Rolling out the Electoral Bonds Scheme

The electoral bonds announcement was made on 1 February 2017 in the budget speech, delivered by Finance Minister Arun Jaitley. The RBI Act had been ‘You Are Arun Jaitley and Piyush Goyal for Me’ amended to allow issuance of electoral bonds through the banking system. The scheme to roll it out had been under discussion for over five months when I landed in the DEA in July 2017. 

The finance minister took more than half an hour to explain to me the background, rationale and broad features of the electoral bonds in the very first meeting when I called on him after taking over. Nripendra Misra indicated that this was priority number one at that time. 

There was widespread opposition to the bonds—both internally in the DEA and outside the Ministry of Finance. The RBI bureaucracy had found the electoral bonds akin to bearer bonds, susceptible to use as currency and money laundering and was quite uncomfortable with it. The DEA’s budget division shared this view. The Election Commission considered the scheme a non-transparent way of funding political parties and had shot off a letter to the Ministry of Law expressing concerns about the bonds, including being used by shell companies. 

My long meeting with Arun Jaitley convinced me that the electoral bond scheme was not a perfect answer for India’s poor state of policy and affairs for electoral funding, but it was certainly better than the existing situation, which was heavily based on cash donations and actually routed political donations through a maze of shell companies. I decided to push the scheme through. 

It took me some time to bring RBI officers on board and neutralize the Election Commission’s objections at the official level. With this, I got the in-principal approval of the electoral bond scheme in a meeting chaired by the prime minister. Broad features of the scheme included making political parties that had received more than 1 per cent of total votes cast in the last election, nationally or in a state, eligible to receive donations through electoral bonds. The scheme envisaged four quarterly bond sale windows with one additional window in the year of Lok Sabha elections. The bonds were to be issued as physical bonds and by the scheduled banks authorized by the government. 

On the advice of Finance Minister Arun Jaitley, I met the full Election Commission and succeeded in extinguishing their active hostility. Despite Election Commissioner O.P. Rawat’s objections, the commission did not raise any concerns publicly thereafter until a petition was filed in the Supreme Court by the Communist Party of India (CPI) in 2018. 

Strangely, RBI Governor Urjit Patel, for reasons best known to him, decided to play spoilsport and wrote to the government at that almost last stage, questioning the issuance of bonds by anybody or a bank other than RBI. He also wanted RBI to be solely authorized to issue the bonds, that too in digital mode instead of as physical bonds. Considerable correspondence took place between RBI and the government thereafter on the issue. Finally, Urjit Patel relented and conveyed his agreement silently by recording in the RBI’s committee—Committee of Central Board (CCB)—minutes: ‘If the Government decides to issue electoral bonds in script through SBI, the Bank (RBI) should let it be.’ 

After some more wrestling with the Ministry of Law, finally, the electoral bonds became a reality. SBI sold the first tranche of electoral bonds from 1 March 2018. There were challenges in the Supreme Court, however, the electoral bonds tranches kept getting issued as the Supreme Court did not stay the scheme. A total of 30 tranches of electoral bonds were issued, with political parties receiving about ₹16,518 crores in political donations until the Supreme Court declared the scheme unconstitutional and stopped its issuance through its judgment in February 2024. 

Not only did the Supreme Court stop the electoral bond scheme, it also unravelled its guarantee of non-disclosure of the fact of who donated to which political party by directing SBI to furnish the details of parties that purchased electoral bonds and the political party that encashed the same. SBI, which first denied that it had these details, sheepishly surrendered and provided all these connecting details, sourced from the records it maintained clandestinely without government authorization, using a secret alphanumeric code invisibly printed inside each electoral bond for the purpose of ensuring that the electoral bonds were not faked. As per Supreme Court directions, the Election Commission published all these details on its website. With that, all the confidential details of who donated how much to which political parties came out in the open. 

The electoral bond scheme was not the most transparent and most ethically correct scheme. But it certainly was a serious effort to bring as much transparency and ethical conduct as possible in the circumstances and ensure flow of sizeable funds to political parties the use of which was completely transparent and accounted for. The electoral bond scheme had achieved another near impossible objective of routing corporate donations to all political parties with the BJP receiving only around 55 per cent of the total electoral bond funds. With the electoral bond scheme gone, the companies sharply reduced their political donations in Lok Sabha 2024 and assembly elections following thereafter. 

The non-existing ‘best’ bested the ‘doable good’.

This is an excerpt from “No, Minister—Navigating Power, Politics, and Bureaucracy with a Steely Resolve” authored by Subhash Chandra Garg, Former Finance Secretary of India and published by Juggernaut Books.