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വായന

06 October, 2015

End of black money chase

BRP Bhaskar
Gulf Today

Why did Indians holding secret accounts in foreign banks contemptuously reject the corporate-friendly Narendra Modi administration’s generous offer to them?

During the Lok Sabha election campaign, Modi had declared he would bring back the money stashed abroad within 100 days of taking office. He would then have enough money to pay out Rs1.5 million to each citizen, he said.

When the deadline passed without any action, critics taunted him. The government then framed a law prescribing stiff penalties for holding undisclosed income and assets abroad, and offered a three-month window, from July 1 to September 30, to disclose black money accounts without attracting its harsh provisions.

In his Independence Day address, on August 15, Modi said the government had already received disclosures to the tune of Rs65 billion. However, when the time set for voluntary disclosure ended, only hoardings worth Rs37.70 billion had come to light.

That reduced the notional share of each citizen from 1.5 million to a measly Rs37. More taunts followed.

India has been living with the problem of black money, generated at home and abroad, since long. Businessmen are known to create black money abroad by under-invoicing exports and over-invoicing imports. Politicians and officials also park ill-gotten money abroad. Ahead of elections, money hoarded abroad flows into the country.

Modi’s was the fourth voluntary disclosure scheme in 40 years. About 260,000 persons disclosed concealed income of Rs15.90 billion in the first one in 1975. The second one in 1985 brought out Rs29.40 billion held by about 150,000 persons. The third in 1997 was the most successful one: about 470,000 persons disclosed concealed income of Rs330 billion.

The latest scheme, limited to foreign account holders, evoked the poorest response. There were only 638 disclosures. In absolute terms, the income disclosed is the second largest but it has to be viewed against the growth in the size of black money accounts since 1991 in the wake of economic liberalisation.

Modi, who is a prolific communicator, has not spoken or tweeted on the collapse of the scheme. The formal official response came from a bureaucrat who said, “We will now start taking action against those who have not declared their concealed income.”

If caught, a black money holder faces the prospect of a 120 per cent tax penalty and a 10-year jail term. The way the illicit account holders have ignored the scheme suggests they are supremely confident of their ability to evade the law.

There are no large industrial houses or tycoons among the 638 who made disclosures. Most of them are medium-sized industries or businessmen. It is possible that some made partial disclosures to avoid further scrutiny. Having made disclosures, they are immune from prosecution.

The government has no information about the assets held abroad by Indians. In a 2013 report, the Washington-based Global Financial Integrity put illegal outflow from India in the previous 10 years at about $440 billion. It ranked India third in illegal overseas money transfers, after China and Russia.

In 2006, Switzerland’s Banking Association revealed that Indians topped the list of secret account holders in that country with deposits totalling $1,456 billion. This was higher than the combined deposits of nationals of Russia ($470 billion), the UK ($390 billion), Ukraine ($100 billion) and China ($96 billion).

As Switzerland initiated steps to live down its reputation as a parking station for illicit wealth, Indian clients started moving their money elsewhere. By 2011, Indian deposits slid to the 61st place and stood at less than $2 billion. The 2014 figure is $1.98 billion.

The government’s hope of black money recovery now rests mainly on the multilateral automatic exchange of information system due to come into force in 2017. But those with undisclosed funds have enough time to move the money to countries which are out of it.

There is reason to doubt if the government is serious about unearthing black money. How can politicians who need black money to finance election campaigns crack down on black money?

Modi’s Bharatiya Janata Party is now the biggest beneficiary of corporate funding. Published accounts show that it received more than Rs12 billion from big companies last year. The Congress party’s share of corporate donations was only about $480 million. It is reasonable to assume that black money holders are actuated by the same considerations as the corporate since their interests coincide.

Finance Minister Arun Jaitley virtually proclaimed the end of the chase of foreign account holders when he wrote on Facebook on Sunday that the bulk of the black money is within India. He also bailed them out with the observation that the high tax regime of the past was to blame. --Gulf Today, Sharjah, October 6, 2015

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