Black money: Why is UPA government on the back foot?

As the country is in the midst of general elections, the sensitive issue of black money — stashed away in Swiss banks and tax havens abroad by unscrupulous Indians — is becoming hotter by the day. It has emerged as the focal point of debate especially after BJP’s prime ministerial candidate L K Advani raised pointed queries over black money stashed away abroad.

If elected, the BJP has vowed to bring the money back home. Advani has promised that his party would form a task force comprising of experts to recommend to the government ways to get back the wealth illegally spirited away by corrupt politicians, businessmen and criminal overlords.

The Congress, however, has accused the BJP of exaggerating the issue for partisan ends. In a sarcastic way, it asked the BJP: What prevented you from taking measures to tackle the problem during the six-year long tenure of the NDA at the Centre?

Unscrupulous Indians parking their ill-gotten money in Swiss banks as well as other tax havens abroad is a known fact and an old issue, which has frequently been raised during elections.

But the pertinent question is: Why has black money suddenly become one of the major issues in the ongoing elections? The basic reason seems to be that: as the present global slowdown has left many countries — both developed and developing — with massive resource crunch, the governments need the funds to resurrect their economies.

Rich and developed countries are already on the job. The Organisation for Economic Cooperation and Development (OECD) — a group of 24 rich countries — has estimated that funds to the tune of $11 trillion are parked in tax havens. It has named 39 countries, including Switzerland and Luxemburg, which are not fully compliant with international tax standards.

The OECD released the list last month after the G20 meet  decided to crackdown on tax havens and agreed to exchange information. These moves have triggered India’s major political parties to make the subject one of the election issues, though the public reaction has ranged from approval to scepticism.

Adding fuel to the ongoing political fire over the state of India’s black money, a US-based institution — Global Financial Integrity — has ranked India fifth in the list of 160 developing countries suffering the outflow of huge amounts through illicit channels. The GFI, in its report for 2002-06, reveals that the flow from India averaged between $22.7 billion and $27.3 billion per year.

A report prepared by a task force set up by the BJP has pegged Indian wealth in Swiss banks and other offshore tax havens at between $500 billion and $1.4 trillion — more than the size of the Indian economy.

Unfortunately, though everybody is aware of the fact that the ever growing black money is systematically nourishing a parallel economy, there is no government estimate of the size and volume of black money. In 1985 the National Institute of Public Finance and Policy made a study on black money. It estimated the size of the parallel economy at between Rs 31,500 crore and Rs 36,786 crore in 1983-84. This amounted to about 20 per cent of India’s GDP that year.

20 pc of GDP

The latest estimates of the black economy were made by the Indira Gandhi Institute of Development Research (IGIDR) in its India Development Report 1999-2000. The report put the quantum of black money at Rs 3,54,000 crore in 1999 when India’s GDP was Rs 17,70,000 crore. That again was 20 per cent of the GDP.

It is also being apprehended that the growth of black economy is likely to get a shot in the arm with ongoing general elections. Each parliamentary poll generates between $10.19 billion to $11.33 billion of black money, a study conducted by the Centre for Monitoring Indian Economy in 2006 projected.

As Planning Commission member Kirit S Parikh, who authored the IGIDR report, says there have been little electoral reforms that may suggest that the flow of black money may be slowing down. So far no government has shown the necessary political will to bring back national wealth stashed away illegally by unscrupulous Indians in overseas tax havens.

Last year, the government got a golden chance to trace those secreted millions in the tiny tax haven of Liechtenstein — a small landlocked country between Austria and Switzerland.

The German government, which obtained a list of account holders at Liechtenstein’s LTG Bank, offered to part with the names provided the Indian government asked for the information. Only last week, the government told the Supreme Court that it had indeed received the information, but revealed nothing more.

According to sources, the German government has sent a list of 90 individuals, who are maintaining secret accounts at Liechtenstein, but the Centre is soft-pedalling the issue.
Several countries including the US, the UK, Canada, Italy, Norway, Sweden, Finland and Ireland have already used the opportunity to zero in on their citizens who have evaded taxes and smuggled their wealth to Liechtenstein — the sixth-smallest country in the world.

The Transparency International has expressed concern over the Indian government’s apparent lackadaisical attitude in getting after the offenders who have cheated the tax authorities of millions of dollars.

The growing menace of black money, unless checked, will no doubt cause a severe damage to the socio-economic as well as the political fabric of the country. No government can afford to ignore it.