Black Takes Game?

At the heart of the black money controversy is Union finance minister Arun Jai­­tley. His action of not disclosing the names on the plea that it would violate the double taxation avoidance agreement (DTAA) with Switzerland, Germany and Fra­nce set the cat among the pigeons. It gave the Oppo­sition something to talk about after four-and-a-half months of a Modi lovefest. There are rumblings wit­hin the BJP too on the party ceding the “moral plank”. The knives may not be out for Jaitley, who also holds the defence portfolio, but the disquiet is palpable.

There is a strange air of unease in Delhi, with “many names and account numbers” doing the rounds. In the Con­gress corner, it’s more relief that the BJP will no longer be able to make political capital out of dangling before them the threat of revealing names of party leaders or supporters (the investigation will now be handled by a SC-monitored SIT with the support of government agencies).

So far, only eight names have been made public by the BJP government including prominent industrialist and Dabur Group scion Pradeep Burman, Rajkot-based bullion trader and realtor Pankaj Chimanlal Lodhiya and Goa-based mining firm Timblo Pvt Ltd and its five directors. The information on Bur­man had been secured from the French, while the sources for others were “other countries”, the apex court was told. In addition, much is being made of an I-T notice served to ex-UPA minister Preneet Kaur, who’s vehemently denied having any overseas account.

So what’s new? During Pranab Mukh­erjee’s tenure as finance minister too, in 2011, 17 people with Swiss bank accounts were served tax notice almost 10 months after they were identified. The process of government action can take several mon­ths to several years. The wait is now for the SIT or the SC to reveal the names in the list which, according to media rep­orts, includes those of several leaders from Maharashtra (including ones close to both Indira and Rajiv Gandhi).

On that note, even if the BJP has managed to silence critics by handing over a list of 627 names (of people and institutions with supposed illegal funds stashed in HSBC Bank in Swi­tzerland) to the Supreme Court, it is a pyrrhic victory. The fact is the list had already been given to the special investigation team set up in June by the NDA government. This makes the judicial exercise a bit of an anti-climax.

Baba Ramdev, Anna Hazare and Ram Jethmalani at an anti-black money rally, 2011. (Photograph by Rajiv Tyagi)

What made headlines was law­yer Ram Jethmalani’s direct att­ack on Jaitley (see interview). An angry Jethmalani, who was fin­ally expelled from the party this year (for not toeing the party line on several issues), points to a myriad occasions and sources through which the Indian government could have accessed information about the ‘illegal funds’ parked abroad. He also points to the incongruity suggested in a letter the Swiss authorities had written (dated July 4, 2014), which says “there is no list of Indian tax residents holding assets in Swiss financial institutions in their own names or through structures”.

Other supporters and BJP members have made their displeasure even more evident. Subramanian Swamy has criticised the government stand of mixing DTAA with black money. Among the six steps suggested by him for checking black money (in an article in The Pioneer), he’s sought scrapping of the Participatory Notes scheme and declaration of all money under this scheme by Indian citizens. Swamy also points to the fact that despite evidence both the UPA and NDA governments have so far failed to act on people like stud farm owner Hassan Ali and meat exporter Moin Qureshi.

A spokesperson for Baba Ramdev, one of the anti-corruption ‘crusaders’ from UPA-II, says “the reluctance of the new government (to reveal names) did create some doubts initially (but now) he has no doubts in his mind about the government’s intent”. Ramdev’s spok­e­sperson however pointed out that the list of 627 names submitted to the SC does not include UBS Bank. For that matter, “the government is aware of around 50,000 illegal transactions of black money with foreign banks”, he added. Similarly, law­yer and RSS sympathiser S. Gurumu­rthy made no secret of his displeasure with the government’s decision. However, he described the government-SC fracas thus: “The damage is done. But morally, the Modi government has won.”

Actually, there are differing views on the fallout. Journalist and AAP candidate in the last LS elections Ashish Khetan is happy that with the highest court in the picture some definite progress can be expected. “The SC will be able to maintain pressure and ensure there is no collusion or selectivity in the action or names revealed,” says Khetan. He points to the fact that his party had two years back released 15 names, including that of corporate giant Mukesh Ambani, but the government had not been forthcoming.

The AAP has alleged that the government has tried to fob off public pressure to get back the promised hundreds of billions of dollars (BJP estimates put it between $500 billion to $1 trillion) by naming a few inconsequential people and avoiding the names of big politicians and corporate leaders.

Now, the Bank of America/Merrill Lynch, in a recent report, states that while the estimates of Indians’ deposits in Swiss accounts is in an astonishingly wide range, from $2 billion to $2 trillion, it has “worked with an estimate of capital flight of about $200 billion based on a recent research study. If even half of this is unearthed, it could add $30-35 billion (equivalent to 3-4 months of current imp­ort cover) to foreign exchange rese­rves over time, if taxed at, say, 30-35 per cent.” Another study by US-based Global Financial Integrity estimates that India lost $343.9 billion to illicit outflows from 2002-11. “India ranks 5th in the world in illicit outflows, and is the poorest country in the top-10 by per capita GDP,” it says.

Many in the Opposition question the appointment of retired justice M.B. Shah as SIT chairman, given that Modi as Gujarat CM had used the clean chit given by a Shah-headed special commission on alleged corporate favours­—including land allocation at throwaway prices—to gain political mileage. That report was finally never tabled in the Gujarat assembly, allege Modi critics.

Dr Dev Kar, chief economist of Global Financial Integrity, is a votary of the government stand of not naming anyone guilty unless there is a case for starting legal proceedings. “I do not see the legality of dragging someone’s name thro­ugh the mud in public before a competent court has had the opportunity to review a case involving the accused,” Kar says, adding that it takes years in the Indian legal system for a decision on relatively straightforward cases. The reluctance of governments to reveal the entire list can be understood from a purely legal perspective, he says. On the matter of legality of funds held by Indian citizens abroad, Dar, in a written response, states that it has to be settled in an Indian court of law that has jurisdiction to hear the case. “I am not very big on conspiracy theories. But I can understand why the cart cannot, and should not, be placed before the horse. An established rule of law (at least in democracies) is that one is innocent until proven otherwise.”

Walk away Jaitley (in red) with new Attorney General Mukul Rohatgi, left, and Solicitor-General Ranjit Kumar on his right

Now, while the NDA regime continues to look outside for black money, there are scores of experts who point out that the parallel economy within India, estimated to be anywhere between 25-75 per cent of the GDP, is possibly bigger than the estimates of funds stashed abroad. Ashutosh Mishra, executive director of Transparency International India stre­s­ses the need to focus on the problem of black money generated within the cou­n­try. “We need to have tax and legal refo­rms to ensure a higher rate of conviction, which is missing in India. Black money is being generated every minute. The government, as also the Opposition, need to show more seriousness to tackle the issues instead of naming and shaming a few people,” says Mishra.

While setting up a SIT is a start, experts feel it is not the solution as much more reforms are required to check the rapidly growing black economy. Data by international bodies point to the fact that, since 2009, the flight of capital from India has risen very steeply. Most of these funds go out through the hawala route besides the stock market, participatory notes etc. S.L. Rao, former NCAER director-general, points out that Indians today are the single largest investors in England, particularly in real estate. The same thing is seen in the UAE and is beginning to happen in the US.

Commentator Mohan Guruswamy says the whole business of saying all people keeping money abroad are thieves is absurd. “How can you question a bank account opened abroad if you allow people to take money out of the country legally?” asks Guruswamy. He contends that much of the system could be cleaned up if the process of funding elections was cleared up. Pointing to the reports that the BJP spent an estimated Rs 25,000 crore as against Rs 15,000 crore by the Congress during the general elections in May, Guruswamy says political parties should be made to declare the source of their funds if the government is serious about cleaning up the system.

Dr Ashwani Mahajan, all-India co-con­venor of the Swadeshi Jagran Manch, a BJP ally concurs. “In future,” he says, “funding of political parties should be made more transparent. Bec­ause of the Election Commission’s eff­orts, there have been some changes but as a nation, more needs to be done to curb generation of black money.”

Actually, awaiting return of the black money from well-protected accounts overseas may well remain a mirage, going by government precedent. If it is serious, the BJP could look closer home to check flight of illegal funds through the hawala route. It might also want to renegotiate many of the loopholes in the DTAA, the fig leaf now being used to cover up its evident shortcomings.

***

Those Frequently Provided Answers

Why is there so much hullabaloo over black money?
Well, ask the BJP. It has built up stories of the capital flight from India thanks to the Gandhi family. Black money was an important election plank.

But FM Arun Jaitley now says black money account holder names cannot be released under something called DTAA?
That’s short for Double Taxation Avoid­ance Agreement. He’s not technica­lly correct, as the treaty allows governm­ent to reveal the names in cases where it is able to establish tax evasion—or where it has been directed by the court.

So, has the government released names of all people holding black money?
No. The names given to SIT are only of 627 account holders in HSBC bank in Switzerland. Remember, all people holding offshore bank accounts cannot be accused of holding illicit funds.

But some people have been named, right?
Only in a few cases has the government been able to establish or get the person named to admit tax evasion. 

Weren’t all these names out earlier? What about the names revealed by AAP?
Some names of account holders— Mukesh Ambani, Narayan Rane, Preneet Kaur, Annu Tandon, Yashovardhan Birla— have been floating around in the public domain for the last several years. But there is nothing to show action taken.

What has the SC achieved via its directive to the government?
Nothing new, really. The SIT had been given the list of 627 names in June. But this means, of course, that the SC will now be able to maintain pressure on SIT.

***

The Forked Tongues

What BJP leaders said about black money in the run-up to the 2014 general elections

***

Global Black Money

• $343.9 bn Global Financial Integrity estimate of capital flight between 2002-2011
• $2.1 bn GoI white paper in 2012 put this as total Indian deposits in Swiss banks
• $500 bn to $1.4 Trillion BJP estimate of black money in 2011 when it was in opposition
• $466 bn L.K. Advani in 2011 put the black money estimate at this figure