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Peeling Back the Layers: Electoral Bonds and the Quest for Transparency

Upon formation, the upcoming government must scrutinise all donors and recipients of electoral bond transactions through an independent and autonomous body and urgently address the issue of political funding for the future.
Representative image. Photo: Pixabay/rupixen

As we approach the end of the 17th Lok Sabha and the formation of the 18th Lok Sabha, India has been gripped by election fervour over the past few months. Amidst this political excitement, one of the most significant events in recent times was the Supreme Court of India’s decision on February 15 to strike down the electoral bond scheme. Although this might seem like a conclusion to the issue, the Supreme Court’s mandate for disclosure of electoral bond data has, in fact, opened a Pandora’s box, raising numerous questions that demand answers.

What did electoral bond scheme do to India?

The electoral bonds scheme, introduced in 2017, is not just a political and electoral issue but a matter of deep concern for the integrity of India’s democracy. This scheme, marked by its arbitrary and scandalous nature, has facilitated corruption that permeates multiple spheres of society. The opaque and unchecked nature of electoral bonds compromises the constitutionally guaranteed principle of free and fair elections, which the Supreme Court has affirmed as part of the basic structure of the Constitution.

While the fact that the top seven electoral bond encashing parties alone amount to 94.36% of the total donations portray the murkiness of the scheme, it is particularly concerning that all seven parties, including the tally leading BJP, are ruling parties. This concentration of funds in the hands of ruling parties implies abuse of public offices. Additionally, the surge in electoral bond transactions just before elections further highlights the severe distortion of democratic processes. This distortion is evidenced by the ruling party redeeming over Rs 3,941.57 crore between March 2018 and May 2019, with a staggering 77.4% of this amount (Rs 3,050.11 crore) received in March, April, and May 2019 — the critical months leading up to the Lok Sabha elections.

Also read: Electoral Bonds: Or the Story of How the Rich Buy Their Way Up

The influence of electoral bonds has a profound and detrimental impact on the Indian economy and developmental agenda. On one hand, this system results in significant losses of government revenue, facilitates rampant tax evasion, promotes money laundering, and compromises financial regulations, all of which severely effects the nation’s economic security. For instance, in 2018, the Financial Intelligence Unit (FIU) identified 9,491 high-risk financial institutions, including Non-Banking Financial Companies (NBFCs), to flag potential money laundering activities. Notably, all 19 NBFCs designated as high-risk by the FIU purchased electoral bonds, sparking concerns about illicit financial transactions in political funding. Furthermore, 18 of these NBFCs did not appear in subsequent annual lists of ‘high-risk’ NBFCs, suggesting possible alterations in risk assessment or deficiencies in ongoing monitoring.

Additionally, several electoral bond purchasers are accused of having links with shell companies. For example, Honeywell Properties and Chander Commercials Pvt Ltd, seemingly real estate entities linked to Reliance affiliates, diverted their entire revenues of Rs 50 crore each to the BJP in the financial year 2021-22, raising suspicions regarding the origins of their sudden wealth. On the other hand, unchecked irregularities in infrastructure projects such as the Kaleswaram project in Telangana and Polavaram in Andhra Pradesh undermine developmental initiatives.

Details of the contracts and party specific donations made by MEIL
MEIL stands out as the BJP’s largest electoral bond donor, with a substantial contribution of ₹584 crore, securing various projects and contracts in return.

·       Between April 12, 2019, and October 3, 2019, MEIL donated Rs 125 crore to the BJP, subsequently securing a Rs 4,509 crore tunneling contract for the prestigious Zojila project in Jammu & Kashmir the following year.

·       Between January 2022 and January 2023, MEIL donated over Rs 160 crore to the BJP, leading to the subsequent securing of a Rs 500 crore order from the defence ministry.

·       In March 2023, MEIL won a ₹3,681 crore contract for a bullet train station at BKC in Mumbai, and in April 2023, it recorded its highest bond purchase according to the ECI.

·       Closer to the November 2023 Telangana Assembly elections, MEIL made donations of Rs 150 crore to the BJP, and in April 2023, MEIL secured contracts for the Thane-Borivali twin tunnel project in Mumbai, bidding Rs 14,400 crore.

·       Megha Engineering company has undertaken numerous projects in Tamil Nadu, including a 525 MW thermal plant in Thoothukudi. MEIL has made a cumulative donation of ₹85 crores to the DMK party through electoral bonds.
·       Overall, MEIL donated Rs 195 crore to the BRS. Notably, in July 2023, MEIL contributed Rs 50 crore to the BRS, just months before the Telangana Assembly elections. Concurrently, MEIL secured the contract for constructing the Kaleswaram Lift Irrigation Project, a flagship scheme of the BRS government.
·       In November 2019, MEIL won the Rs 4,358 crore Polavaram project through reverse tendering and it also spearheaded the completion of the Pattiseema Lift Irrigation Project in Andhra Pradesh. MEIL’s political contributions in the state include Rs 37 crore to the YSR Congress Party, Rs 28 crore to the Telugu Desam Party, and Rs 4 crore to the Jana Sena Party.

The saga of the electoral bond political regime is rife with instances where donors have been the recipients of significant government projects, which were subsequently reported to be compromised in quality and maintenance. A prime example is Megha Engineering & Infrastructures Limited (MEIL), which donated a staggering Rs 966 crore through electoral bonds to various political parties and was awarded several infrastructure projects. Similar quid pro quo arrangements are evident with other prominent electoral bond purchasers such as Torrent Group, Greenko, Kitex Group, IRB Infrastructure, and Rithwik Projects. These cases highlight the troubling intersection of political funding and the allocation of government contracts, raising serious concerns about corruption and the erosion of public trust.

Also read: State Funding, Right to Recall and More: Why Electoral Reforms Can’t Wait Any Longer

Furthermore, the lack of regulatory oversight on companies operating in the social sector due to political pressures stemming from electoral bond donations poses a grave threat to vulnerable segments of society. A glaring example is the massive political funding by several pharmaceutical giants, which have been under regulatory scrutiny. More than 35 pharmaceutical companies have donated a total of Rs 945 crore to various political parties through electoral bonds. Subsequently, some of these pharma giants, such as Torrent Pharma, Aurobindo Pharma, Natco Pharma, and MSN Group, have circumvented regulatory quality checks. Similar tainted transactions have been carried out by companies in other sensitive industries, including gambling, real estate, and telecom. Additionally, the illicit connections fostered between politicians and corporate entities through electoral bonds permeate other spheres of governance, including government offices, the judiciary, and the media, perpetuating a cycle of favouritism and injustice. These examples corroborate the argument that the electoral bond scheme has a far more detrimental effect than is commonly assumed, impacting not only the integrity of political funding but also the broader governance and regulatory landscape in India.

Numerous ways of corruption in electoral bond scheme

The Prevention of Corruption Act, 1988 in India addresses various forms of corruption through distinct but interrelated categories. Primarily, it tackles bribery, including the acceptance of gratification by public servants, obtaining illegal gratification through influence, and abetting such acts. It also covers criminal misconduct by public servants, such as dishonest misappropriation, possession of disproportionate assets, misuse of official position, and causing wrongful loss. Additionally, the Act addresses influence peddling, habitual corruption by repeat offenders, false claims, attempts to commit corruption, collusive bribery, and corporate bribery, holding commercial organizations liable for failing to prevent bribery by their employees or associates. The transactions and resultant events under the electoral bond scheme have exemplified nearly all the crimes mentioned in the Act.

While corruptive collusions among politicians, public officials, and corporate houses are evident in many quid pro quo arrangements, political extortion has emerged as a new wine in the old glass. This is underscored by electoral bond data showing that nearly 40 entities, responsible for acquiring ₹5180.25 crore worth of bonds (constituting over 43% of the total), were concurrently subject to enforcement actions by central agencies like the Enforcement Directorate (ED), Central Bureau of Investigation (CBI), and the Income Tax (IT) Department. Notably, 23 of these companies were first-time contributors to the ruling party, suggesting a sudden surge in donations amid ongoing investigations. Prominent among these entities are Future Gaming, MEIL, M K Jalan Group, Vedanta Group, and Haldia Energy Limited (Sanjiv Goenka Group). The implication that a significant portion of bonds procured by these entities under investigation was subsequently redeemed by ruling parties, including the BJP, TMC, and INC, raises serious concerns.

Also read: As Media Continues to Expose Electoral Bond Issues, What’s Next?

In a notable instance, INC spokesperson and Member of Parliament Jairam Ramesh characterized donations by companies after raids by the ED, IT department, and CBI as ‘post-paid bribes,’ contrasting them with donations made prior to securing contracts, labelled as ‘pre-paid bribes.’ Ramesh alleged that 41 corporate groups subjected to a total of 56 raids by these agencies subsequently donated Rs. 2,592 crores to the BJP, with Rs. 1,853 crores contributed after the raids. Moreover, instances where companies escalated contributions following central agency visits or faced enforcement actions subsequent to lapses in donations, and the timing of raids and bond purchases, further corroborate the potential nexus between political financing and regulatory scrutiny.

Despite the glaring revelations, Prime Minister Narendra Modi on April 15 said that the country had been pushed towards black money in elections after the Supreme Court scrapped the electoral bonds scheme, and that on honest reflection, “everyone will regret it”. However, factual truth of the electoral bond data unveils the intricate mechanisms behind this ‘corporate-political corruption,’ echoing Senior advocate Prashant Bhushan’s characterization of the scheme as one of India’s largest scams, implicating various forms of corruption such as “chanda do, dhanda lo” (give donation and get business), “hafta-vasuli” (extortion), “theka lo, rishwat do” (bag contract, give bribe), and the proliferation of farzi companies.

Task ahead

Upon formation, the upcoming government faces two critical immediate tasks to address the flaws in the electoral system. First, it must scrutinise all donors and recipients of electoral bond transactions through an independent and autonomous body. This body should aim to disclose the motives behind the funding and bring any discrepancies to justice without bias or errors. Given the significant sums and influential players involved in the electoral bonds scheme, a thorough investigation is imperative. Any leniency would not only embolden those who seek to corrupt the system but also undermine public trust in democratic institutions, which is essential for a thriving democracy.

Second, the government must urgently address the issue of political funding for the future. In the context of ongoing debates about Jamili (Simultaneous) elections under the ‘One Nation One Election’ theme, the exposure of the highly corruptive nature of the electoral bond scheme highlights the necessity of establishing a transparent political funding framework. This new framework should not only correct the flaws of the previous scheme but also incorporate feedback from all relevant stakeholders to ensure broad-based support and effectiveness.

By prioritising these measures, the government addresses immediate concerns and sets a precedent emphasizing integrity and fairness in the political landscape. Ensuring transparent and accountable political funding mechanisms will send a clear message that corruption will not be tolerated and that the democratic process must be safeguarded at all costs. This commitment to transparency will reinforce public trust in the electoral system and strengthen the foundations of democracy, demonstrating that the government is dedicated to upholding the principles of justice and accountability.

Devendra Poola is a Research Scholar at the Centre for Economic and Social Studies (CESS), Hyderabad.

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