War on black money is a hoax – Paranjoy Guha Thakurta

Narendra Modi

Paranjoy Guha Thakurta“Narendra Modi and leading politicians from the Bharatiya Janata Party had claimed that if they were elected, they would bring back enough black money to distribute a sum of Rs 15 lakh to each and every poor Indian family. Some of Mr Modi’s supporters, like Baba Ramdev, even claimed that the money would be brought back within 100 days of the new government coming to power.” – Paranjoy Guha Thakurta

Indian RupeesThe Narendra Modi government’s new scheme to unearth black money kept by Indians outside the country has yielded just about Rs 4,147 crore from 638 declarations. On average, this figure works out to a relatively small amount of Rs 6 crore per declaration—either about holding assets abroad illegally or earning income outside the country which has not been disclosed. Nearly two-thirds of this money, or Rs 2,488 will come to the exchequer by way of taxes. This measly sum is a clear indication that large holders of black money chose not to comply with the three-month-long immunity scheme that ended on the last day of September.

Contrary to expectations, there was no last minute rush to apply for the immunity scheme. The scheme, which received a rather lukewarm response despite a fair amount of publicity that was given to it, came as part of the Undisclosed Foreign Income and Assets (Imposition of Tax) Act that was passed by both Houses of Parliament in May.

Arun JaitleyThat the law and the disclosure of income scheme under it would have, at best, a marginal impact on the huge problem of black money in the country was anticipated by the government’s critics. Still, Union finance minister Arun Jaitley sought to downplay the response to the disclosure scheme. He and top officials in his ministry, including economic affairs secretary Shaktikanta Das, held out threats that the tax authorities would now crack down hard on those Indians who have illegally stashed away income and undeclared assets abroad. However, these threats sound like bluff and bluster.

Narendra Modi & Baba RamdevTo come to the basic question, why was this ineffective law enacted in the first place? In the run-up to the 2014 elections, Narendra Modi and leading politicians from the Bharatiya Janata Party had claimed that if they were elected, they would bring back enough black money to distribute a sum of Rs 15 lakh to each and every poor Indian family. Some of Mr Modi’s supporters, like Baba Ramdev, even claimed that the money would be brought back within 100 days of the new government coming to power. Clearly, these were unrealistic expectations.

Having repeatedly asserted that the previous Congress-led government had deliberately not revealed the names of those with foreign bank accounts because it was trying to protect them, the BJP government was now on the backfoot. It had do something to counter its political opponents who were repeatedly carping at the Prime Minister for making tall claims and promises in his election campaign that were not fulfilled. The fact is that no one knew then—or knows now—how much money has been illegally kept outside the country by Indian citizens, although there have been guesstimates galore.

On November 2, Mr Modi acknowledged in his Mann Ki Baat radio broadcast that the exact amount of black money stashed abroad by Indians was not really known: “Till date, no one knows, not me, not the government, not you, not the earlier governments, as to how much money is actually stashed. Everyone quotes a different figure in their own ways. However, I do not want to get entangled in the numbers, my commitment is whatever is the amount—two rupees, five rupees, one crore or more—that money which belongs to the poor, should be brought back. And I assure you that there will be no shortcomings in the efforts that I make.”

Amit ShahThis issue became more controversial when BJP president Amit Shah stated in an interview that what had been said in the run-up to the elections was in the nature of jumla—a quaint word which means an idiomatic statement made with rhetorical flourish or exaggeration.

What are the problems with the new Act and immunity scheme? First, the bulk of the black money and wealth generated by Indians (perhaps as much as 90 per cent) is not outside the country but well within India. In other words, the new Act seeks to address only a very small part of the problem of black money. Second, even the money kept abroad illegally by citizens is unlikely to have remained there for very long. The funds would either have been spent or transferred or laundered white by moving the money across various jurisdictions, in particular, tax havens like Mauritius and Singapore—a phenomenon called “round tripping”.

That’s not all. The third limitation of the immunity scheme is that it is not applicable to non-resident Indians (NRIs) and persons of Indian origin (PIOs) with money and assets abroad. It is only applicable to Indian residents who are income-tax assessees. According to the Reserve Bank of India’s definition, an NRI cannot spend more than 182 days in India. It is quite simple for holders of undisclosed foreign income and assets to change their residential status in anticipation of the new law.

Bishwajit BhattacharyyaAs has been pointed out in the pages of this newspaper by senior advocate and former additional solicitor-general of India Bishwajit Bhattacharyya, the law is “farcical” because even if a person holds an illegal foreign account in contravention of the Foreign Exchange Management Act (FEMA), 1999, the new Act does not apply to him although FEMA has extra-territorial jurisdiction and applies to all branches, offices and agencies outside India, owned or controlled by a resident of the country. Another serious flaw in the Act is that there is no provision to compel the declarant to repatriate funds in foreign currency.

He has further pointed out that the date of enforcement of the new law was brought forward by 276 days, from April 1, 2016, to July 1 this year, by an administrative order which sought to supersede an act of Parliament. This, Mr Bhattacharyya feels, was clearly illegal but not challenged.

The short point is that the new law is largely irrelevant as far as tackling the huge problem of black money in India is concerned. It has been enacted essentially for political purposes, for the Modi government to claim it is acting against Indians who have illegally taken wealth out of the country and in order to save face for the Prime Minister. Its utility is extremely limited. – The Asian Age, 5 October 2015

» Paranjoy Guha Thakurta is an educator and commentator. His main areas of interest are the working of India’s political economy and the media, on which he has authored/co-authored books and directed/produced documentary films.

Indian Money

As per the latest data released by Switzerland’s central banking authority SNB ( Swiss National Bank), Indians’ money in Swiss banks declined by over 10 per cent to about 1.8 billion Swiss francs (USD 1.98 billion or Rs 12,615 crore) in 2014.

Black Money Map

Switzerland is not the only country where Indians can hide their money. In fact Switzerland is not even a first choice as it can no longer guarantee privacy for account holders. It must comply with some international demands to reveal account details, having been forced to do so by the US and Germany looking for tax evaders. But there are dozens of other off shore banking countries where Indians can hide their ill-gotten gains or even white taxable incomes from the authorities.

4 Responses

  1. Not withstanding his resourcefulness with economics, Guha ji disappointed with his amateurish comprehension of such a simple paraphrase used during election campaign. All NaMo meant was the black money stashed is so huge that if brought back a sum of 15 lacs could be distributed to every citizen.

    • No use making excuses for Modi Ji. He is proving to be just like every other politician, making exaggerated promises that he cannot possibly keep—indeed, that he has no intention to keep!

      Why have the names of politicians and Gandhi family members been kept off the black money lists?

  2. How does this writer know that 90% of black money is in India?

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