India's Supreme Court on Thursday struck down an opaque scheme that allowed anonymous political donations in the form of electoral bonds.

The ruling comes ahead of national elections expected in mid April-May 2024.

How do electoral bonds work?

The scheme required donors to purchase electoral bonds from the government-owned State Bank of India in denominations ranging between 1,000 and 10 million rupees (€11.2 and €112,220, or $12 and $120,000).

The donors do not need to disclose their identity and their donations are exempt from tax. 

A five-judge bench headed by Chief Justice DY Chandrachud said that the system is "unconstitutional," and directed the state bank to not issue more of them. 

Arguments against electoral bonds

Since their introduction in 2018, electoral bonds have become a key method of political funding in India. In the 2019 general elections, spending by candidates and political parties ran up to $8.7 billion  according to the New Delhi-based Centre for Media Studies. Calculations made by the Association for Democratic Reforms (ADR) transparency watchdog showed that more than half of all donations received by political parties use the scheme.

But critics of the scheme have derided it as a way to funnel dirty money to political parties. They also speculated that the government could access donor names via the state-controlled bank.

Jagdeep Chhokar from ADR, a lead petitioner in the court case, said the ruling would help end political "mischief".

 "My initial reaction is of big relief — and some hope," he said, adding that the bond system "had added an extra layer of opacity".

Prime Minister Narendra Modi's party has defended electoral bonds, arguing that it is more transparent than cash donations because it goes through the banking system.

mk/dj (AFP, Reuters)