Politics of Electoral Bonds–II

Maitreesh Ghatak & Anirban Mukherjee

One reason why we started to think that state characteristics matter to understand the pattern of flow of money through electoral Bonds, was the donations received by the Congress. When Congress was in power in Chhattisgarh, Rajasthan, and Himachal Pradesh its total bond contribution was around Rs 206 crore. But when the party won Karnataka alongside being in power in these states, the total bond contribution got almost tripled to make it approximately Rs 600 crore. This could be because Karnataka is much richer than the other three states and has a higher value-added in manufacturing.

We start by looking at the states from where most of the bond money was generated. [Figure 1]

Figure 1: Value of bonds purchased in different states (in Rs. crore)

One can readily see that the bonds were mostly purchased in the more industrial states. For establishing this argument more firmly we use data from the RBI website1 that gives us the manufacturing net value added (NVA) in different states as a fraction of total all-India NVA in 2021-22, the latest year for which data is available for all major states. [Table 3]

Table 3: Ranks of states in manufacturing value-added and value of electoral bond purchases

In Table 3 the ranking in manufacturing is available for 31 states, while bonds are purchased from only 19 states. We can see that industrial ranking and bond money ranking are positively correlated, with Spearman’s rank correlation coefficient being 0.61 amongst states where electoral bonds were purchased.

The states that rank high in terms of bond purchased also rank high in industrial ranking (in terms of industrial ranking Gujarat ranks 1, Maharashtra ranks 2, Tamil Nadu ranks 3, West Bengal ranks 6, Karnataka ranks 4, Telangana 10 and Andhra Pradesh 12.) Of course, the correlation is not perfect and nor can one make any causal claims, but it is a pattern that is worth noting.

But why did more bond money come from the more industrialised states? In other words, why did not resource-based states such as Jharkhand and Punjab see more bond purchases?

We conjecture that the following mechanism is driving the result. Donors donate money in exchange for some favour from the incumbent parties. Purchasing an electoral bond is a way of a direct transaction between the interest group and the political party, and does away with the possibility of paying any middlemen. This mechanism works better in the industrial or service sector where such middlemen are not essential in the process of rent extraction.

Sectors such as agriculture and mining, on the other hand, are fixed in terms of geography and the process of rent extraction in these sectors often involves local strongmen and a plethora of illegal activities. As money changes hands between the donors and political parties in these sectors, a significant share of the rent goes to these local strongmen. Donations via bonds, in our view, are a way of bypassing these local networks, which is harder where there is rent extraction in agriculture and mining.

However, caution should be exercised while interpreting our results. The theory we proposed here is largely speculative even though it is consistent with the state ranking data. But we need to analyse the nature of the donor companies, their sectors and their headquarters states before making a more conclusive statement, which we hope to take on in future work. It was widely reported in news media that infrastructure companies were major donors. It is possible that infrastructure construction positively is correlated with manufacturing activities. But of course, it may also indicate the possibility of other possible patterns.

The long shadow of electoral bonds
We know that the BJP benefited the most from electoral bonds. Besides the BJP, only a handful of non-BJP parties received large share of bond money. The communist parties announced they would not take money through bonds. Amongst the rest, most of the EB money went to Congress, Trinamool Congress, BJD, DMK, BRS/TRS, TDP and YSR Congress. Besides, Shiv Sena has also received large amounts of funds through bonds.

If we look at bond collections as a percentage of the total funds collected as declared by various parties (Figure 2), we see that Trinamool Congress tops the list (93%). It is followed by DMK (90%), BJD (90%), BRS (80%), YSR Congress (72%) and the TDP (67%). The ratios for BJP and Congress are 52% and 61%, respectively. [Figure 2]

Figure 2: Electoral Bond collections as a percentage of total declared collections

We find that for non-bond funding the BJP/non-BJP ratio is 2.02 while for bond funding the ratio is 1.34. This would appear to suggest that the BJP has absolute advantage in both bond and non-bond funding, but non-BJP parties have comparative advantage in bond funding. Is it necessarily a bad thing from the point of view of democratic processes? After all, bonds seem to be creating a strong footing for non-BJP parties and the recently concluded election results do show that despite its huge advantage in funds, the BJP’s electoral performance was below par, although that was surely driven by many factors and not just fund-related factors.

While at the outset bonds appear to create more equality, a deeper investigation reveals that bonds are creating an unprecedented inequality: at one level between BJP and non-BJP parties, but at a deeper level amongst the non-BJP parties [Table 4]. Table 4 provides evidence in support of this hypothesis.

Table 4: Importance of bond collection vs non-bond collections

Table 4 shows the distribution of bond and non-bond donations amongst several parties. BJP stands at the top of both lists, receiving 57.37% of bond money and 67.23% of non-bond money, respectively. However, amongst parties other than the BJP, the distribution appears to be more concentrated for bond contributions. While non-bond money went to all 31 parties, bond money only went to 18 parties. This pattern is also confirmed by the coefficient of variation (standard deviation divided by the mean), a standard measure of dispersion – for bond money, the coefficient of variation is 3.2, but it is 3.7 for non-bond money.

The evidence is far from definitive but to the extent it is capturing a certain trend, it is a matter of concern. Concentration exacerbates inter-party inequality, reinforced by the sheer volume of total bond money. The total amount of bond contributions is so high that even a small percentage quickly differentiates a party from non-receivers of the bonds. For example, Congress received 10.35% of bond donations and 8.25% of non-bond donations. In absolute terms, Congress’ bond donation receipt is Rs 952.29 crore, was almost one and a half times its non-bond donation receipt of Rs 595.14 crore.

Would this kind of inequality impact the political equilibrium of India? In theory, inter-party inequality may have two opposing effects. On the one hand, fund concentration with a few parties may lead to other parties failing to contest elections effectively in the long run, thereby reducing voter choice and welfare. On the other hand, the concentration of political funding amongst a few non-BJP parties may enable them to effectively oppose the BJP.

Do the 2024 Lok Sabha election results confirm any of these conjectures? Election outcomes are determined by many factors, and, moreover, chances of electoral success and financing of campaigns affect each other, and so the causality is unlikely to run in any one direction. Still, it may be noted that in states where all major competing parties received bond money, the results were ambiguous. For example, the BJD and BRS did poorly against the BJP or Congress, while the DMK and TMC performed well against the BJP. However, in cases where non-receivers (of bond money) competed against receivers, the results often favoured the receivers. Notable examples include CPI(M), AAP, AIADMK, RJD, and JMM. A major exception is the Samajwadi Party, which won 37 seats against BJP in the last LokSabha election despite receiving only a small sum through electoral bonds.

Conclusion
The expression of protest after the disclosure of bond-related information on the orders of the Supreme Court was not in proportion to the outrage that was observed after the introduction of the electoral bond system, and political parties, barring the Left parties, did not make much fuss about it.

Those who saw the danger signs in the bond system, may have thought that some industrial groups, who have influenced government policy behind the scenes in recent times, would give money mainly to the ruling party at the Centre, the BJP, under the veil of the bond and this will endanger democracy. After analysing the bond data released by the SBI, it appears that these fears may have been somewhat exaggerated. Although the BJP has gathered a large share of the bond money, the names in the donor list did not correspond to the usual suspects. Moreover, apart from the BJP, some other parties have also benefited significantly from the bonds.

Now, theory and data do not always match. Given that, there are two ways to proceed–either to find errors in the data or to accept the data and refine the theory. Anti-bond civil society has taken the first path. They are talking about two possibilities. One, the real player in the Indian system is black money. The role of bonds or other accounted donations is negligible. Two, industrial groups like Adani or Ambani have bought bonds anonymously, through other smaller companies. Another possibility has also been mentioned. According to this view, bonds received before the 2019 elections by the BJP capture the real story. The bond data for this period remains sealed in the chambers of the Supreme Court and is not included in the figures released by the SBI.

All these possibilities could be true. But we have no data to prove or disprove these possibilities. So, we will take the second route –namely, to try to refine our theory in the light of released data. The initial hypothesis of our theory was that the anonymity of the purchaser of electoral bonds would encourage business houses to finance the ruling party at the Centre, namely, the BJP. This hypothesis is not entirely wrong because more than half of the bond money has indeed gone to the BJP. However, the picture that emerges from the analysis is a bit more complex. We see that under the guise of secrecy, money has entered the coffers of the BJP as well as some non-BJP parties. In terms of the share of bond donations, the BJP has received the most. But in terms of the relative importance of different ways of raising money, these parties are far ahead of the BJP in terms of their dependence on bonds. Whereas half of the BJP’s total donations came from bonds, in the case of parties like the Trinamool Congress, the DMK or the Biju Janata Dal, money received via bonds constituted ninety percent or more of their total accounted-for donations. However only a few parties have managed to get funds through bonds, while most of the established political parties have been deprived of funds through bonds. In our view, this pattern of the flow of electoral bonds money is indicative of a profound shift in Indian politics, which needs to be understood through the lens of a new theoretical framework.

The huge amount of money that has flown into the coffers of political parties through bonds definitely indicates the large importance of big capital in the political economy of India. Two points are to be noted in this regard.

First, it is clear from the movement of funds through bonds that apart from the BJP, big capital is not willing to fund many parties other than a few such as the Congress and the AITC. This will shrink the scope of competition in Indian politics as well as the contours of the political stage, as we have already mentioned.

Second, we see a change in the reliance of regional parties on sources of funds. Regional parties are generally dependent on local, small capital. However, we see that a large amount of capital is being raised through bonds. If big capital becomes a determinant of the policies of regional parties, then there will be various changes in the structure of the economy of the states under the rule of those parties. If the economy is dominated by small capital, the scope of growth and creating new surplus is limited, which is not the case with big capital.

In our view, the main driving force of the Indian economy at present is the clash of these two types of capital. One of them is based on the rents that are generated from various immobile resources (such as land, infrastructure management, and natural resources) and their distribution. The basis of this distribution process is the management of natural resources and infrastructure. If one part of the capital deployed in these sectors shows presence in the list of the richest people in the world, the other part operates on a smaller scale. Take the example of the promoter raj, which largely operates in various illegal ways. At the heart of the main charge against parties like the Trinamool, the Rashtriya Janata Dal, or the Samajwadi Party is corruption and extortion, and the main charge against the BJP is “suit-boot kisarkar”.

But the development path of the other component of big capital that is not dependent on natural resources –namely, human resources and technology - is also not very smooth. The rate of growth in their development projects may be high, but at the same time it increases the income of highly skilled workers and capitalists disproportionately compared to the income of unskilled workers. This generates social resentment of a different kind.

In our opinion, the movement of electoral bonds reflects the competition between these two types of capital in the financing of different regional parties.

But how does this affect the outcome of elections? Money is needed in electoral battles, but it is not the only ingredient for success. The results of the LokSabha elections in 2024 bear this out. Many of the parties that received bond money did well, and many of the parties that did not receive bond money did badly. But there are exceptions to both. For example, the BijuJanata Dal has almost disappeared from Odisha despite receiving a lot of money in bonds. AndtheSamajwadi Party managed to put up a good fight in Uttar Pradesh despite not getting any bond money.

We must remember that bond money is an indicator of what kind of capital is backing a party. But it is not just about supporting the party but the implementation of its development projects with the help of that party. We have already discussed that the development path of small and big capital creates different kinds of social resentment. In addition to money, social resentment also plays an important role in electoral outcomes. For instance, the case of the Samajwadi Party’s decline in Uttar Pradesh in the recent past and its resurgence in the last Lok Sabha elections is worth noting. One of the reasons behind the collapse of the Samajwadi Party was the power of the musclemen, extortion and the general deterioration of law and order. The current Chief Minister of the BJP, Yogi Adityanath’s biggest critics also acknowledge that under his rule, these problems have declined, and the state of law and order has improved. But in our opinion, control of musclemen or improving law and order is a symptom of a less visible force under work, namely, the development projects of big capital. But despite the improvement of law and order, inequality will inevitably increase in the development projects of big capital and in our view, the anti-BJP wave in Uttar Pradesh in the recent LokSabha elections is partly a reaction against this. Of course, our discussion is theoretical and to establish the newly described process properly, much more information is needed on economic inequality, the extent of and amounts involved in extortive activities, which are not readily available at the moment.

To sum up, there has been a lot of talk about the fear that electoral bonds will further encourage political corruption. The fear is not unfounded. But in our analysis, the bond data indicates a much deeper shift in Indian politics. Under the influence of market-oriented reforms unleashed by liberalisation, a new structure was created in Indian politics throughout the 1990s by breaking the old structure of capital. In the process, the instability of one coalition government after another resulted. After the 1990s, a balance appeared to have been achieved in Indian politics in the subsequent period. From the preliminary analysis of electoral bond data, it seems that a new equilibrium point is in the process of being created by breaking that old balance.

After all, we have come a long way since the 1990s. In the last two decades, the balance of world politics has changed, technology based on artificial intelligence and the digital domain has arrived.

In that world, what will be the new equilibrium point of Indian politics? We do not have a definitive answer and only sense the change in the air.          

[Concluded]

[Maitreesh Ghatak is a professor of economics at the London School of Economics. Anirban Mukherjee is an assistant professor of economics at the University of Calcutta.]

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Vol 57, No. 37, March 9 - 15, 2025