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The Black Legend – Foreign bank accounts, tax evasion and other eternal ills

Dipankar Dasgupta

Manik Bandyopadhyay, in his classic short story, “Pragoitihashik [Prehistoric]”, created an unforgettable heroine, Panchi — a beggar by profession. Her means for attracting public sympathy was a purulent ulcer that stretched from one of her knees down to the foot. And she employed every possible precaution to ensure that her ailment remained untreated. It was the capital on which depended her very livelihood.

Panchi was born in the world of fiction, but most of us are familiar with her real-life counterparts, endlessly many of whom inhabit this country — and paradoxically enough, not all of them are street beggars. Quite a few amongst them belong to the highest echelons of society, people who travel in fashionable cars, fly business class every now and then, and pontificate inside the cool comfort of television studios on the failure of governments in power to rid our society of the ills that plague it so. Moreover, like Panchi’s attachment to her ulcer, they are all too conscious of the dire necessity of the failures in question to defy mortality, or else, like Panchi, they stand to lose the very instrument ensuring their survival. Along with them, the all-pervasive media suffer as well, for their survival also depends, in turn, on the survival of the professional grumblers, known otherwise as the hallowed Opposition in Indian democracy.

In this context, one social malady that has resolutely withstood the test of time in India is the issue of black money, the accumulated flow of alleged tax-evading Indian incomes stashed away in bank accounts located in tax havens lying beyond the reach of Indian tax authorities. The Opposition benches, irrespective of the political parties occupying them, have never ceased to criticize the so called “incumbent” for its inability to recover Indian black money from foreign shores or even its deliberate policy of protecting the favoured few by turning a blind eye to the problem. Further, the criticized often become the critic with fluctuations in electoral fortunes. Amidst this table-turning game, however, the allegation against the government that it is overtly or covertly continuing to avoid solving the grisly problem continues to act as an unalterable constant of nature — not so much because it is an accurately diagnosed disease, but more probably because, like Panchi’s ulcer, healing it will leave the Opposition without a meaningful occupation.

Whether a reliable method exists for estimating the quantum of black money is itself a million-dollar question. Nonetheless, endless estimates have been heard of. Amongst these is the startling figure of $1.35 trillion, amounting to around 75 per cent of India’s gross domestic product in 2012-13. This figure, according to unsubstantiated media announcements, was revealed by a confidential report for which the government commissioned a reputed academic institution. The total sum includes black money held both in India and abroad, and does not probably clarify their shares in the aggregate. As opposed to this, the Swiss Bankers Association as well as the government of Switzerland claimed that the citizens of India held no more than $2 billion in Swiss banks. While no authentic figure has emerged so far, it is nonetheless interesting to compare the Swiss assertion with our own. The figure of $2 billion turns out to be around 0.15 per cent of the estimated total of $1.35 trillion. The Swiss claim could well be unsound, just as the Indian estimate might be wrong. However, both parties have to be more than horribly incorrect if black money hidden abroad were to be treated as a problem worth a government’s serious attention.

To go down to the bottom of the problem, the Supreme Court appointed a special investigating team to come up with a dependable report on the matter and the government is said to have handed over to the SIT a list of some 627 persons holding accounts in foreign banks. As the grapevine would have it, a substantial fraction of these 627 persons are non-resident Indians who are legally permitted to hold foreign bank accounts. Moreover, their deposits need not have been generated out of black money siphoned off from India. No numbers in this context have sprung up yet, of course, and one needs to wait for the findings of the SIT before jumping to conclusions.

In the meantime, one must not lose track of other tidbits of information that are catching public imagination. Among them, one claims that the information regarding the 627 persons was not received from the Swiss or other suspected banks. It appears that an unnamed person had been able to access the details using unknown means at his disposal and they were passed on to Germany, France and possibly other countries. These countries then decided to oblige the Indian government by sharing the yet-to-be-confirmed information. Why these other countries would find it in their interest to rely on a private person’s investigations relating to Indian black money in Swiss accounts is anybody’s guess. One wonders, in fact, how France or Germany would have reacted to a report submitted to them by the Government of India on black-money-tainted French or German nationals, especially if the report were based on revelations made by a private person of dubious distinction.

On the other hand, if indeed it turns out that more than 600 persons own $2 billion worth of black money of Indian origin in foreign banks, then this surely must be viewed as a grievous fault, although one would need to devise a super-sensitive instrument to measure the grievousness itself. First, going once again by unsubstantiated reports, $2 billion constitutes around 0.15 per cent of the estimated total of $1.35 trillion of black money held by Indians. The lion’s share of the black money — namely, 99.85 per cent — is then held inside the country itself rather than abroad. One cannot help wondering why 0.15 per cent is a more worrisome figure than 99.85 per cent. Common sense suggests that the glaring fault lies in the 99.85 per cent, if indeed that figure is correct, although one is aware, at the same time, that the veracity of these much-advertised figures is yet to be confirmed.

If the quantum of the fault constitutes an important question, the flip side of the coin should address the nature of the fault, as far as the damage to the Indian economy is concerned. During the year 2012-13, $5 billion constituted a meagre 0.27 per cent of Indian GDP, while the balance out of $1.35 trillion — namely, $1.345 trillion — added up to 74.72 per cent. If black money is to be treated as lost government revenue and hence potential capital for economic development, then the 74.72 per cent ought to be viewed as incremental capital output ratio for the economy that could not be utilized owing to tax evasion by Indians living in India. On the other hand, the foreign black money constitutes a trivial 0.27 per cent from the point of view of the incremental capital-output ratio. The productivity potential of the latter is negligibly small compared to the former.

Yet, the battle continues. A battle based not on crystal clear evidence, but on the unfounded estimates of the sort that this article relies on. It is quite possible, of course, that thanks to the Supreme Court’s directives, the cynics will be proved mistaken and we shall soon decipher the holy grail of India’s black money legend. However, the public had better realize, at the same time, that a complete resolution of the problem will run counter to the interests of Panchi’s peers, engaged as they are in expressing prime evening time indignation over India’s black-money horror.

http://www.telegraphindia.com/1141117/jsp/opinion/story_19044205.jsp#.VGlwKYdn9BV

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Comment (1)

  1. Communal Award

    Tell Govt to impose tax on Company revenues, not profits.
    Govt is imposing Income tax on your salary, not savings.
    https://www.change.org/p/barack-obama-impose-tax-on-company-revenues-not-profits

    Buffett’s secretary Bosanek pays a tax rate of 35.8 percent of income, while Buffett pays a rate at 17.4 percent on profit.
    http://news.yahoo.com/warren-buffett-secretary-talk-taxes-221442297–abc-news.html

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