India’s New Electoral Bond Scheme Won’t Reduce Electoral Corruption. It Will Make the Problem Worse.

Indian elections have long been celebrated as a festival of democracy—in part for their sheer and increasing scale, with over 900 million voters and thousands of political parties registered. Election expenditures have also been on the rise. India’s last national elections were the most expensive elections ever held anywhere in the world, with an estimated expenditure of Rs. 55,000 crores ($7.74 billion)—much of which was financed through private donations. In India as elsewhere, all this private money in politics raises concerns about corruption, both legal and illegal. This problem is exacerbated by a lack of transparency.

Under the rules as they existed until two years ago, individuals and domestic for-profit companies could contribute to political parties via cash, check, or demand drafts. Political parties are required to file an annual income statement, listing both sources of income and expenditures, with the Election Commission, a constitutional oversight body. These statements are publicly accessible under India’s Right to Information law. However, contributions below Rs. 20,000 ($280) could be anonymous, and political parties traditionally exploited this loophole to avoid disclosure of donors. The total share of income from unknown sources has been steadily increasing for all six major political parties, and in the last returns filed for 2017-18, income from unknown sources was over half (51.38%) of these parties’ collective income.

Over the past two years, there have been several reforms to campaign finance. The most significant reform has been the replacement of cash donations with a new mechanism for political donations, so-called “electoral bonds.” Under this system, the threshold for anonymous cash donations was reduced by a factor of ten, but private parties can now make anonymous donations via a bond with the State Bank of India (a public sector bank) in fixed denominations ranging from Rs. 1,000 ($15) to Rs. 1 crore ($1.5 million), during allotted windows. These donations remain anonymous not only to the general public, but also to the recipient political party.

The stated objective of these reforms is to target the practice of money laundering in campaign finance and increase transparency. In a previous post on this blog, written shortly after the new scheme was introduced, Abhinav Sekhri argued with cautious optimism that this tool, though imperfect, was indeed a step in the right direction. I disagree. In fact, the electoral bond system has decreased transparency and increased the potential for corruption, for several reasons: Continue reading