Surgical strike? This was aspirin for cancer

If currency bans worked, there wouldn’t have been any black money after 1978; what’s needed are really bold decisions

ashishm

Ashish Mehta | November 9, 2016 | New Delhi


#elections   #ADR   #Narendra Modi   #economy   #black money   #Currency notes  


If banning high denomination currency notes can curb black money, the whole problem would have been solved in 1978 – when the Morarji Desai government did it.

Banning Rs 500 and Rs 1,000 notes will certainly bring out all the hoarded cash. But after the cleaning-up operation is over in December, there is simply no way to stop generation of fresh black money – with new Rs 500 and Rs 2,000 notes.

Read: Digital payment companies hail PM's decision
 
Read: Who said what
 
In other words, the Modi government move is bold indeed, but do not expect the scourge to go down by even one percent from next year. For that, far bolder decisions are needed, which are yet to come – from this government or its predecessors. Here is a sampler of the possible and real surgical strikes:
 
 * What about political parties?
 
One of the biggest contributors to black money is political funding. Parties have to submit an annual report to the election commission on all the donations they have received – but there’s a catch here: they have to reveal names of donors only for donations above Rs 20,000. No wonder, most parties are receiving most of their donations in smaller amounts. According to an Association for Democratic Reforms (ADR) report, “BJP’s donations from named donors amount to 22.76% of the total income. INC has shown a mere 11.89% of their income from contributions, followed by NCP with 4.64% and CPM, 1.29%.”

Read: Election watchdogs sniff black money trail in donations 

Read: Party economics — in black and white
 
What needs to be done is just a rule change: ask every party to name the donor for each donation, no matter how small the amount may be.
It is not impractical – in its idealistic, nascent stage, the Aam Aadmi Party not only declared the source of every donation, it even put it up on its website. In some of the neighbouring countries including Bangladesh, that is the norm.
 
If the Modi government is indeed serious about making surgical strikes at black money, it can make a singular beginning by making political parties fall in line, instead of making the middle-class stand in lines.
 
 
 
* Real estate, real trouble
 
Isn’t it logical that one of the top contributors to the party funds is also one of the top contributors to the underground economy? Here, all the government needs to do is to simplify the tax structure and make it pragmatic. A Ficci paper of 2015 notes:
 
“One of the major reasons for buyers and sellers to indulge in unreported cash transactions related to property is the extent of taxes that are applicable on transactions, directly or indirectly. Moreover, tax rates are considered to be high, which encourages the parties involved to withhold accurate reporting (in a bid to save money).
 
“Therefore, a suggestion to simplify the tax structure, and possibly reduced tax rates, may discourage black money generation. If a simplified tax structure can be implemented, the parties involved will not be inclined to avoid taxation; in addition, there will also be higher incidence of reporting of full transaction value.”
 
The real estate regulation law – legacy of the previous government, let it be noted – should bring in some reforms, even if it is not aimed at reducing black money. But even that semblance of reforms is threatened, as some states like Gujarat and Uttar Pradesh are already diluting the law in the realtor’s favour for reasons best known to them.
 
 * What about ‘Swiss banks’?
 
In recent years, thanks to whistle-blowers, the names of some of the Indians with accounts in banks of tax havens abroad have come to light. For example, the ‘Panama Papers’ have named Amitabh Bachchan, Aishwarya Rai, KP Singh, and Gautam Adani’s elder brother Vinod Adani among those who have paid Mossack Fonseca, a law firm headquartered in tax haven Panama, “and bought the benefits of the secretive, lax regulatory system in which it operates — to set up offshore entities in tax havens around the world”.
 
Before the Panama Papers were the ‘Swiss Leaks’. In February 2015, the Indian Express released a list of 1,195 Indians account holders at HSBC's Geneva branch and their balances for 2006-07. In April 2014, the government disclosed to the supreme court the names of 26 people who had accounts in banks in Liechtenstein, as revealed to India by German authorities – adding three names later.
 Action so far? HSBC whistle-blower Herve Falciani, talking to media in November 2015, said the Indian government “had not used information on those illegally stashing away black money in foreign bank accounts, and still millions of crores were flowing out”.
 
Not only that, he had to say, “We are not protected… If I am coming to India, I will be arrested,” he said, adding that people need to understand that there is no offer of new kind to fight black money.
 
 * Don’t blow the whistle
 
That is because protection to whistle-blowers like him who can help unearth black money is being reduced. The amendments to the whistle-blowers protection law were passed by the Lok Sabha last year, and remain to be cleared by the upper house.  (For more on the amendment, see: http://www.prsindia.org/billtrack/the-whistle-blowers-protection-amendment-bill-2015-3784/)
 
The 2014 law said, “Disclosures may be made on any act of corruption, abuse of power or discretion, or criminal offence by a public servant.” The 2015 amendment bill says not all disclosures are welcome, in particular, it mentions ten types, including matters of national security, which is understandable, but also “(v) Commercial confidence, trade secrets, intellectual property (if it harms a third party)”, “(vii) That received from a foreign government”, “(ix) That which would impede an investigation etc.”, and (x) Personal matters or invasion of privacy”.
 
Don’t try any surgical strike yourself, in other words. Let professionals handle it. When questioned about Modi’s so-called election campaign promise of bringing back all black money can put Rs 15 lakh in every citizen’s bank accounts, BJP president Amit Shah had said it was a jumla, only a matter of saying. So don’t ask him next year about the outcome of what he calls a surgical strike on black money.
 

 

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