Govt may give fresh affidavit in SC today: Explainer on the black money debate

An informed, mature and realistic debate on black money is too much to ask for in a country where the issue attracts intense, almost emotional public reaction. It does not help when political games and systemic problems in the economy that aid tax evasion and stashing of illicit money in overseas destinations get mixed up.
Finance Minister Arun Jaitley has hinted at a former UPA minister’s name figuring on a list of names received from banks overseas and the Congress has challenged him to go public with all the names. But is this latest round of excitement over black money expected to yield much beyond the routine noise? No, economists tell Firstpost. The issue is complex and requires a combination of strong political will, changes in the taxation rules and a mass movement for compliance to curb the problem, if not completely eliminate it, they argue.
Is it really possible to cart the money back to India as the party promised?In 2009, eminent lawyer Ram Jethmalani and others filed a PIL in the SC seeking the court’s directions to help bring back black money stashed in tax havens abroad. In January 2011, the apex court asked why the names of those who have stashed money in the Liechtenstein Bank have not been disclosed and asked the government to be more forthcoming in releasing the names. It was followed by setting up of a Special Investigation Team (SIT) on the court’s order to act as a watch dog. In 2012, government brought out a white paper on black money.
In April 2014, the government disclosed to the SC the names of 26 people who had accounts in banks in Liechtenstein, as revealed to India by German authorities. Going back on its pre-poll commitment, the NDA government told the SC in mid-October that it couldn’t disclose the names, as providing the names of Indian black money holders would violate tax agreements with nations. This led to a fierce debate between the BJP and the Congress, especially when the government later said it would release a few names.
Why is it difficult to track down account holders?
The actual account holder conceals his identity through ‘layering’. The money is routed through at least six layers. For example, X transfers money from India to a tax haven – there are at least 80 of them – through hawala; thereafter, a shell company is formed by another name in another tax haven. It’s then transferred to a third tax haven and parked in a bank under a trust. Though the actual owner remains the same the owner is progressively hidden behind these multiple veils.
What is round-tripping?
A part of the black money stashed in a tax haven gets back to India through Mauritius and other routes such as participatory notes and gets converted into ‘white’, giving it a legal status. The process of funnelling back unaccounted for wealth back to India is a multi-layered process cleverly designed to conceal the identity of the real players.
Is it possible to name all the Indians and bring the money home?
No, say economists, financial and legal experts, and government officials engaged in dealing with this issue. “It’s not an easy task and not possible to bring the black money back home, as politicians often claim. Legally, it is very difficult to name an account holder, unless the person is being prosecuted and taken to court. Moreover, other countries will stop sharing confidential information if we start making such information public without following international protocol,” a senior bureaucrat knowledgable about the issue, shares on condition of anonymity.
Is black money all about foreign banks?
Not really. A study shows that out of the total black income generated, only 10 percent is kept abroad and 90 percent remains in India. The interest rate in foreign banks is too low to bring any handsome returns on saving. Black money is kept abroad for spending on luxury items, expensive jewellery, cars, buying a yacht, building properties in cities such as Dubai, London or in the US, investing in stock market, etc. Of the money in India a portion is consumed in buying gold, property, etc. A major part of this money gets into real estate which explains why property prices stay high despite huge idle inventory. This money is also used to fund elections. If the government is serious about curbing black money it would be better advised to focus on India rather than on foreign banks, say economists.
What is the estimate of Indian black money stashed abroad?
There is no official estimate. In 2011, the government commissioned a joint study by three think-tanks – NCAER, NIPFP, NIFM to get an estimate. The final report is yet to be submitted. However, Washington-based Global Financial Integrity mentioned $462bn (approx Rs 28.6 lakh crore); CBI director quoted it as $500 bn (approx Rs 31.4 lakh crore), and in 2011, aBJP task force stated it as something between $500bn- $1.4 trillion.
Is there any solution to this menace?
“Making all the names public and trying to get the money back may look tempting, but is a very complicated task. The government will get distracted. The best option for the Indian government is to negotiate with tax havens and impose 30 percent tax per annum on all those accounts having black money. It’ll be an income for the government. If someone hides it, he should be penalised. Government is fully empowered and is the final authority to take action against tax evaders. Even within India, it’s difficult to get back money like in the case of bank defaulters, despite making names in public,” opines economist Dr Rajiv Kumar, senior fellow, Centre for Policy Research and director, Pahle India foundation.