#dnaEdit: Probity in public life

The uncertainty over whether the Swiss will part with information about Indians holding money in their banks is immaterial in the discourse over the recovery of black money.  But the jubilation over such an eventuality is more of political than economic significance. And it is passé for those who are following the issue of transparency in global financial transactions. The concept of “safe havens” — where funds can be safely stashed away from tax authorities — was wearing out. Globally countries which had provided such shelters were yielding to demands of powerful economies. Germany had wrested such information from neighbouring Liechtenstein and USA only recently got similar data about tax dodgers from Swiss banks. That Switzerland would share such information was inevitable. 

Movers of large money were none too dumb not to know that. The talk was on for years and depositors would have moved their funds away or to other instruments long time back. Swiss banks offer little return.

Smart investors would have put their ill-gotten wealth — to the extent these were ill-gotten — in a variety of other forms, real estate being one of these. There are hard facts about such investments by Indians abroad. 

Secondly, a good part of funds in Swiss banks may be beyond the reach of Indian authorities and cannot be brought back. As the enforcement directorate itself knows that parts of the funds may not be illegitimate but might be from legitimate business operations. Also many of those who had stashed away funds earlier have since become non-resident and are doing business globally. How can they be reached? 

Thirdly, the amount of funds held by Indians in Swiss banks may not be that large to be of any major economic consequence. We now need trillions of dollars investments in select sectors. These funds cannot come from confiscated money; these have to be generated in humongous amounts from the global capital markets. 

So is the Swiss declaration of transparency of no value? 

That’s not true. It is immensely important. It is a deterrent that illegitimate money trails could become known fairly easily nowadays.  You have to be more innovative in putting your money abroad, as some have been.

But what is important is to make sure that the scope and incentives for moving money abroad to dodge taxes should not be there.  Why should someone wish to take away money and keep it outside even if it did not fetch him good returns and risk a possible prosecution and finally confiscation?   We should see this is not repeated in future. How to achieve that?

There are at least four ways this can be attempted through a normative approach. First, the tax regime should be such that it would be more attractive to comply than profit from avoidance. A lot of funds have flown out in days when India’s progressive taxation rates acted as an incentive to dodge dues. Secondly, going by recent experience large funds are generated — mostly abroad — at the interface between government and business. Hence, this interface should become impersonal and norms-based, leaving little scope for discretion. Essentially, there should be total transparency in government decision-making so far as business is involved. Thirdly, a good deal of kickbacks are generated in the humongous annual defence purchases. These can be plugged by first indigenising defence production; and secondly, by scrapping our own secrecy over such purchases.

Eventually, the Swiss will have to share the information. India can otherwise debar Swiss bank operations or end their commercial transactions with the country. 

Lastly, the best insurance against large scale ill –gotten wealth is probity in public life. Show them for what they are: “As man’s ingratitude”.