Daunting task awaits SIT on black money trail

The Narendra Modi government has scored a major political point by swiftly and smartly taking up the issue of black money as the first item on its agenda after assumption of power. The expeditious move must have been prompted by a deadline set by the Supreme Court for the previous regime that had dithered on the issue. Yet it is in keeping with the recent electoral campaign of the BJP when Modi said that the huge sums of money being parked in tax havens abroad would be brought back and used for the welfare of the poor if his party came to power. By setting up a special investigation team (SIT) headed by retired judge M B Shah to look into the issue, the new government has signalled its intention to pursue in right earnest a matter that has been agitating political and public discourse since the late sixties. By holding its first meeting on Monday and deciding on a roadmap to proceed further with the Supreme Court mandate, SIT too is seeking to demonstrate its intent to crack India’s bustling parallel economy, however complex the operation may be. The previous Congress-led  UPA regime had been dragging its feet on implementing a July 2011 Supreme Court order to form such a team, and even made a vain bid to stall a court-monitored investigation on the plea that it would erode the authority of the executive. Its stand had given the impression that it was not serious about retrieving the ill-gotten wealth. The court order was in response to a writ petition by eminent lawyer Ram Jethmalani who sought a direction to the government to find ways for the return of the money from accounts held illegally abroad. Black wealth has been an election issue for years. In 2009 too when BJP leader L K Advani came out with a white paper on black money, the knee-jerk reaction of the Congress was that it was a figment of imagination. But soon the party had to abandon its denial mode. The government told parliament through the President’s Address that it “was fully seized of the issue of illegal money of Indian citizens outside in secret bank accounts” which it “will vigorously pursue.” The next year, however, the government completely forgot about it.Back in July 2011, the French government handed over a compact disc with details of 700 secret bank accounts held by Indians at HSBC Bank in Geneva. Yet for almost a year, the government staved off pressure from the opposition and civil society to act on the dossier until May 2012 when the then finance minister, Pranab Mukherjee, released a white paper on black money. While the paper highlighted the scale of the problem it still did not address the question of what exactly the dossier contained. Who were these 700 account holders? What were their holdings and how did they acquire that money? Did the government probe all the names in the list or did it just cherry-pick the most “unconnected” ones to investigate in order to prove it was acting? If it has investigated all the 700 names, what has it discovered? A finance ministry statement also insisted that relevant agencies were indeed probing the matter. Now that the government has changed, will the broad results of the probe be made public without any further delay?There are no official estimates of India’s black economy, although various figures that vary so drastically are routinely bandied about to embarrass governments. According to a report titled Illicit Financial Flows from Developing Countries: 2002-2011 and released last December by Global Financial Integrity, the total black money outflow from India was about $344bn during the period. GFI had included India among the top 10 developing countries with a black money outgo of Rs87.2bn in 2010 alone. Assessing the black money is a difficult task for any agency to carry out since data are hard to come by. New theoretical advances are required to estimate this sum. The problem is there are 77 tax havens in the world, according to the Tax Justice Network. Switzerland is the best known and possibly the biggest but it is only one among many. There is no estimate of how much is held in Switzerland or in any of the other tax havens. Problems of definition, data collection, and procedures used in computation, are some of the issues that hinder a meaningful understanding of the extent of black money in the system. Research on FDI inflows into India by K S Chalapati Rao and Biswajit Dhar (2011) noted that almost 70% of inflows were through tax havens and at best half the total inflows could be considered as genuine foreign direct investment (FDI). In such a scenario, the intense focus on recovering black money from offshore bank accounts is partly misguided and it would be much more prudent to invest in mechanisms that will help restrict the generation and outflow of such money. Black money is widely viewed to be a product of corruption which governments, without exception, have fought shy of curbing almost since the time of Independence. But the major contributor in generation of black money is not corruption. According to a report on black money by the Central Board of Direct Taxes, the main method for generation of black money is through commercial tax evasion by under-reporting revenues and inflating expenses adopted by a range of business entities. So the focus needs to be shifted towards how the generation of black money and its outflow from the country can be curtailed in the first place.It is common knowledge that elections are fought with black money. Large amounts of currency notes were seized during the recent parliament elections, but little effort was made to follow the money trail and arrest the politicians involved. The Election Commission is either helpless or indifferent to the play of money power in elections. Debates about the state funding of election campaigns have remained inconclusive. Political parties resist attempts to either bring them under the RTI Act or monitor their funding. Years ago the M C Joshi Committee indicated that the two national parties (presumably the Congress and the BJP) spend between them about Rs40bn in election expenses alone every year. The conspicuous sums spent in the recent poll by the present ruling party is a case in point. Can a satisfactory account be given of where such funds come from, and where they are parked?Establishing an SIT is one thing, bringing the tax evaders to justice and repatriating such money earned illegally is quite another. The task is arduous and SIT must be prepared for the long haul. Its chief Justice Shah himself has spoken about the complexities involved. How far it will succeed in its mission is, however, anybody’s guess.