White Paper on Black Money: Much Ado
Arun Kumar
CESP, SSS, JNU.
The Hindu, May 26, 2012.
A White Paper on a subject is issued by the
government presumably to give a definitive view on it and inform the public of
an important issue. The paper on Black Money does nothing of the sort. The
opposition had also been demanding such a paper given the large number of scams
that have been in the news. But the paper hardly deals with any of them.
The Finance Minister in his Preface admits
that he is presenting `… this document now in response to an assurance given to
the Parliament.’ The implication is that he is not giving anything definitive. He
also says that he would have been happier if he `… could have included the
conclusions of reports of three premier institutions that have been tasked to
quantify the magnitude of black money.’ It is surprising that these three
institutions are only looking at the magnitude rather than the gamut of issues
that the black economy throws up. Thus, even after these reports are presented
we may not have a better understanding. After all, knowing the quantum of black
money in the country is not the same thing as analysing how to deal with the
problem.
The White Paper consists of five chapters
and several appendices spread over about 100 pages. The chapters are on
Estimation, Institutions to deal with the problem, Framework for tackling the
problem and the Way forward. This seems like a lot. The Report lifts many
arguments from this author’s book on the subject and from these columns in the
last year and a quarter. But it flatters to deceive.
The title itself is incorrect. What is
estimated is the annual generation of black incomes in an economy and not how
much black money there is in the economy. The various estimates mentioned are
of black income and not black money. The definition of `black money’ given itself
is erroneous with money confused for assets. Even an elementary economics or
commerce text book suggests that money is only one part of the portfolio of
assets that an economic agent may own. Hence referring to the whole by a part
is not appropriate. The definitional confusion is made worse when it is stated
that `the term black money would also include income that is concealed from
public authorities’. It is like saying that what we will call a `herd of cows’
would also include `hippos’.
Be that as it may, the report does not give
an estimate but simply quotes estimates from reports that were written more than
25 years back; ignoring later literature that has also brought about greater
clarity in the matter. The first chapter ends with the title, `Need for more
research’. Why state the obvious? The earlier reports that this Paper relies
upon had pointed to how big the problem already was, so why has the government
not studied it since then?
It quotes the GFI report of 2010 on how
much illicit flows have taken place from India since independence. The GFI
report itself mentions that their figure is a gross under estimate. It is
convenient to quote from the GFI report because it gives a low figure but why
has the government in the last year and a half not made the effort to remove
deficiencies in the GFI methodology and used the data it has in its archives to
arrive at a better estimate. The intelligence agencies and the various
organizations collect a lot of data that could have been used.
The Paper does service to the public by
listing the many agencies involved in dealing with the problem. So far so good,
but why have these large number of agencies failed in the task they should have
been performing, namely, checking the growth of the black economy? What are the
problems they have faced? Why prosecution fails most of the time whether relating
to the income tax department or police or the CBI? Why therefore there is
contempt for law amongst the powerful and increasing number of people resort to
illegality resulting in the growth of the black economy?
A large number of laws to check the black
economy are mentioned but there is no analysis of why they have been
ineffective in controlling the problem. A law on paper differs substantially
from its practice. Much space is devoted in the Paper to the international
treaties and efforts at the global level. This is convenient since the black
wealth held outside is small compared to what is held in the country. Further,
it is far more difficult to get at the black wealth held abroad compared to
tackling it what is held in the country. Thus, it becomes convenient to discuss
the former rather than the latter.
Most of the wealth held abroad illegally
will not be in the names of the actual beneficiaries but in the names of shell
companies and so on. Thus, most of it cannot be tracked to an Indian entity.
The data on deposits in Swiss Banks given in the Paper indicates that Indians
have between 0.13 and 0.29% of the deposits. This should be no surprise since
the illicit funds would not be held in the names of the beneficiaries but
others. There is no analysis of this problem or of how money is transferred out
of the country. We could have been enlightened if information with the intelligence
agencies about tax havens and the modus operandi of taking funds out of the
country or of generating incomes outside India
The interface between the judiciary and the
investigative agencies is an important aspect of non-implementation of the laws
of the land and the contempt they have come to be held in by the public. That
is the cause of the judicial delays with 4 crore cases pending. Even routine
matters that should be decided on in a few months drag on for years. This
encourages illegality and the prevalence of the black economy. The functioning
of the judiciary needed to be dissected.
The paper lists real estate, bullion and
jewellery as some of the important activities where black money is generated.
This again reflects a definitional confusion. These constitute transfers of
black savings from one individual to another. So, these activities circulate
black incomes but do not generate them like other activities do that are
counted in GDP.
In the chapter `Way Forward’, strategies
are listed but again no new ground is broken. As has been pointed out earlier
in these columns, DTAA and TIEA are about declared incomes abroad and not black
savings held abroad. Similarly, voluntary disclosure schemes have been
discredited in the past. The CAG has said that it makes people into habitual
tax offenders. It turns honest people into dishonest ones. Further, the Mauritius Mauritius
The paper skirts the most important
question, namely, why laws do not get implemented? It avoids mentioning the
nexus between the politicians, the officialdom and the businessmen which drives
the black economy? How the criminals have entered the nexus so that today many politicians
and businessmen have a criminal background and have contempt for law. Why have the
large number of steps taken in the past to control the black economy have not
worked?
The answer to the many acts of omission and
commission in the Paper lies in the fact that the existence and the control of
the black economy are political questions. Dealing with the black economy is
not a narrowly technical question that can be tackled by a few more laws or a
few steps here and there or strengthening of a few provisions of law or through
computerization. Whether it is the ruling party or the opposition, national or
regional parties, all of them have been mired in the black economy. The
question is one of political will. Should the Paper not have called a spade a
spade rather than avoiding the difficult question all together?
But then a White Paper is a political
document and not a technical one. It helps the government white wash its image.
It must divert the attention of the public from the difficult questions. After
all it cannot be an instrument of generating the political will to action - a
task that only movements and the political process can accomplish.