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The BJP Claimed This Financial Tool Would Clean Up Indian Politics. It Did the Opposite.

“Electoral bonds” were supposed to make political contributions transparent. Instead they became a form of legalized corruption, funneling huge sums and making the political playing field even more uneven.

By Vipul Mudgal

May 2024

In 2017, Indian prime minister Narendra Modi’s Bharatiya Janata Party (BJP) pushed a new policy through parliament with one clearly stated aim: bringing clean money to politics. Electoral bonds — tax-free and anonymous financial instruments, purchased by donors and routed through the State Bank of India — promised to ensure both privacy and a paper trail for individuals and private entities making political-campaign contributions. Arun Jaitley, the then–finance minister, insisted that electoral bonds would “bring about greater transparency and accountability in political funding.”

That is not what followed. In February 2024, the Supreme Court of India ruled the policy unconstitutional. Whatever its ostensible goals, the electoral bonds had become a form of legalized corruption, funneling enormous sums — upwards of US$1.98 billion into political-party coffers. The advent of this financial instrument effectively created a new currency for monied interests to purchase favors — as well as a convenient means for government officials to extort funds from those they sought to target. The revelation has arrived at a critical moment in Indian politics, as citizens head to the polls for the general election. Modi came to power on the back of an anticorruption movement, promising to clean up Indian politics. That image has taken a major hit. His main rival, Rahul Gandhi of the Congress party, is now charging that the prime minister is running the world’s largest extortion racket.

Far from introducing newfound transparency, opacity surrounded the electoral bonds from the start. BJP parliamentarians buried the policy in a budgetary provision. The shrewd maneuver circumvented the requirement for public discussion in the Rajya Sabha, the upper house of the Indian Parliament, where the BJP then lacked a majority, and the speaker of the BJP-led lower house, the Lok Sabha, ushered the bill to passage against the opposition’s requests for debate and deliberation.

Significantly, the bill also contained an amendment that removed the upper limit to political donations by private companies, even those that were unprofitable — a rule that encouraged corrupt dealings, quid pro quo agreements, and the proliferation of fraudulent shell corporations created to fund political parties. And important details of the policy, such as the unique numbers printed on each bond that were invisible to the naked eye but established traceable links between the buyer and recipient political parties, were only revealed to the public by an investigative journalist.

The Supreme Court ruled that citizens’ right to know who or what entities were making political donations should trump donors’ right to privacy. The Court also stated that the bonds encouraged underhanded dealings with ruling parties and slanted the electoral playing field in favor of incumbents. Then two civil society groups, the Association for Democratic Reforms and my own organization, Common Cause India, compelled the Court to order further disclosures. Despite the State Bank of India’s attempts to delay, a flood of damning revelations have followed.

The disclosures have uncovered rampant corruption. In some cases, bond purchasers overtly violated the laws that govern political donations by corporations. India’s Companies Act only allows political donations by businesses that have existed for more than three years, but at least twenty donations were made by entities created just a few months, or even days, before.

In other instances, businesses purchased bonds around the time they were awarded government licenses, contracts, or clearances, or soon before a favorable policy change. The owner of a virtually unknown business called Future Gaming and Hotel Services made the biggest purchase of electoral bonds, worth approximately $15 million, not ten days after the federal government alerted state governments of his company’s fraud. The second biggest donor, Megha Engineering and Infrastructure Ltd., bought bonds worth approximately $11 million — and received government contracts worth $1.7 billion in the same period. According to an investigation by India’s highest audit agency, one government contract granted to Megha Engineering inflated the estimated cost by 400 percent.

Other revelations are even more damning for Modi’s government. Federal agencies often halted raids or investigations of individuals or companies after donations exchanged hands. Fourteen of the top thirty donors faced raids by federal enforcement agencies. Meanwhile, the same forces have been quick to persecute members of opposition parties — as with the arrests of Delhi’s Chief Minister Arvind Kejriwal of the Aam Admi Party and three of his cabinet ministers as well as Jharkhand’s Chief Minister Hemant Soren of the Jharkhand Mukti Morcha party, all under vague but serious charges of corruption.

The electoral bonds further slanted an uneven playfield. The BJP garnered about 60 percent of the more than $2 billion collected through electoral bonds. In other states, various ruling parties received handsome sums; the BJP’s main rival, the Indian National Congress, received under 10 percent of the donations.

And even as Modi has complained of foreign powers undermining India’s autonomy and its elections, the electoral bonds — in concert with new amendments to the Foreign Contributions Regulation Act — opened a backdoor for international political lobbying. In another irony, some of India’s leading beef exporters donated large sums to the BJP and the Shiv Sena party, both of which have wielded the holy status of the cow in the Hindu religion to divide voters to their advantage.

The exposures highlight the steep cost of doing business in India and the weak accountability of its regulatory agencies. Seven large pharmaceutical companies whose drugs failed quality tests donated millions of dollars through electoral bonds in a likely bid to escape government censure. One such company that purchased electoral bonds worth more than three times its yearly profits stated in its annual report that it bought the bonds to “sort out” tax-related issues.

Journalists are still connecting the dots. And the Supreme Court has admitted a new public-interest petition seeking a court-monitored investigation. In an acrimonious national-election season dominated by the BJP, it is unlikely that any findings will trigger a political tidal shift. But the flood of new information about the hidden dealings enabled by the electoral bonds may have local consequences as voters punish discredited politicians — and it could shift the national conversation toward the important topic of graft. As cronies tilt the electoral playfield and patterns of clientelism erode the integrity of democratic institutions, however, the worst may be yet to come. For now, the ruling party is doubling down on the tactic: The BJP has announced that it will attempt to reintroduce a near-identical electoral-bonds policy.

The Supreme Court, journalists, and civil society groups are fighting to expose dishonest dealings. But the electoral bonds show just how easy it is for those in power to stack the political deck in their favor — and how difficult it will be for the opposition to play a winning hand.

Vipul Mudgal is the head of Common Cause India and a trustee of the Association for Democratic Reforms. He was a 2020 Reagan-Fascell Democracy Fellow at the National Endowment for Democracy’s International Forum for Democratic Studies in Washington, D.C.


Copyright © 2024 National Endowment for Democracy

Image credit: Samir Jana/Hindustan Times via Getty Images




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