concluded]

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Frontier
Vol 57, No. 36, March 2 - 8, 2025