Electoral bonds, Rs 2,000 cash limit to clean up political funding

To ensure greater transparency in political funding, Finance Minister Arun Jaitley on Wednesday sharply cut the cash donation a political party can accept and announced "electoral bonds" to promote legitimate funding of parties.

Any anonymous cash donation to a political party will now be limited to Rs 2,000 - a sharp drop from the Rs 20,000 limit earlier.

Further, the Reserve Bank of India (RBI) will issue bearer bonds that a donor may buy through cheques and digital payments. He or she can then give the bond to a political party which must deposit it within a month in a pre-determined account.

While this gives the donor the option of remaining anonymous, both ends of the transaction will happen through the banking system.

Jaitley made the announcement in the Union Budget for 2017-18 saying political parties would have to take donations above Rs 2,000 through cheque and digital payments.

The decision of the government to reduce cash donations will require political parties receiving a donation above Rs 2,000 to disclose the identity of the donor.

Earlier, most of the political parties had been declaring that a majority of their donations were below Rs 20,000, and thus anonymous.

Jaitley said the government proposes to amend the RBI Act for issuing the electoral bonds under the new scheme.

"This will bring greater reform in political funding while preventing future generation of black money," Jaitley said

He said that the government has accepted the Election Commission's recommendation to bring in transparency in political funding.

The commission had asked the government, among other things, to bring down the limit of anonymous donations to Rs 2,000.

"Even after 70 years of independence, there is no transparency in political funding. Most donations are received in cash and the donors too hesitate to disclose their identity," Jaitley said.