Economy: How big is the 'Black Money' catch?
There are many questions which remain unanswered despite the announcement of a massive Rs 65,000 crore being supposedly declared by tax evaders across the country
Sanjay Kapoor Delhi
When Union Finance Minister Arun Jaitley announced at a press conference that the four-month amnesty scheme for tax evaders had yielded Rs. 65,000 crore of black money that had been declared by thousands of those who had concealed their unaccounted for wealth, there was a visible look of bewilderment and awe amongst mediapersons and those watching the live telecast. A tax deduction of 45 percent will help the government earn Rs. 35,000 crore, which is a really large amount of money and could help in meeting a huge budgetary deficit – the largest in the Asian subcontinent. All of this sounds very good, but there are questions that remain unanswered and will probably continue to remain so since the government puts up too many barricades to prevent people from gaining access to the unvarnished truth.
Many people, though, have taken this astounding declaration at face value and are applauding the resolve of Prime Minister Narendra Modi’s government to ferret out black money. Others like Congress General Secretary Digvijay Singh are asking one question: whether the Rs.15 lakh that the PM had promised will be deposited in the accounts of the poor for whom the Rs.1 deposit account had been opened immediately after Modi won the elections. During the 2014 elections, Modi had stated that his endeavour would be to bring back lakhs of crores of black money stashed abroad and then distribute it among the poor by putting Rs. 15 lakh into their accounts. This was a compelling promise that forced many fence-sitters to vote for Modi and the BJP. After months of waiting, when people found that their accounts hadn’t grown beyond the pathetic Rs.1, they began to agitate and even accused bank managers of withholding their funds. BJP President Amit Shah had to come to Modi’s rescue by stating that the promise was a ‘jumla’ something said in a manner of speaking. Although the BJP government at the centre has been criticised for playing with the emotions of the desperately poor, the declaration of Rs. 65,000 crore of black money will help in reviving an economy in which government finances have been in tatters.
Internet browsers just before the FM triumphantly announced this achievement of his government would have found several reports strongly sceptical about the success of the amnesty scheme. One report in a leading daily claimed that the figures would not really go beyond Rs.1,000 crore. This seemed a really low figure when compared with the quantity of black money floating in the country and playing a big role in the construction sector. One company, Ambit Capital, estimates India’s black money to be $450 billion or Rs. 30 trillion. Similar estimates have been provided by the White Paper on black money that was prepared by the United Progressive Alliance (UPA) government. The purpose of detailing the anticipated black money and comparing it with the government’s actual catch is to show that the four-month-long effort has barely scratched at the surface.
A few days before the amnesty scheme ended, income tax officials were claiming the amount would go up to Rs. 15,000 crore and suggested that the reason the response was slow was the high tax rate which discouraged people from declaring their wealth. It was feared that the effort would meet a fate similar to the scheme the finance ministry floated last year with a higher tax rate. The income tax department tried to contribute its share of fear mongering by suggesting dark times for those who would be caught by it once the scheme ended. Suggestions of defaulters going to jail and suffering unending harassment were included in TV ads. However, the PM was talking about how he proposed to end the raid raj of the IT department and allow people to breathe easier.
One company, Ambit Capital, estimates India’s black money to be $450 billion or Rs. 30 trillion. Similar estimates have been provided by the White Paper on black money that was prepared by the United Progressive Alliance (UPA) government.
This carrot and stick approach seemed to yield rich dividends, but there is also the hidden narrative of how the chartered accountants were pressured to convince their clients to declare black money. Officials of these agencies also used coercion, as evidenced by the bizarre death of the Director General in the Ministry of Corporate Affairs, B.K. Bansal, and his family. While there is little dispute over his venal ways, the brutal manner in which the Central Bureau of Investigation (CBI) and the income tax department went about forcing Bansal to declare his ill-gotten wealth acquired from the bribes he got while bailing out Elder Pharmaceuticals, a cash-strapped pharma company, left much to be said. Elder Pharma had intriguingly run out of cash even after it had sold off its business to Gujarat-based Torrent Pharma for a huge amount.
There are similar stories that range from gentle to aggressive persuasion by state agencies to meet the targets set by the Prime Minister’s Office (PMO). Due to this reason, small businessmen, including roadside vendors, were targetted by the IT department to declare their income. Agriculturalists were not spared either! Much of it is desirable, as these activities are used by these small businessmen for concealment of their wealth, but this has created a huge disquiet in these politically sensitive constituencies. In states where the elections will take place in the next few months, disquiet amongst farmers and small businessmen is providing talking points to political parties and helping them garner support. In Delhi, too, Chief Minister Arvind Kejriwal has been criticising the central government for harassing small businesses. The opposition could grow intense if the economy does not revive.
There is a view that the squeeze in black money that has been brought about by the Modi government is hurting the economy by causing a serious demand squeeze. The construction industry, which employs the maximum number of people in urban areas, is the worst impacted. Squeezing black money out of the system is a good idea, but how will it influence in the future the mammoth election campaign that the BJP ($7 billion) and the Congress ($5 billion) mounted in the 2014 elections? How will these political parties fund their campaigns?
This carrot and stick approach seemed to yield rich dividends, but there is also the hidden narrative of how the chartered accountants were pressured to convince their clients to declare black money. Officials of these agencies also used coercion, as evidenced by the bizarre death of the Director General in the Ministry of Corporate Affairs, B.K. Bansal, and his family
The other critical question that cannot be answered without a serious audit by the Comptroller and Auditor General (CAG) is who declared how much. Did the Ambanis, Adanis et al declare their wealth? Were they part of this list? What about Subrata Roy of Sahara? Did he declare his concealed funds to get some relief from the Supreme Court? Nothing will be known about the quiet deals that are built in these declarations as the finance ministry has made it clear that it will not allow the CAG to look into who brings in how much money in this undisclosed scheme.
What will also not be known is whose declarations are flawed and how much money from taxes really adds to government coffers. The CAG will only audit the process of this voluntary disclosure scheme. Yet, this is an important step by the government to bolster its finances.