How can the trustees of black money reveal the identity of its owners?

The size of black money in India — both retained domestically and stashed in foreign banks — is mind-boggling. Suffice to say this much; everyone knows and agrees this. Quantification of any sum is disputed; treated an underestimate. No one, in fact, has the accurate figure. If anyone has it and with indisputable evidence, he/she can as well force the government to act and confiscate the ill-gotten money. So, finance minister Pranab Mukherjee too found it convenient and said in his press meet on Tuesday that all the estimates were “unverifiable assumptions and approximations.”

The system of underground economy has so perfectly evolved that no one knows the actual quantum; and those who know a little can’t make the information public. The inability of the government to make public the names of those 26 persons, who had deposited money in the Liechtenstein Bank in Germany, is a case in point. While filing the list before the Supreme Court, the government restricted the information only to the court’s perusal, quoting the compulsion under a treaty obligation with that country.

The court was naturally unhappy and observed, “It was a pure and simple theft of the national money. We are talking mind-boggling crime. We are not on the niceties of various treaties…”. Nothing can better explain the ineptitude of the government in dealing with the problem than these comments.

Although estimates are not accurate, as said already, it is interesting to look at some of them. The amount in any case could be incomparably larger than the Income Tax Department’s estimate of concealed income of `15,000 crore during the last 18 months.

Global Financial Integrity (GFI), a Washington-based organisation, estimated the illegal outflows from India to be $27.2 billion every year on an average during the five years period 2002-06. Dev Kar, an economist of this institute, estimated an outflow of $462 billion (equal to Rs20 lakh crore) during the period 1948-2008. As high as 72% of the illicit assets generated in India are estimated to be flowing abroad. Another estimate of the aggregate black money is Rs71 lakh crore. Prof Arun Kumar puts the black money at 50% of the GDP of the country. Finance minister Mukherjee too put the estimate between $462 billion and $1.2 trillion.

Based on the estimates, several people are interpreting on the utility of the quantum in several ways. For instance, one estimate suggests that the amount is sufficient to distribute Rs1,00,000 each to 40 crore people, others say it is equal to so many times the foreign debt, social sector spending and so on. But what is the use of these enthusiastic calculations without actually getting back the money stashed away!

But, how at all the black money is generated?  Even the finance minister seems to have no clue.

He has asked four institutes to send their suggestions for undertaking a study to estimate the quantum and nature of unaccounted money in the country. These institutions include, the National Institute of Public Finance and Policy (NIPFP), the Indian Statistical Institute (ISI), the National Council for Applied Economic Research (NCAER) and the National Institute of Financial Management (NIFM). A similar study was taken up in 1985.

Arun Kumar says more than 40 committees have gone into studying different aspects of the problem so far and had come out with thousands of measures.

Yes, the government has taken many steps earlier which include demonetisation, voluntary disclosure schemes, payment through banks, through cheques etc. Even now, some are asking to withdraw high value notes — Rs1000 and Rs500 — believing that the earners of illegal money hold their wealth in the shape of these currency notes.

But none of them worked. The black money as a percentage of GDP was 16.53% in 1983-84 as per the government-commissioned NIPFP study of 1985. Now it is understood to be around 50%.

The measures did not work; if at all, they worked in such a way as to give additional benefits to tax evaders who could bring some of their unaccounted money over ground.

Pranab Mukherjee announced his five-pronged strategy comprising joining the global crusade against black money; creating an appropriate legislative framework; setting up institutions for dealing with illicit funds; developing systems for implementation; and imparting skills to the manpower for effective action. But he has prescribed this method without diagnosing the disease of black money.

Some opine that high taxes and complex laws are the main causes for tax evasion and piling up of the black money. But experience has shown that both the assumptions are wrong.
If high rates-evasion correlation were to be correct the black money would have gone down steeply, not increased. Tax rate was close to a high 98% in 1971 when the black money was equal to 7% of the GDP whereas the rates have been brought down to around 30% now when the black money is supposed to be peaking at 50% of GDP.

While complex methods of filing and account maintaining are wrong, they, per se, are not the real causes for tax evasion. Most persons in the business, including the small ones, maintain two accounts — one, official, for tax purposes and the other, a real one, which they call zero account, or with some other local name. Is it not a complex phenomenon to maintain such accounts? Although complex, people do maintain them. In other words the complexity is not providing a disincentive for tax evasion. That is only an excuse to mislead. Simplicity is a necessity, but not in this context alone.

There are other suggestions like state funding of election expenditure of the contestants to various legislative bodies and putting more institutions in place to ensure the accountability of the government functionaries.

But these measures, in the absence of a real change in the fundamental causes for the corrupt society, are likely to be ineffective like all other previous measures.

The funding for poll contests will, in fact, be an additional benefit to the unscrupulous politics. The contestants will spend the money received from the government and maintain accounts for them while they spend the money illegally earned through illegal methods. That is not at all going to weaken the politics-business nexus.

Similarly, the new institutions for keeping a check on the wrong-doers are not unlikely to be controlled by the corrupt personnel. Unfortunately, the existing institutions which are manned by corrupt individuals are not acting in such a way as to get the credibility and public acceptance of the institutions they are representing. Needless to say, the all-pervading corrupt system is responsible for all the frauds including the generation of black money.

It is an absolute truth that political parties are funded by big businesses. They, the representatives of big business, are directly and indirectly controlling policy making. The corruption of the politician and the business is not possible unless the accommodating bureaucrats cooperate with them. In fact, it is difficult for bureaucrats to survive fighting against the real power holders — the politician and the businessman.

Finally this trio works in unison to perpetuate the corrupt system.
Unfortunately, though it looks cynical to comment, it will be hypocritical not to admit that the other pillars of the democracy — media and judiciary — are also facing criticism. This is not to say that the absolute rectitude is expected of every individual in every industry. After all, individuals are coming from the same society and are under the same influences.

The overall scenario is helping the easy generation of the black money and its protection. In a wider context, this kind of compulsion; the foreign banks’ obligation to protect the interest of their constituents is making the governments to come around to sign treaties to maintain secrecy of the account holders of the illegal money.

Although, as said by the Supreme Court, it was outright plunder of national wealth, the prime minister could not make the names of those account holders public. Since black money is generated with the connivance of the governments, which have vital stakes in it, they only work towards protecting that money — as if they are its trustees. So they are forced not to reveal the names of the owners.

So, the change, to be effective, should come in the fundamental causes of corruption and black money. Another round of temporary measures, including its five-point strategy, is not going to change the scenario. If the government is really honest it should show it.

Efforts should be to bring back lakhs of crores of rupees lying in the foreign banks, but, not hiding the identity of the pilferers of national wealth. Together with these bold measures, further steps should be worked out to check further generation of black money.

Cutting at the roots of corruption and breaking the nexus of businessman-bureaucrat-politician are imperative. Only then will people have faith in the assertions of the government. But unfortunately, this is something too much to expect from the present government.