‘SIT is diversionary tactic’
INTERVIEW WITH PROF.ARUN KUMAR
Published in the Frontline
June 27, 2014.
Professor Arun Kumar is the Sukhamoy
Chakravarti Chair Professor in the Centre for Economic Studies and Planning, Jawaharlal Nehru University India , he has
been a member of the Group producing Alternative Economic Survey for the last
15 years, providing alternative analysis of the official data. He is also
associated with movements such as Right to Housing and against corruption. He is the author of the book, ‘The Black Economy in India’ (Penguin,
1999) and most recently, of ‘Indian
Economy Since Independence
Q: Your recent book has a whole chapter on the black
economy. I found the distinction which you draw between anecdotal and the
larger picture of black economy interesting. In a sense, would you describe the
SIT, set up by the Modi Government, to investigate the black money stashed in
foreign bank accounts by Indians, as dealing with the anecdotal or the larger
picture?
A: My first point would be that steps could have been
urgently taken by the new Government. This government has taken advantage of
the Supreme Court’s direction to set up the SIT in the Ramjethmalani v. Union
of India case. All the agencies which
are in it – like ED, IB, RAW etc. – they already have a lot of information. The
question is why they were not acting on it.
Because politically it is not convenient to act on the information that
is already there. To give one instance,
hawala takes places in certain places in Delhi ,
Mumbai, Kolkata, every city. Now, these
places are tracked by government agencies.
So, this is not as if they don’t know where hawala takes place from. Who are the hawala operators working from
there? And who are the people visiting
their houses? This information should
have been there with IB, and ED. So, if
the Prime Minister wants to stop hawala, it can be done in five minutes,
because that information on where it is operating from is already available to
the government agencies. So, why was
this not the first step? Hawala is the main conduit for taking the money out
and bringing it back. In the Jain
Hawala case, which was discovered in a hostel in JNU, how was it
discovered? One Kashmir
terrorist was caught with a draft of Rs.15 lakhs. So where did the draft come from? So, immediately, they raided the residence of
S.K.Jain, and got hold of names of politicians.
Out of that, the BJP president, L.K.Advani admitted that he got money
for party. Janata Dal (U) leader, Sharad
Yadav admitted that he took Rs.3 lakhs. But nobody was prosecuted at the end of
it. So, the point is this information about where hawala operates from is known
to the intelligence agencies. So that could have been the first step.
In the HSBC case, where the stolen data was received from
the French Government, around 700 Indians had bank accounts in that Zurich branch. There it
was revealed that HSBC was working as the hawala operator. The modus operandi
was this: if I wanted to transfer money, I would call certain number, and they
would send somebody, an account would be opened, and then when I wanted to
transfer money, somebody would come, pick up the money and next day, I would be
given the receipt that the money had been deposited in that Zurich bank account
and when I needed the money, I would call up that number, somebody else would
come, and bring the money. This is what the HSBC Bank was doing as a hawala
operator. Now I am told that all the
multinational banks do this. So, the
other thing that could be done is to curtail banking secrecy. SIT is set up
because Supreme Court has directed the government to do so and so it had to be
done. But independent of the SIT, if the Government was serious, it could have
taken immediate steps to control the black economy, by curtailing hawala, by
moving against the places where hawala takes place, and by immediately moving
to curtail the secrecy in the banking system and so on.
I doubt the sincerity of the Government in setting up the
SIT that they are serious about bringing the black money back.
From 1947 onwards, more than 40 commissions and committees
of different kinds have been set up which have looked at different aspects of
the black economy. They have analysed
the different aspects of black economy very seriously in the last 65 years.
These committees and commissions have made thousands of suggestions. Wanchoo
committee is rich with suggestions. And,
hundreds of them have been implemented also.
Yet, black economy has continued to grow.
The black economy is characterised by waste of capital. I call it `digging holes and filling
them’. You set one man to dig a hole
during the day, and at night set another person to fill it. So this is activity
without productivity. Capital is being
utilised, but output is zero. A large
part of black economy is like that.
Because of black economy, a large amount of illegality is associated
with economic activity. The point is,
there is output in the black economy, but the economic potential is not reached
due to waste. The potential in the
Indian economy today is 12 per cent rate of growth. Because of black economy,
it is only going it at an average of 7 per cent. In the 1970s when the potential of the
economy was 8.5 per cent, we were going at 3.5 per cent. South East Asian economies are examples of
successful state intervention, while India is not. But corruption is growing in China despite
successful state intervention. It is not
as if black economy doesn’t exist there.
But it doesn’t come in the way of policy being implemented. They have a sort of vertical strict
hierarchical structure in which once the policy is decided, it gets
implemented. People make money, but work is done. It is like Pratap Singh
Khairon effect in the 1960s. Pratap
Singh Khairon was supposed to be taking money.
But he was doing the work. In India , we are
characterised by subversion of policy.
That is why we have lagged far behind the South East Asian
countries. We have democracy, while
these countries don’t have that. China doesn’t have it. There is a
big difference in the political structure.
Because we have democracy, everything has to go through the political
process, and this process gets subverted by the black economy. And this subversion
of the political process results in policy failure.
When I say black economy is today 50 per cent of the GDP, it
means almost all activity has some associated illegality. In my book, I have described many sectors
where black incomes are generated, but I could not discuss all since the list
is long. Whether it is education,
health, environmental regulation, traffic on the roads, law and order,
industrial regulation, mining, whichever sector you take, it has black income generation.
So it is widespread. It is `systematic and systemic’. It is not anecdotal. It is not that one day I do it, next day I
don’t do it. Under the system followed
in production, the excise fellow will be bribed, the sales tax fellow bribed so
much, the local politician, the policeman and so on taken care of. It doesn’t
matter what the tax rate is, because the system is in place. So whether the
rate is 97.5 per cent or 10 per cent, the businessman will evade taxes. That is why in India , even when the tax rate has
come down, the black income generation has gone up. So, over the years, the tax
rates have been reduced, controls have been reduced, MRTP, FERA, small scale
reservation, licencing and many other controls have gone, and yet the black
economy is increasing. Why? Because laws are systematically violated. How are
the laws systematically violated? By having the policy-maker and the
implementer of the law a party to its subversion.
So, underlying the black economy is a `Triad’. The triad consists of the corrupt
businessman, the corrupt politician and the corrupt executive. The corrupt executive consists of the corrupt
bureaucracy, the corrupt police and the corrupt judiciary. Judicial corruption is also enormous as many
recent exposes point to.
The above analysis suggests that is the problem is political
in nature and all parties are involved in it, so, the political will to tackle
the menace has not been there. Private
information exists in the entire system. Bureaucrats know, Judges know, policemen
know, who are the people to be contacted for hawala, who are the people to be
contacted for setting up bank account there (in the tax havens), all these
information exist. It is there with
intelligence agencies also. But it is
not being used to tackle the problem, because it is political. Because all parties are involved in it, they
don’t want to deal with them.
Q: Can the SIT provide this political will?
A: No. SIT cannot.
What will come out of this?
Q: Ram Jethmalani, the petitioner in the case before the
Supreme Court, says the SIT can file the FIR.
A: But then what after that? Proceed and prosecute one or
two? But there are tens of thousands of them. The big fish is very clever. If,
say, the Ambanis want to send some illegal funds abroad, they will not do so in
the name of Anil Ambani or Mukesh Ambani.
It will be through layering. It will always be through various shell
companies. Big fish have a lot of money
there, (in the tax havens) but it is not directly in their names. How will the SIT find that out? It has to catch them here in India .
Q:The terms of reference of setting up the SIT entrust it
with the responsibility of preparing a comprehensive action plan, including the
creation of necessary institutional structures that can enable and strengthen
the country’s battle against generation of unaccounted monies, and their
stashing away in foreign banks or in
various forms domestically. Don’t you
see this as a broad mandate, which will help fight the black economy?
A: This has been the kind of mandate which was there with
the earlier committees also. It was there with Wanchoo and Santhanam
committees. They have made hundreds of
suggestions. It is also discussed in the
report of the National Institute of Public Policy which studied the problem in
early 1980s. This is not the first time.
Q: But this time Supreme Court will be monitoring, that is
the big difference.
A: But who are the people involved? Who do you catch? The point is there is no death of knowledge
about how black incomes are generated, how black income is taken abroad, and
how it is round-tripped. But we don’t have specific names. Who will investigate
now? The same Enforcement Directorate. The same IB. The same IT
department. The same Central Board of
Direct Taxes. Why were they not doing it till now? This data is kept, but not
being used. There is private
information, but it does not become public information which can be acted
on. How will the SIT get hold of all
these data? The SIT can establish
general institutions, principles, which are already established. But how will
it catch individuals? Only through
raids? That the CBDT can do on its own and has done so selectively? It doesn’t need to be told by an SIT. But,
raids have been political weapons and hence discredited. There is a Member,
Investigations in the CBDT who is supposed to get raids conducted.
Q: Why do you think SIT doesn’t inspire confidence?
SIT may do something different and surprise us. But, what has been the experience of
committees and commissions? I am not despondent. It is one more attempt, where much more
serious things could be done even without the SIT – raid hawala houses, close
them down, end banking secrecy. I am
not, in principle, opposed to SIT. What I am saying is this (SIT) may be a diversionary
move. Now whenever the questions are
asked of the government it ca conveniently say that SIT is looking into the
matter. When under public pressure,
three institutes were asked to look into the problem of the black economy, the
Government used them to say it would answer questions when their reports
come. Pranab Mukherjee (Finance Minister
in 2011) said in his next budget he would present the reports also. Three years down the line, it has not been
done. So, this can also be a convenient excuse for the government to stall
answering inconvenient questions.
Q: Is the apprehension that the Court may take over the
functions of these executive bodies valid?
A: The Court may make them accountable. That may work
positively. The question is why is the
ED, with so much information not acting? They were not acting because of
political reasons. So, how will SIT get over that? Because even now, even though the ED, IB and
RAW may be part of the SIT, will they reveal the full information?
Q: Chairman and Vice-Chairman can ask them.
A: They can ask what? If they ask for something specific on
Hasan Ali, yes. Beyond that, the agencies under political guidance can also say
they don’t have information. For Hasan
Ali case, what have they done? To nullify RTI, very often, the reply is that
the information sought for is not available. So the same thing can be
done. If the political bosses want
information revealed, it would be done. The Judges (the Chairman and the
Vice-Chairman of SIT) won’t know what to ask for. How would they know what to ask for? They are outsiders to the system. Political control is very important. That is why in Lokpal, it was very important
to keep it outside the political control.
As long as the political control is there like in the case of CBI, the
CBI plays games. Where ever it wants, it
reveals something. Where ever it doesn’t
want, it doesn’t reveal. And wherever it likes, it spoils the cases. Very often, the Courts have scolded the CBI
for spoiling the cases. So, it is the political will that matters finally.
Q: What then is the logic of this SIT?
A: Well, the Supreme Court thought that Court monitoring of
these two cases (Hasan Ali and LGT case) may help. But how will it help in general curtailing of
black economy? We have got any number of
institutional structures, which are already supposed to be doing all
these. Our agencies track hawala
operations. What more can they set up?
Instruments are already there.
Income Tax Department used to have a survey ward, which was supposed to
investigate whether people are filing returns or not. But it had become
corrupt. Similarly, there has been a valuation department, which is supposed to
arrive at correct valuation of properties for purposes of taxation but this has
also not served its purpose due to corruption.
Q: Do you think SIT can encroach on the powers of the
executive, as the previous Government told the Supreme Court?
A: The SIT can only ensure that the Executive functions as
per the law. In that sense, the SIT can
monitor specific cases. The Court is not
saying that SIT will do policy-making. It can only suggest changes and it is
for the government of the day to accept or not.
Q: The Modi Government has come to power on the plank of
corruption-free governance etc. Should not the Court wait and see whether the
agencies, responsible for unearthing black money, fulfil their responsibilities
without fear or favour?
A: The order
in the case was delivered earlier, prior to the coming to power of the new
Government.
Therefore, it is a continuing process. Once the Court had given the order in 2011
that the SIT be set
up, it is now being implemented. All I am saying is, don’t expect too much
from the SIT. SIT may
help in specific
cases. Like the case of 700 people who
are caught up in the HSBC disc. In the
LGT
disc, 26 names have come up. They
can try and investigate whether there were more than 26 names,
whether there
are other names, which the Government is not revealing. Or suppose if a new
case is
discovered, it can also be taken up by them. Beyond that, our expectations
may be far-fetched. It is a
very complex
political question since it involves the nexus among politicians, businessmen
and the
executive; the ruling elite of the country. That nexus has to be broken.
Q: The
chairman of the SIT, Justice M.B. Shah has said there are complexities in the
SIT’s task.
What are the complexities
involved?
A: The SIT’s
task is complex because the nexus among the triad itself hides a lot of
things. They are
the ones who are
working in secrecy (the politicians, businessmen and the executive). This nexus can
be politically broken. When the anti-corruption movement was at its
peak with Anna Hazare and
Baba Ramdev leading it, you could see that the
Government was almost shivering. When
Baba
Ramdev came to Delhi ,
four Cabinet Ministers went to receive him. Cabinet Secretary was there.
Suddenly, the Government was willing to act on corruption. Public opinion is the only thing that can
change the apathy that the government has shown most of the times. As long as the Government was
fearful that
something was going to come out, they promised Lokpal. As soon as the movements
subsided, they again
started going slow on Lokpal. Towards the end, just to show that they are
anti
corruption, they allowed the Bill to pass.
Only public pressure will change things for the better.
Government can put pressure and make SIT
ineffective by signalling the government officials who
are members of the
committee not to reveal certain information, not to be pro-active. SIT has to
function within the parameters of what the politicians wish or what the
executive says. From SIT, I
expect only
limited gains. Because it won’t be able
to generate public information, which would be
actionable. May be, we can
expect some results in two or three cases, but these are of 2007 vintage.
By now, the money will not be there. In Hasan Ali case, when the disc was
captured, it was supposed
to have 8 billion dollars. In 2011, the Finance Minister, in his press
conference, revealed that only
60000 dollars were left.
Q: Ram
Jethmalani, in an interview to a television channel, has said footprints can be
easily
identified, and the money trail can be followed.
A: Not so
easily. What happens is when you
transfer money from one shell company to the other,
you close the previous
one. Then, how do you go back? India cannot investigate tax
havens,
belonging to other countries. The advantage the advanced countries have
is the money which they get
from tax havens is giving them additional
capital. Why is it that the advanced
countries were happy
with these tax havens and not acting against them earlier?
Because, they were finding that the capital
is flowing from the developing
world to them. One of the arguments has
been that after colonisation
ended in the late 1940s and early 1950s, these tax
havens were deliberately set up by the developed
countries so that the capital
which was earlier coming from the developing countries as drain of
wealth,
could now come through these tax havens into their economy. And they were
benefitting.
Latin Americans lost
hundreds of billions of dollars through these tax havens to the European
countries. India and other
countries lost to Britain
because money was going through these tax
havens. Of late, after the global
economic crisis of 2007, there has been pressure from the OECD
countries that
the taxation secrecy should go. That is
why the Swiss banks have opened branches in
OECD, their branches operating in other
countries would continue to act. That is
why Credit Suisse
was caught now in the US and fined $2.5 billion. UBS was
caught in 2007. Therefore, banking
secrecy should end globally. Only then we can catch them.
One important
thing I must point out. In 2008 when the
financial crisis took place, that time Fortis
Bank collapsed and the
Netherlands Government took it over. They found that Fortis Bank had 700
subsidiaries in tax havens. So the whole purpose of subsidiaries in tax havens is
to allow high net
worth individuals to move money. This is a standard practice of multinational
banks especially, the
Swiss, British and the big American banks. So this should
be checked. Now HSBC has been caught
for allowing hawala operations to take place through its official
channels. But no action has been
taken
against them as yet.
arunkumar1000@hotmail.com
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