CAN GOVT EVER TACKLE BLACK MONEY

THE first requirement for tackling the problem of black income generation is clean administration at least at the level of political authority and top civil servants.”

These words were not uttered by any of the civil society groups (CSGs) that are waging war against black money and corruption. This is actually an unimplemented recommendation made by the Congress Government-commissioned study titled ‘Aspects of black money in India’ that the National Institute of Public Finance and Policy (NIPFP) submitted in March 1985.

Had the Government implemented this recommendation, the present Congress-led UPA would not have suffered so much ignominy due to emergence of one mega scam after another. The Congress/UPA Governments dragged its feet over anti-black money-cum-anti-bribery recommendations of other reports too.

After the submission of NIPFP study, the Government rewarded black money hoarders at home and abroad through a slew of amnesty schemes including one under Foreign Exchange Regulation Act (FERA) launched in 1991 when Dr Manmohan Singh was Finance Minister.

The Congress-led/Congress-supported Government had even resisted audit of one such scheme. The Government also created a lax regulatory atmosphere that encouraged corrupt businessmen, bureaucrats and politicians to generate black money. More of this later.

First see the Government’s approach towards the recommendations of NIPFP study and its prolonged resistance to commission any subsequent studies on black money. It was only after the Supreme Court’s strong observations on black money and corruption and determined efforts by CSGs that the UPA ordered two separate studies on black money in March and May 2011.

That the Congress Government, which was then caught in Bofors kickbacks scandal in the second half of eighties, had no plans to implement the recommendation became clear shortly after the study was put in public domain.

The then Revenue Secretary told Parliament’s Estimates Committee that “this is a very difficult report to implement. It has wide ranging philosophical conclusions...”

Expressing its displeasure over Revenue Secretary’s remarks, the Estimates Committee in its release dated 30 April 1987 stated: “it is a pessimistic approach expressing helplessness and expressing justification for acting routinely in the matter by simply writing letters to various authorities to take action without any follow-up action or monitoring by Ministry of Finance.

The Estimates Committee covered the issue of black money in its report on revenue leakages.

Black money has multiplied manifold since NIPFP gave its first official estimate of black money. It estimated black money at Rs 31,584 crore and Rs.36,786 crore in 1983-84.

This was a gross under-estimate as is evident from the revenue collection of Rs 33,697 crore under the black money tapping scheme named voluntary disclosure scheme (VDS) in 1997.

Comptroller and Auditor General (CAG) in its report on VDS 1997, observed this scheme alone brought in more than 12 times the total collections from the earlier five amnesty schemes.

The report says: “while bank and income tax officials were allowed to handle confidential information pertaining to declarations, these were sought to be denied to audit for a long period of time on grounds of need to maintain secrecy and confidentiality, although Section 72 of the Finance Act expressly provided for access by officials of the CAG to such record.”

The Finance Minister Pranab Mukherjee himself has cited non-official studies on black money in Parliament that clearly show that black money has grown manifold since the submission of NIPFP study.

Replying to supplementaries to a question in Rajya Sabha on July 14, 2009, Mukherjee said: “One Prof. Suraj B Gupta, retired Professor of the Delhi School of Economics, undertook some study, in 1992, in his book Black Income in India. They made some study that in 1980-81, it was 41.7 per cent of the GDP, amounting to Rs. 50,977 crores; in 1983-84 - 45.81 per cent, amounting to Rs. 85,208 crores; in 1987-88 - 50.71 per cent, amounting to Rs 1,49,297 crores. Certain other types of studies have also been made. Another study has been made by Prof Arun Kumar, of JNU in his book Black Economy in India. In this book, he has stated that in the year 1995-96, there was an estimated black money of Rs 4,87,185 crores.”

As for laxity for black money generators under the garb of economic reforms, the Government ushered in Foreign Trade (Development and Regulation) Act 1992 (FTDRA) in place of archaic Imports and Exports (Control) Act, 1947. There is nothing wrong in introducing a new law that facilitates foreign trade. The problem is that under FTDRA, all contraventions are deemed as civil offence and are adjudicated as such. This laxity encourages export-import frauds and generation of black money at home as well as abroad in the absence of any stringent penalty.

The 1947 law, on other hand, provided for punishment with imprisonment and fine for its contraventions or for violation of related subordinate legislation.

Such laxity, for instance, encouraged dubious exporters to violate RBI’s rule that caps export agent’s commissions at 12.5 per cent of the invoice value. They did this to pocket the commission through their agents or their own companies incorporated abroad and/or to derive higher export benefits. They stash a part of the agency commission as well as benefits of under-invoicing/over-invoicing of transactions in overseas secret bank accounts.

It is here pertinent to quote a circular issued by Central Board of Excise and Customs (CBEC) in July 2003. It noted “instances have been noticed where the Indian exporters are paying agency commission much higher than the above limit, which in some cases has exceeded even 50 per cent of the f.o.b. value.”

Citing RBI ceiling of 12.5 per cent, CBEC advised its field staff Agency to deduct commission exceeding this limit from the f.o.b. value for granting export benefits under Drawback/DEPB/Advance Licences/DFRC Schemes.

Another instance of laxity is the Government’s soft stance on routing of suspected black money back to India through tax heavens such as Mauritius, Bahamas and Channel Island as foreign direct investment or as portfolio investment in the stock market.

Mukherjee avoided giving a straight answer to a supplementary to a Rajya Sabha question mentioned earlier in this story.

To a question as to “whether companies based out of Mauritius are the major source of black money in this country, and what steps are being contemplated by the Government in this direction”. Mukherjee did not reply to the first part of the question. He merely stated: In my other incarnation as the Foreign Minister of this country, I took it up with the Mauritius authorities, and we have made some progress. There is a procedure which is popularly known as ‘Mauritius route’. So, I have taken it up, and the same is being pursued. We want to amend the relevant clauses of the particular Agreement which was entered into with Mauritius in the early eighties.”

Yet another instance of soft stance towards black money generation is enforcement of The Benami Transactions (Prohibition) Act, 1988 (Benami Act).

As put by Central Vigilance Commission (CVC) in its National Anti-Corruption Strategy unveiled in October 2010, the rules to make the confiscation of property and other provisions effective have not been issued.

“This hampers the ability of the Government to take steps under this legislation and take action in the multitude of cases where resources acquired through corrupt practices are held benami. Steps should be for effective implementation of the Benami Act, including by passing rules for confiscation of benami property.”

As for the two studies recently commissioned by the UPA Government, it has assigned to three institutions a comprehensive study on “unaccounted income/wealth” both inside and outside the country. The study, which commenced in March, 2011, is expected to be completed within a period of 18 months. In May this year, the Government constituted a Committee under the leadership of Chairman, Central Board of Direct Taxes (CBDT) to examine ways to strengthen laws to curb the generation of black money in the country, its illegal transfer abroad and its recovery.