In the Budget presented by FM Arun Jaitley on Feb 01,2017, the NDA Government reiterated its commitment to reform political funding, blamed as the root of all corruption plaguing India. The steps adopted include capping the maximum cash donation to Rs 2,000 from any one source, limiting donations to political parties to cheque and digital transactions, and to making IT returns for political parties compulsory.
But one measure stood out. Finance Minister Arun Jaitley proposed to amend the RBI Act and issue something called electoral bonds. So just what is this new Electoral Bond ?
What is a bond?
A bond is a debt security, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.
What is the 'electoral bond'?
An instrument that will be used to donate money to political parties. The parties involved will probably be a donor, the political party and the RBI, which acts as the intermediary
The FM says wait for a new scheme in this regard that will have all details. Obviously, it can't be called political 'funding' if the party will have to return the money at a later date with or without interest.
What we understand is that this one will be more akin to a bail bond than a financial bond. One possibility is that RBI will issue these ‘bonds’ through designated banks. Say, if you want to donate Rs 25,000 to a party of your choice, you can buy 5 of the Rs 5,000 bonds and donate. So the government knows who bought it and what his source of income is, but it wouldn’t know who he donated it to. The party can go to the bank and redeem the Rs 25,000. The donor if he wants can choose to be anonymous.
How will it be introduced?
The government proposes to design a scheme under which the issuance of electoral bonds to political parties will be sketched out. This would only be possible after an amendment to the Reserve Bank of India (RBI) Act
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