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Electoral bonds will undo demonetisation success, RBI Governor Urjit Patel told Arun Jaitley

Urjit Patel wrote to Arun Jaitley in 2017, pointing out problems of electoral bonds, and said govt had diluted RBI’s monopoly by taking away its exclusive right to issue them.

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New Delhi: In September 2017, Reserve Bank of India Governor Urjit Patel wrote to then Finance Minister Arun Jaitley that allowing a scheme like the electoral bonds is fraught with considerable risk, would damage the reputation of the central bank irreparably and also warned him that it would undo the gains from demonetisation.

According to the letter accessed by RTI activist Anjali Bharadwaj, Patel had raised several concerns about the government’s decision to allow a scheduled bank to issue currency-like instruments, thereby taking away the exclusive authority of the RBI to perform this role.

“You would kindly agree that allowing any other entity other than the central bank to issue bearer bonds, which are currency like instruments, is fraught with considerable risk and unprecedented even with conditions applicable to electoral bonds,” Patel said in the letter.

“Such exception will have adverse impact on public perception about the Scheme, as also the credibility of India’s financial system in general and the central bank in particular.”

Patel had also said the scheme could be misused through shell companies. “This can subject the RBI to a serious reputational risk of facilitating money laundering transactions.”

The proposal of digital electoral bonds

While, in principle, the idea of cleansing the system of political funding is welcome and the idea of electoral bonds (EBs) is novel, the RBI is of the view that “issuing EBs in digital form will be a superior method”, Patel said.

“Apart from avoiding the use of EBs for money laundering, this arrangement will be more secure and will also reduce the cost as the need for printing security features is obviated,” the letter said. “EBs issued in demat form will be akin to a central bank-floated ‘digital currency’ that would obviate the need for any other entity to issue such instructions.”

Concluding this letter, Patel again underscored the need for the RBI to be “the exclusive authorised authority to issue EBs”.

“We strongly believe that the digital form of EBs will mitigate risks and help to put the reform agenda of the Government on a firm footing.”

While Jaitley did not respond to the letter himself, then finance secretary Subhash Garg wrote back to Patel summarily rejecting the proposal of digital electoral bonds in a letter dated 21 September.

Doing so, Garg said, would “take away a key feature of the Scheme to protect the identity of the donor from the political parties”.

To Patel’s concerns regarding allowing a scheduled bank to issue electoral bonds apart from the RBI, Garg said this was only an “enabling provision” and “it is only RBI which will issue bonds on commencement of the Scheme”.

Also read: No clarity on legality of electoral bonds as SC couldn’t decide case before assembly polls

‘Diluting the authority of RBI’

Patel then responded to Garg’s letter with another letter addressed to Jaitley on 27 September, 2017.

He informed Jaitley that the RBI’s Committee of the Central Board met 27 September to discuss the issue of EBs, and then went on to list the various concerns flagged at the meeting.

First, Patel re-emphasised that issuing currency is a monopoly of a central authority.

“It is a matter of concern that the central government amended Section 31 of the RBI Act despite the Bank’s suggestion to the contrary, thereby diluting the monopoly of the central bank. The electoral bonds, irrespective of any fetters attached to them, would be like a currency note.”

He further said that the issuance of electoral bonds in scrip form as opposed to the digital form would leave no trail of transactions, and “can render the scheme to abuse of unscrupulous elements”.

“If RBI agrees to issue EBs in scrip form, it will be accused of acquiescing in the process in spite of the risk that it would almost inevitably result in money laundering. This would seriously dent the image and reputation of the RBI,” he warned again.

EBs in scrip form would also be exposed to the risk of forgery and cross-border counterfeiting, he said.

Defeating the purpose of demonetisation

Patel then went on to argue that the scheme in its current format would undo the successes of demonetisation.

“One of the major positives arising out of the demonetisation was that cash lying outside the formal economy has been brought into the banking system…The RBI too suffered some damage to its reputation initially, but in the end it was seen as a measure to cooperate with the Government in its fight against black money,” he said.

The operationalisation of the EB scheme “would expose the government and the RBI to adverse public criticism and consequent loss of goodwill for both. It would be perceived that the sufferings of the public (during demonetisation) have been brought to naught by this one move.”

While several initiatives of the government such as demonetisation, fight against NPAs, auction of natural resources, etc. have been seen as measures to fight corruption and black money, the EB scheme would give the impression, albeit falsely, that the government was facilitating and enabling the use of black money, he said.

The Committee of the Central Board in its fiduciary capacity would advise the government to reconsider the scheme in its proposed form.

However, Jaitley again did not respond to the detailed letter by Patel. Responding on his behalf, Garg once again dismissed the concerns raised by the RBI and said while the government has duly considered the RBI’s inputs, it is the “final decision” of the government to go ahead with EBs in physical form.

Also read: NRC after Citizenship Bill — Swapan Dasgupta, listen to Urjit Patel on banks — Ashok Desai


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  1. These funds to the political parties are mostly given either for getting policies in favour of the funding companies or getting some sort of protection from the ruling party. Such funds are availed without any disclosure/transparency to the general public /citizens. Thus its like protection money being collected by political parties from corporates, and that is why the poor & middle class people are ignored during framing policies for our country.

  2. Electoral bonds will undo demonetisation success, RBI Governor Urjit Patel told Arun Jaitley Boy, this man is alwaus lae and a dollar short. Hindustan hai. Sub Chalta hai.

  3. Demonetisation was itself a scam. It had failed to bring all the cash currency into the banking sector as claimed by Urjit Patel. If a considerable amount of cash was outside banking system before demonetisation, now a still greater amount of cash is remaining outside the banking fold in Rs. 2,000 currency notes as reported recently.

    EBs are really instruments of black money generated by the industrial houses paid into the coffers of a ruling political party. That will not only destroy the Indian economy but also strengthen the nexus between govt and corporate sector.

  4. Brilliant letter from then RBI Guv against a masterly act of deception job by Modi-late Jaitely combo on 1.3 billion people of the country in the name of electoral reform.The pretext was funding elections thru white money in place of the existing system of black money funded electoral system. It was a masterly move to achieve the dual purpose of one, funnel almost entire corporate funding to ruling party while denying funding to rival parties to bare minimum. Needless to say once the ruling party receives over 90% of the funding its govt. necessarily will have to work for the corporate donors more than just for the people who voted them. Besides, far from bringing the promised transparency it turns out to be the most opaque system of Independent India with donors identity not known. The so called white money transfer thru bonds from SBI to political parties are not necessarily white indeed as experts have opined in few recent related talk shows on TV with round tripping of money happening passing through dozens of country leaving no “trail” making origination of source of fund next to impossible.
    This precisely what the RBI had averred to the govt. to which it did not bother to reply.Many other features like removal of caps, enabling even loss making cos….and exempting many other Co. information have been incorporated to facilitate the funding. In fact not just RBI but even EC too had opposed the move and matter went to SC too but Hon. SC was not assertive and did not rule for request of publishing the names of Cos. issuing the EBs even w/o naming the beneficiary parties. Let’s hope SC will order for publishing of the names of the corporate donors sooner than later. Unfortunately when the EBs were being introduced none of the political parties opposed the scheme although now during a TV debate this week Abhishek Manu Singhvi claimed Cong. party having opposed it ,which is a lie. Periodically print media carried the EBs values yrly for different parties indicating over 90% going to ruling party alone.In a recent TV talk show it was indicated the latest figs with BJP alone receiving over R6000 Crs and Cong receiving around Rs800Cr with information that BJP has defaulted and is yet to file the return within stipulated time for which the party has been given time extension by EC.Now with RBI’s negative flagging of the issue right at the start even before inception it is no coincidence that Bank frauds have been mounting over the last 3-4 yrs a period coincident with EBs with the latest yr six months fraud at Rs 96KCr!I have been tweeting @damootwits for last 2 yrs about these bank frauds starting with PNB frauds suggesting likely links to the EBs. Undoubtedly as prophesized by RBI the EBs have indeed appeared to have undone whatever gains of DEMON on Black money. Given the seriousness involved it is time one, for both EC and SC to intervene and STOP ISSUE OF ANY FURTHER ELECTORAL BONDS. Next SC must order a thorough judicial probe or thru LP etc. into what looks to be a big election funding SCAM initiated by the Modi govt.The terms of reference must include among others the circumstances leading to overruling of RBI and EC and role of the individuals involved including namely, PM,Narendra Modi and late Arun Jaitely.

  5. This Electoral Bonds scheme is devised by BJP to get party funds from companies in such a way that other political parties are not aware of the donors.
    His amounts to corruption at the highest level and the Supreme court did nothing about it deliberately.

  6. One honestly does not see what the fuss is all about. One eighth of an iceberg is visible above the surface. In the case of electoral bonds, they represent an infinitely smaller percentage of the funds that are mobilised for political / electoral activity. Even so, there would be no harm in the apex court ruling definitively on the subject.

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