Tuesday, April 23, 2024

Electoral Bonds: A game theoretic enquiry into who gains at whose cost?

Shirin Akhter and Vijender Singh Chauhan

The debate around electoral bonds in India has brought to the fore a pressing concern within India’s politico-economic framework: the potential for private interests to exert undue influence over public policy, often at the expense of the common good. This discourse is of particular significance in the context of common property resources such as forests, water bodies, grazing lands, and fisheries which are vital for the sustenance of millions, especially the poor and the marginalised sections of society, but are at risk of being compromised by policies that favour the wealthy. This article aims to bring out the dynamics at play within political donations through a strategic decision-making model, shedding light on the interlinkages between capitalism, politics, and democracy.

Our exploration is based on a strategic decision-making model involving three primary actors: capitalists, politicians, and voters, each making decisions marked by strategic interactions and varying payoffs. The model is structured as a sequential game with imperfect information, where capitalists initiate the decision-making chain by choosing whether to donate to political parties. This choice hinges on a simple yet profound calculation: the potential to sway public policy in their favour against the backdrop of policies that would lead to social welfare maximisation in the absence of their influence.

Upon receiving donations, politicians are faced with a critical decision: to reciprocate with favourable policies (Accepting Donations and Providing Favours) or to adopt a more ethical stance by not offering any special treatment despite accepting the funds (Accepting Donations but Not Providing Favours). This phase of the game underlines the complex interplay between ethical considerations, political pragmatism, and the quest for campaign financing.

Voters, the final decision-makers in this model, base their electoral choices on visible actions and outcomes, albeit constrained by imperfect information. Their decisions are significantly influenced by the media’s capacity to uncover and report any collusion between capitalists and politicians. In instances where such nexuses go unreported, the game concludes with public policies being tailored to suit the interests of the wealthy, thereby sidelining the broader societal welfare and compromising the well-being of the weak, the marginalised and the vulnerable.

The strategic decisions and their ensuing outcomes highlight a spectrum of possibilities, ranging from a scenario where capitalists and politicians engage in a mutually beneficial exchange at the public’s expense, to a more equitable outcome where political donations are eschewed in favour of transparent policy-making aimed at maximising public welfare. The optimal scenario, from a societal standpoint, emerges when no donations are made, ensuring that policies are developed with the public interest at the core.

A case in point is that of electoral bonds, Introduced in India in 2018, proposed as a means to ensure greater transparency in political funding and widely criticised for maintaining donor anonymity, potentially allowing for unchecked corporate influence over politics and policy-making. In other countries, while the exact mechanism of electoral bonds as it exists in India might not be present, there are various forms of political funding and donation mechanisms, each with its own set of rules regarding transparency, anonymity, and limits. Some countries have strict disclosure requirements for political donations, while others allow for more anonymity. However, the specific concept of electoral bonds, as a government-regulated, purchasable instrument that can be donated to political parties anonymously, is not used or recognised outside India.

The anonymity feature of India’s electoral bonds stands out as particularly controversial. While other democracies strive for transparency to varying degrees, aiming to prevent undue influence on their political systems along with balancing the need for political parties to secure funding, our government decided to go in for the electoral bonds. The imperative of anonymity in political donations, particularly through sovereign instruments like electoral bonds, raises profound questions about the integrity of policy-making processes and their outcomes for the economy. The anonymity associated with electoral bonds can have several impacts on policy-making, owing to interlinkages between political influence, economic policy, and democratic governance. 

Legal provisions to anonymously fund political parties allow wealthy individuals and corporations to donate significant amounts to political parties without public disclosure which can lead to policies that favour these donors’ interests, potentially at the expense of broader societal welfare. For instance, tax policies, regulations, and government contracts may be unduly influenced by donors, leading to a form of policy capture where economic policies disproportionately benefit the wealthy and powerful.

The lack of transparency in political donations can erode public trust in the political process and government institutions. When policy decisions appear to align closely with the interests of anonymous donors, it can raise suspicions of corruption and cronyism, even if such policies might have legitimate justifications. This erosion of trust undermines the legitimacy of democratic institutions and can lead to political apathy or disenchantment among citizens. Anonymity in political funding can exacerbate economic inequalities by shaping policies that fail to address or even worsen disparities.

For example, labour laws, environmental regulations, and social welfare programs might be skewed to favour the interests of donors over those of workers, communities, and vulnerable populations. 

This can perpetuate a cycle where economic policies reinforce existing power structures and inequalities, rather than promoting equitable growth and development. The democratic process relies on voters being informed about the positions and motivations of political parties and candidates. Anonymity in political donations obscures the potential influences on political parties, making it difficult for voters to assess the alignment of parties’ policies with their interests and values. This lack of transparency can impede the ability of voters to make informed choices, weakening the democratic feedback mechanism that is supposed to hold political leaders accountable.

Without transparency in political donations, foreign entities can also influence domestic policy through anonymous contributions. This can have significant implications for national sovereignty and policy autonomy, as foreign interests might shape economic and foreign policies in ways that do not align with the national interest or the welfare of citizens. The anonymity associated with electoral bonds and similar instruments complicates efforts to evaluate and reform economic policies. Without a clear understanding of the motivations and influences behind policy decisions, it becomes challenging to identify the reasons for policy successes or failures. This can hinder efforts to learn from past experiences and implement reforms that genuinely enhance economic welfare and democratic governance.

In India, the Supreme Court struck down the anonymity feature of electoral bonds, which had allowed donors to contribute to political parties without revealing their identity. This landmark judgment emphasised the importance of transparency in political donations, highlighting concerns over unchecked and unlimited corporate donations and the fundamental right of voters to know who is financing political parties. This move towards greater transparency is seen as a step to curb the influence of big money in politics and ensure that policy-making serves the public interest rather than specific, undisclosed interests.

It can further be argued that in cases where such donations are being made to influence public policy, it would make more sense for the donor to donate to the party in power, the data as released by SBI supports our argument. The fact that parties in power, particularly the Bharatiya Janata Party (BJP) have received substantially higher donations compared to other parties is well-supported by data and analyses. Critics, including civil society groups like the Association for Democratic Reforms (ADR), have pointed out that the anonymity and lack of donation limits afforded by electoral bonds could enable corporations to wield disproportionate influence over political parties and policies. This concern is particularly pronounced given that the BJP received a significant majority of the funds raised through electoral bonds. For example, from the scheme’s inception until the fiscal year ending in March 2023, the BJP garnered 55% (approximately ₹65.66 billion) of the total donations made through electoral bonds, making it the primary beneficiary of the system. 

The Supreme Court of India’s decision to strike down the anonymity feature of electoral bonds marks a pivotal moment in the discourse on political funding, emphasising the importance of transparency and the public’s right to information. This landmark judgment, while addressing the immediate concerns associated with electoral bonds, also casts a spotlight on the broader challenges of ensuring that political funding mechanisms do not undermine democratic governance or exacerbate economic inequalities. In light of these considerations, the article advocates for a reevaluation of political donation practices, with a particular focus on enhancing transparency, regulating political spending, and ensuring that policy-making serves the public interest. By critically examining the interconnections between political influence, economic policy, and democratic governance, we underscore the imperative for reforms that strengthen democratic integrity and promote social welfare.

Dr Vijender Chauhan is a distinguished figure in academia and public discourse, known for his multifaceted contributions as a university professor. He is an Associate Professor, in the Department of Hindi with Zakir Husain Delhi College, University of Delhi.

Dr. Shirin Akhter is a well-published researcher, and an accomplished teacher, working as an Associate Professor in the Department of Economics at Zakir Husain Delhi College, University of Delhi.


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