Walk The Talk: Bringing Black Money Stashed Abroad Home.

Yesterday I finished writing about Lord Bikhu Parekh’s remarks and its link to the coal-gate that is near “closure”, when I read the damning news about the head of an agency, who was tasked with investigating Coal scandal as well as the 2G telecom spectrum scam.
Supreme Court had called this agency a “caged parrot” of the Government of India and had sought to set it free. The gentleman, who was at the helm of affairs then, is still its boss though the government at the centre has changed hands to Narendra Modi from Man Mohan Singh.
The response of Sinha, when DNA contacted him for his version, as can be seen in the above text-box was bizarre to say the least. DNA was not enquiring about some random person, but about two senior executives of Anil Ambani’s ADAG group -against whom 2G probe is on- who visited his residence some 50 times in last 15 months; during the very period when the probe was continuing. Such an explosive news was bound to have serious ramifications, and It did. Prashant Bhushan, lawyer for CPIL, brought up the matter before the bench that is hearing the 2G case.
Sinha should get his just desert for at least his impropriety, if nothing else, for his (mis)conduct as head of CBI. However, this raises a crucial question: Is government machinery and the system so rotten that self-cleansing is a pipe dream? This presses a foreboding sense of urgency because even the SIT constituted under express directions of the apex court [to do so by 22 May 2014] to unearth the “black money” stashed abroad is staffed by senior government bureaucrats holding positions much like the head of CBI. Constitution of the SIT was the “first major decision” of Modi government and much was made of it at that time as a “decisive blow against corruption”. Professor Vaidyanathan wrote on 31 May 2014 [see his post for background material on the constitution of SIT]:
In the run up to the general elections, Narendra Modi and BJP had rightly castigated Congress and UPA for its pusillanimous approach to unearthing black money and for its stonewalling on releasing the names of those who held accounts in HSBC Bank at Geneva, Switzerland and in LGT Bank of Liechtenstein on the pretext of violation of double taxation avoidance treaties [DTAT]. See the following remarkable videos on the thundering promises made by Modi/BJP to get back home the black money stashed abroad  if people gave him a clear mandate. Surely, many things are said in the heat of the election campaigns that mustn’t be taken seriously; realists would advise us.  

Modi vows to bring every penny of black money, stashed abroad, back to India at any cost .

Will bring back black money in 100 days: BJP chief Rajnath Singh

Round up of what Modi, Gandhi (Varun), Advani, Ravi Shankar Prasad, Nirmala Sitharaman, said.

In Life, government can never bring black money back in the country: BJP MP Nishikant Dubey.

Dubey’s remarks above came in the course of his speech on the finance bill and were well thought out. His assessment has the backing of India’s Supreme Court. About three-fourth of the 600 or so named in the list of clients of HSBC-Geneva are beneficiaries of discretionary trusts, who hold the funds in actual accounts with HSBC. The apex court has ruled, in a case related to members of the Gondal royal family, that Indian resident beneficiaries shall not be taxed on the income of an offshore discretionary trust as long as the trustees do not distribute income to the beneficiaries. The ruling came in this case lasting several decades when HSBC A/c holders’ cases were hot news.
Whatever the politicking bravado of BJP leaders on the issue of bringing black money stashed abroad home, 100 days are too small a period to accomplish something of this magnitude assuming for a minute that the “necessary political will” is there. But what can set the tone for the future course Modi’s government will follow is its readiness to disclose at least the names of account holders in LGT Bank of Liechtenstein, where it is not rendered impotent by the “clauses of any DTAT”. Unfortunately, that too is unlikely to happen as CBDT rejected a RTI request for the same on 14 June 2014 when Modi had already assumed charge as head of government on 26 May (विदेशों में जमा कालाधन खाताधारकों के नाम बताने से सरकार का इंकार). Would Modi correct this lapse and how soon would tell his government’s commitment to walk the talk.
At one point in his post Prof Vaidyanathan introduces a striking rhetorical flourish.
This flourish may appeal to emotion but not to reason. Capital flight cannot take place by physically taking boxes of Indian currency abroad, where it has little value for exchange and no facility for storage into bank accounts. The artificial distinction that professor sought between No Confidence In Government Tax Policies [NCGTP] and No Confidence Against The Country [NCAC] is severely flawed on several counts. For one, NCAC can be recast as NC In Currency [FX rate] or  NC In Monetary Policy or NC In Economic Growth. But these are just minor quibbles. More substantive issues are several too.
  • Flight of capital [externalization of black money] cannot take place without generation of black money in the country. NCAC is an offspring of NCGTP and, not to forget, corruption.
  • NCGTP is not only about direct taxes but indirect taxes too. In the decades of high import duties, import invoices were undervalued by paying part of import costs directly through Havala (illegal, non-banking channel) transfers. Conversely, over-invoicing imports where import duties are low and under-invoicing of exports to collect the balance abroad in numbered accounts generate probably bulk of the NCAC money.
  • NCGTP money is used to create NCAC money by cornering the foreign exchange earned by lowly paid wage earners, especially in Gulf countries, through lure of higher exchange rates  offered [rupees paid in cash].
  • Government contracts with vendors abroad generate NCAC money directly by over-invoicing imports including massive defence purchases due to corruption of politicians and bureaucrats; but tax nation’s resources.
  • NCGTP money metamorphoses into NCAC money through several channels, a few described earlier, and then returns home respectably as foreign direct investment [FDI] from DTAT/Tax Heaven jurisdictions such as Mauritius or Singapore. This money-laundering flow [NCGTP–>NCAC–>White Money] is euphemistically described as “Round Tripping“.

One can cite some other modes of such seamless transformations between these two kinds of monies, and more. However, the point to note is that the distinction between NCGTP and NCAC, which professor draws, is not just erroneous but also a chimera. Even super-rich in countries like Germany, U.K., France, and even U.S.A. send their money into tax heavens, to make it, so to say, NCAC, through a complex web of firms and trusts, but only to avoid local taxes -that is from their NCGTP funds. Do such people lack trust in their own respective currencies or economy? Then why is Vaidyanathan subscribing to such chimera? One reason is based on the assumption that the majority of the people who create NCGTP money are individual-professionals/petty traders or small/medium sized firms with inward looking mindset with little interest in the world outside India -an assumption that is progressively and severely tested since the days “liberalization” began in the 90s. Second reason is that traditionally this constituency, especially the traders, have been solid BJP supporters. That’s why there is no talk of going after NCGTP-money in all the videos seen above. Vaidyanathan may be a BJP backer to create such an artifice, but money recognises no such barriers.

Money doesn’t recognise even vote-banks, otherwise big Indian-corporates would not have backed Modi’s well endowed election campaign so generously. Money extracts its rewards for the support it lends no matter who. Money is a great, slippery chameleon one would unlikely meet elsewhere.

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