Reform step a solution to prevent entry of black money into system (Mint)

Mains Paper 2: Governance
Prelims level : Electoral bonds
Mains level : Electoral bonds challenges

Context:

• Raging debate on electoral bonds in India by National Democratic Alliance (NDA) government under Prime Minister Narendra Modi introduce the process of using electoral bonds for political funding.

About Electoral bonds:

• Electoral bonds were introduced to stop cash funding of political parties because most political parties were taking large donations in the form of cash.
• Some political parties were using the method to get almost 100% political funding in cash, which was then deposited in bank accounts in denominations of less than ₹20,000.

Raising questions behind introducing the Electoral bonds:

• At a time when the whole nation was making a transition to a cashless or a less-cash economy.
• How can we expect people to follow the transition to a new economy, while political parties continue to accept cash donations?
• While introducing electoral bonds, the individual donations or cash donation to any political parties have been reduced from ₹20,000 to ₹2,000, in a way making it difficult for political parties to receive cash funding.

Definition of Electoral bonds:

• Electoral bonds are a transparent and a legal instrument.
• Here a donor has to purchase these electoral bonds from select branches of the State Bank of India (SBI) through a KYC bank account for electoral bonds.
• This system has ensured that cash cannot be used to purchase electoral bonds and cash cannot be donated to political parties in higher amount.

Objectives:

• The question being raised is that electoral bonds are anonymous, but the real purpose of these electoral bonds is to ensure clean money and tax paid money comes into political parties and not some slush funds or corrupt money.
• Corporates in the country have generally been averse to funding political parties in a manner that reveals their identity.
• This is a behavioural problem of India’s corporate, and political parties cannot really change it.

Raising questions and solutions:

• Ideally, we should have had a system where every donation is identified to a donor, but when donors are not prepared to reveal their identities, how does one get over the problem?
• If political parties want money to carry on their day-to-day activities and contest elections, moving towards state funding of political parties and elections is also a possibility.
• Money has to come from donors if not state funding.
• The question is should public money be given to political parties?
• Public approval will be needed for such a move.
• Electoral bonds are certainly a solution that helps us to overcome the challenges of preventing corrupt black money getting into the system.

Conclusion:

• To overcoming corporate inhibitions to offer transparent donations disclosing their identity.
• Bulk of the electoral bonds have gone to Bharatiya Janata Party (BJP) in the past 1-2 years because most of the support is for the BJP.
• The party, along with its allies, has 70-75% seats in the Lok Sabha, so obviously, the party will get greater share of the funds.

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Prelims Questions:

Q.1) With reference to the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (Rules), consider the following statements:
1. The rules have been notified to provide a generic framework for insolvency and liquidation proceedings of systemically important Financial Service Providers (FSPs) other than banks.
2. It allows the Central government to notify Financial Service Providers (FSPs) or categories of FSPs for the purpose of insolvency and liquidation proceedings.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C
Mains Questions:
Q.1) How can we expect people to follow the transition to a new economy, while political parties continue to accept cash donations?