The Reserve Bank of India (RBI) advised the government that the electoral bonds it had proposed in 2017 would not solve the problem of unaccounted-for money since the donor’s identity will be never be known.
Former finance minister Arun Jaitley first announced the idea of electoral bonds in his Budget (2017-18) speech made on February 1, 2017 and the scheme was notified by the government in January 2018. A person can buy these bonds from a know your customer compliant account from designated branches of the State Bank of India. These bonds are valid for 15 days.
According to central banking sources, the problem with these instruments is that, while the information of the person who is buying bond is known (to the bank), the donors’ identity is not known. This is because these are bearer bonds.
A person who buys the bond, can give to it to another person who actually donates it to a political party, and there is no record of the person who takes it from the person who buys it.
“One hesitation RBI had was that it almost becomes currency. Because it is a bearer bond. So anybody can become its owner. I buy it, I am a legitimate person, and you buy it from me and you donate it to party X. In record, your name will nowhere be there. Only the person who bought it, his name will be there,” a source explained.
“The person who actually donated, that record is not available. So any person who wants to hide his identity can make some other person buy it and give it to him,” the source added.
News website HuffPost India on Monday reported that the Modi government ignored RBI’s views and went ahead with these bonds.
The source added that the RBI had told the government these bonds will not solve the problem of black money in electoral funding. More importantly cash donations to the political parties have not stopped since there is no disincentive.
“Ideally, the expectation was all donations will be through the bonds. There will not be any cash donations. That has not happened. Because there is no disincentive for cash donations. RBI said that this is not going to solve the problem. The purpose for which you are bringing out these bonds is not likely to be achieved,” the source said.
However, at this point in time these bonds are unlikely to be a reason for concern so far as financial stability is concenred since the volumes are not very high, sources said.
