Economic Highlights

New Delhi, 2 May 2014

‘Black’ Money Menace

FRAUD BY PUBLIC BANKS MORE

By Shivaji Sarkar

Money stashed in Swiss banks is back in news. The Supreme Court wants the names of 26 Indians revealed. But the exact amount of money they have is not known. However, the income-tax authorities seem to know. It has demanded tax of Rs 40 crore only. If that is so, then the amount is really not that large and much fuss is being made out of it. Normally one-third of the income is claimed as tax. By that token the total money would not be more Rs 120 crore with the depositors of LGT Bank, Liechtenstein and about those whose information is provided by Germany.

But more than this, Indians need to be wary of the high public sector bank losses (NPAs) of Rs  2,29,007 crore and Government’s move to make these losses by recapitalising to the tune of Rs 54,200 crore during the past three years. It is a bigger and worse scam, which nobody discusses. The money touted to be in foreign banks is a fraction of the total NPAs.

Switzerland has once again refused to share information about the deposits there as its Ambassador to India, Linus von Castelmur, says that data with India was robbed by a European country and as per Swiss law stolen data could not be used to obtain information! But how much money HSBC would have? There are many guesses but no firm information has yet been revealed.

Some reports claim a total exceeding $1.4 trillion are stashed in Switzerland. Other reports, including those reported by Swiss Bankers Association and the Government of Switzerland, claim that these reports are false and fabricated. The total amount held in all Swiss banks by citizens of India is about $2 billion.

In February 2012, the Central Bureau of Investigation director said that Indians have $500 billion of illegal funds in foreign tax havens. In March 2012, the government clarified in Parliament that the CBI director's statement on $500 billion (Rs 30,000 crore) of illegal money was an estimate based on a statement made to Supreme Court in July 2011.

In 2011, India got the names of 782 Indians who had accounts with HSBC. But the government did not disclose the names. According to a White Paper on Black Money in India, May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India were (Swiss franc) CHF 1.95 billion (Rs 9,300 crore or $ 2.1 billion). This amount is about 700 fold less than the alleged $1.4 trillion in some media reports.

Why is this brouhaha? It is being propagated that if all the money stashed abroad is repatriated it would usher in a golden era. If the figures given by the government are correct then it would be only 25 per cent of a year’s NREGA allocation.

If this is what the apex court is trying to probe, it would end up paying a hefty sum on investigations. It might become another Bofors where the investigating agencies spent more money than the total bribe alleged to have been paid.

It also rakes up another question. Why people should stash away their money abroad. It points to a problem with our tax system, which has specialised in harassment and extorting the maximum. Just imagine if one earns Rs 120 and Rs 40 is charged as income tax can the poor man pay that? True crores and hundreds are not easy to compare but the plight at both the levels are almost same. It is also alleged that most of this money belongs to large corporate. May be, but does it justify depriving them of their hard earned income.

The State needs taxes. This is a reality. It also needs to economise on its unnecessary expenses. It is in a vortex. Corrupt elements raise prices. It leads to higher wages in organised sector. It increases money supply. The cycle of inflation continues. The government gets into deficit. It calls for a review how prices could be controlled and how wage raise should be checked to reduce disparity.

It raises a moot question. Is black money really an issue? By the definition of the tax authorities virtually all cash transactions are “black”. They forget that trading in cash gives the robust strength to the economy. In such transactions, by traders in different sectors, default is the minimum. Turnovers take place at small fees or commissions. It keeps the economy lubricated.

But the tax authorities want everything to be transacted through the banking system. In fact, the functioning of many banks is suspect. The banking system takes unethical cuts on the pretext of a cheque having “bounced”. They collect the money next day but the customer is made to suffer.

 Additionally, the transactions in banks are possibly no longer safe. The banking losses called NPAs as noted are increasing. As on March 31, 2013, net NPAs of 40 listed banks were Rs 93,109 crore, which rose to Rs 1,28,533 crore as on September 30, 2013. Gross NPAs (total losses over the years) as on September 30, 2013 stood at Rs 2,29,007 crore, 27 per cent higher when compared to Rs 1,79,891 crore as of March 31, 2013 for these 40 listed banks.

The growth rate of net NPAs at 38 per cent has been significantly higher than the 27 per cent growth rate for gross NPAs. This needs special attention. It is a simple way to defalcate public money. The banking system is getting weaker. The government quietly recapitalised the public sector banks by Rs 54,200 crore in three years. In other words, people are having a double whammy. Their deposits are at risk and taxes they pay are being utilised to keep the banks afloat.

The new government has to probe why the banks are at losses and who have actually benefitted. Certainly, it is a greater risk than the “unaccounted” foreign deposits. In simple terms more money is being swindled away than the deposits banks are getting. ----INFA

(Copyright, India News and Feature Alliance)