COMMENTARAO: S.L. Rao
For decades now we have talked about stopping ‘black’ or unaccounted (and therefore illegal) incomes, physical and financial assets. Amnesty schemes forgiving past transgressions have worked only marginally. The twist that occurred mainly from the time of Indira Gandhi as prime minister was the holding of these in foreign bank accounts, usually in tax havens. Their growth was accelerated by commissions on government purchases of defense and other equipment. The subsequent twist was that these moneys got invested (as black money did in India) in productive assets overseas (real estate, stocks and shares, manufacturing and commercial establishments).
The initial cause of such illegal incomes being made was the high levels of income and wealth taxation. They tempted many to avoid these confiscatory taxes and not pay at all on all, or a substantial part, of the generated incomes. However, the development of rigid industrial and import licensing opened a new channel for illegal earnings and new outlets for their safekeeping. Under- and over-invoicing of exports and imports and for construction and purchases of plant and equipment became a major source for illegal earnings. The investor would pad the costs of construction, take commissions to be kept overseas if the supplier was foreign, and in cash if the supplier was local. Government officers who issued licenses of all kinds would take bribes to speed up the process.
The estimates of the amount of such illegal assets have received little attention. People have said that a fourth and up to a half of our gross national income is in additional black income generation. International agencies have said that Indians are the largest holders of illegal assets abroad. Estimates go to as much as $500 billion. Getting this vast amount of black money back into the tax net and illegal holdings abroad into our foreign exchange reserves has again become a matter of national interest. Political grandstanding has been an important reason for the publicity to this issue. Public statements that each Indian would get as much as Rs 15 lakhs each if we could get these assets back have also stimulated interest. This is humbug and an opiate for the masses.