Modi Government is as much on the defensive as UPA was on black money

Illustration by Pawan Tiwary

There are no reliable estimates of black money generation or accumulation, neither is there an accurate, well accepted methodology for making such estimation.

Thus began the section on "Estimates of Black Money Generated in India" in the UPA government's white paper on black money. The 108-page document, presented by the then finance minister Pranab Mukherjee in May 2012, explained in detail the difficulty in tracing, tracking, reckoning and repatriating illicit money parked in banks abroad: "By its very definition, black money is not accounted for, thus all attempts at its estimation depend upon the underlying assumptions made and the sophistication of adjustments incorporated."

The paper pooh-poohed all purported estimates of unaccounted-for money stashed abroad, including those made by Global Financial Integrity (GFI), an American think tank, and the International Monetary Fund (IMF). It is "reasonable to suggest", the document said, that "although the estimates of illicit outflows outside India made by IMF and GFI gives useful insights, they are incomplete and further studies are required to get a correct estimate".

The only figure it deemed helpful, and thereby "useful to mention", is the one from the Swiss National Bank on the estimated amount of Indian deposits in different Swiss banks. "Its spokesperson stated that at the end of 2010, the total liabilities of Swiss Banks towards Indians were 1.945 billion Swiss Francs (about Rs 9,295 crore)," the white paper noted. "The Swiss Ministry of External Affairs confirmed these figures when a reference was made by the Indian Ministry of External Affairs to them."

The document also noted that according to the Swiss National Bank, "deposits of Indians in Swiss banks have decreased from Rs 23,373 crore in 2006 to Rs 9,295 crore in 2010". That is significantly less than the Rs 25 lakh crore "illegally stashed in Swiss banks" as per the BJP's manifesto for 2009 General Election. As for repatriation of the money, the paper said, "It is a goal that cannot be achieved unilaterally by government action. It requires coordination and cooperation of the other country... However, there's no international consensus to have mechanism for repatriation of undisclosed assets abroad."

Fast-forward two-and-a-half years, and the BJP Government of Narendra Modi is figuring out the knots and loops in the cord. Faced with the chorus from the Opposition ranks on keeping Modi's promise of getting back all black money, Finance Minister Arun Jaitley could well have been reading out from Mukherjee's document.

The amount put away illegally, the number of accounts, and the number of persons owning those accounts are all suddenly fuzzy. Far from the pre-poll bluster, the Government seems suddenly to have developed blisters on both feet, even on repatriation. "You may get the name (of account holders), but you may not have the evidence," Jaitley told the Rajya Sabha during a debate on the black money issue in late November.

"I will urge my friends from all sides that if we indulge in a populist adventurist stance, saying, 'All right, let me put everything on the Net', this will help the account holders," he said, seeking time for the probe, like his predecessors had done when he was the Leader of Opposition in the Upper House. "The issue is not whether to disclose their names or not; the issue is when to disclose their names." "The offence," he reasoned, "is committed in India. The money is Indian. The evidence is outside the Indian shores. In order to prove the offence, any government has to get evidence from those countries... If we follow an adventurist course, it will be a one-day thrill but the Swiss or any other reciprocating country will never cooperate with us and the account holders will say that I am vindicated because there is no evidence against me. It is a procedure that will take time."

As Jaitley's hemming and hawing confirms, the noisy hunt for black money during the Manmohan Singh regime seems to be now silently haunting the BJP. While L.K. Advani had revived the issue back in 2008 with a letter to the then PM, and made it his campaign pitch for the General Election the following year, a party task force submitted an "interim report" before the polls, estimating that besides Rs 25 lakh crore stashed in Swiss banks, Rs 75 lakh crore was hidden in other tax havens.

Black money was a political hot potato for Singh this summer too, when Modi made it an election issue. "It is the prime responsibility of the government to bring back black money. The next government will be able to do this. It's my commitment," he had said at a rally on February 12. Apparently certain of the stash figure, he had even planned stage 2, specifying that 5-10 per cent of the repatriated money would be given to "salaried individuals who earn fixed income and paid taxes".

Nine months later, the Prime Minister addressed his second 'Mann Ki Baat' on radio. "Nobody knows-not me, not the Government, not you, not the previous government-as to how much money is abroad," he said on November 2. "Everybody has his own figure. Main un aankdon mein ulajhna nahin chahta hoon. Meri pratibadhhta yeh hai-do rupaya hai, paanch rupaya hai, crore hai, arab hai ki kharab hai. Jo bhi hai, yeh desh ke garibon ka paisa hai, wapas aana chahiye (I don't want to get into the figures. My commitment is that whether it is Rs 2, Rs 5, a crore or a billion, it is the money of the country's poor and must be brought back)."

So, is all that calculation about billions of unaccounted-for dollars a political hoax, to be unlocked only when the next round of elections come around? Arun Kumar, a professor of economics at Delhi's Jawaharlal Nehru University (JNU) and author of The Black Economy in India, among several other books on the subject, thinks so. For one, the figure of the money hidden abroad may not be that astronomical, he says.

"Black money," he tells INDIA TODAY, "is an offshoot of the black economy, which is estimated to be an additional 50 per cent of our GDP. This means that over and above the Rs 130 lakh crore GDP, there is an additional Rs 65 lakh crore of income in black economy. But it is a misnomer that black money is lying abroad. In fact, of this Rs 65 lakh crore, only about 10 per cent goes out as black money; the remaining 90 per cent is hidden in the country itself."

Of the Rs 6.5 lakh crore that goes abroad through different channels, 30 per cent, or roughly Rs 2 lakh crore, returns through round-tripping instruments, he says. "Of the remaining about Rs 4.5 lakh crore, a large chunk is utilised in consumptive expenditures such as holidays, education, jewellery and is invested in real estate. So, not more than 15-20 per cent of the black money gone out remains in liquid assets."

But the unaccounted-for wealth accumulated over the past 65 years is quite substantial. "More importantly," Kumar says, "the opportunity cost of this amount is estimated to be worth $1.2 trillion. But there is no $1.2 trillion waiting to be brought back; only about $100 billion could be available in liquid assets. That too is spread in nearly 80 tax havens across the globe and neither the Government nor any expert knows how much is distributed where."

For another, Kumar says no party, and as a corollary no government, is interested in undoing completely the knot of corruption that also funds parties and candidates' poll and related expenses. "Black money is generated through a triad of corrupt businessmen-corrupt politician-corrupt executive. This triad has to be broken to get rid of systemic black money generation," he says. But it's not a technical and economic issue, he adds, "it's a question of political will".

Another problem in getting back the money-or even details of the account holders-is that Swiss laws require dual criminality to be established before revealing the information required. Since tax evasion is not a criminal offence in Switzerland, unlike in India, investigators have to make a foolproof case for money laundering, corruption or drug running to elicit the information.

Take, for instance, the case of jailed defence dealer Abhishek Verma, who used escrow fund to receive bribe money for facilitating classified information related to the Defence Ministry. While the Enforcement Directorate traced $205 million deposited by Verma in a fund at Liechtenstein's LGT Bank with the help of Verma's former escrow fund manager Edmond Allen, LGT Bank has frozen the account, and not a penny has returned. The bank has asked ED to provide proof of taint, explaining how the fund in LGT is linked to Verma's crime. This, investigators say, is a problem faced in most cases.

This is reiterated by Switzerland's Ambassador to India Linus Von Castelmur. In an interview to The Hindu on December 3, he said automatic sharing of tax information is a "long process". "If there is evidence of fraud, the banks will cooperate," he said. "But you cannot say, give us all Indian account holders; this is not possible."

So where is the issue headed? Deep down, even insiders admit the Modi government has realised this is an albatross around its neck, where brickbats will fly in fast and even meagre successes will take time to be visible. While the BJP got lucky, in that the UPA did not appoint the Special Investigation Team (SIT) on black money as directed by the Supreme Court, the party sought to demonstrate its resolve by constituting the SIT within a week. It could be a game plan, too, as a senior minister had put it after the SIT was formed, "It is better that the issue is handed over to the courts. People should start looking towards the court then." The game has just begun, and the BJP can expect the decibel level from the Opposition to be high for now.

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