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Our black money is here, not in Switzerland

This is an interesting observation. Economics is not my field so I cannot judge the arguments made here. Perhaps, some one of the stature of Dr. Subramanian Swamy can shed light on this.
By Swaminathan SA Aiyar in The Economic Times
Baba Ramdev’s financial naivete is only to be expected. But I am astonished that the media endlessly repeats the myth that enormous hoards of black money are lying in Swiss banks.

Only financial illiterates will leave their money in Swiss banks offering very low interest rates (sometimes under 1%). To maximize their gains and hide their cash trail, savvy crooks route their money through various tax havens, and then seek the assistance of financial managers to maximize gains.

Financial managers will suggest a variety of assets from shares and bonds to real estate, aiming for annual returns of 10-20%. When such high returns are available, only novices will leave their money in bank deposits with very low returns.

This is obvious from the details disclosed of Indian-owned accounts in the LGT Bank in Liechtenstein. Of the 26 Indian accounts unearthed, some were owned by NRIs, and only 18 looked taxable. These had received inflows of just Rs 39 crore over two years, some of which may have been legitimate earnings abroad. This suggests that even if the Swiss bank secrecy is broken, relatively modest sums may come to light.

The government is signing agreements with many countries to access more information on foreign bank accounts. The very signing will warn crooks to transfer their funds to chains of corporations in lightly taxed places ranging from Liechtenstein to Cayman Islands and Mauritius to Bermuda. Once laundered through a dozen corporations in a dozen tax havens, money becomes white.

Some businessmen may park large sums temporarily in Swiss banks pending better deployment. Some politicians may not yet be financial savvy and may be content keeping large sums in Swiss banks. These will be exceptional cases. The bulk of black money abroad is in financial assets across the globe.

Where exactly? Nobody knows. But one of the best places in which to invest money is India, not Switzerland or the US or any western destination. Housing prices in the US doubled after 2000 and that was called a bubble, but housing prices in India rose almost ten-fold. Declarations by politicians of their assets show a huge preference for real estate over all other assets.

The Dow Jones index in New York is barely higher today than in 2000, but the Bombay sensex is up six-fold. Interest rates on Indian government bonds are 8% against 3% in the US and Germany. Clearly India is one of the best investment destinations in the world. Income tax rates today are modest and there is no tax on dividends and capital gains.

So, enormous sums of black money that once went abroad have returned in white form over the last two decades. These flows may have helped the Indian economy grow faster. They have certainly helped push up land and stock prices to dizzy heights, and election spending too.

India now gets $60 billion annually of remittances from NRIs, and up to $50 billion from portfolio inflows. A significant part of this must be black money returning as white. Some inflows come as NRI bank deposits in India.

Back to dark days of 1970s

The Pioneer

EDITS | Tuesday, June 14, 2011 | 2:03:11 AM

A Surya Prakash

The Congress’s fascist reaction to the anti-corruption movement shows the party still remains unchanged. Its misdeeds remind us of the 1975-77 Emergency.

The Congress-led UPA Government is sadly mistaken if it thinks that its ruthless Gaddafi-style midnight operation to evict Baba Ramdev and his supporters from Ramlila Maidan in the early hours of June 5 will crush the movement against corruption in the country. The Government’s action, which is reminiscent of the response of Mrs Indira Gandhi to charges of corruption in the mid-1970s, only goes to show that nothing much has changed within the Congress. It continues to function like a family-owned private limited company whose promoters have fascist tendencies and remain extremely vulnerable to charges of corruption.

Apart from ending the mass satyagraha at the venue in Delhi, the Congress has launched a vituperative attack on Baba Ramdev, calling him a “thug” and a “fraud” and raising questions about the funding of his organisation. There is nothing new in this. These very tactics were deployed against Anna Hazare and his team members in April. An identical operation is now on to paint Baba Ramdev in ugly colours.

The Government is rattled by Baba Ramdev’s movement because it strikes at the root of the problem — money stashed away in Swiss banks by politicians and businessmen. The Anna Hazare movement got confined to the limited issue of establishing a national ombudsman (Lok Pal) to deal with corruption at the highest level. But, the creation of such an institution is just one of the many initiatives that need to be taken. Since corruption is a hydra-headed monster that has affected all aspects of politics, governance and life, what is needed is a comprehensive anti-corruption agenda that seeks to tackle the problem at the root and throw up permanent remedies.

For example, money power has vitiated the entire electoral process since the beginning and the humongous amounts spent by candidates in State Assembly and Lok Sabha elections has made a mockery of the spending limits imposed by the Election Commission. Over the last two decades, the permissible spending in a Lok Sabha constituency in a large State has more than trebled.

Just three monmths ago, the Conduct of Election Rules were amended yet again to enhance the maximum election expenditure in Lok Sabha and Assembly constituencies to Rs 40 lakh and Rs 16 lakh respectively. However, those who track election-spending are aware that even this revised limit will be observed more in the breach than than in the observance because in recent years the average spending by serious candidates in Lok Sabha constituencies is between Rs 3 crore and Rs 5 crore.

All of this is black money — some generated within the country and the rest brought back fromSwitzerlandand tax havens likeLiechtenstein. Therefore, any anti-corruption initiative must first deal with the issue of black money vitiating the electoral process and making a mockery of the democratic system. We need to accord high priority to this problem.

The second most important source of corruption is Government contracts. It is long established that those who run the Government and the ruling party get kickbacks on every deal. In the early decades after independence when the licence-permit-quota raj held sway, bribes and commissions were paid in Indian rupees. Later, after Mrs Indira Gandhi returned to power in 1980, the Congress chose a new route for political funding — kickbacks from international deals which are paid into secret accounts in Switzerland and other tax havens.

Those who have worked in Government at senior levels — for instance, Mr BG Deshmukh who was Cabinet Secretary during Rajiv Gandhi’s tenure as Prime Minister — have noted that since the 1980s, the Congress has found it more convenient to take commissions from foreign companies in international deals rather than pass the hat around among Indian businessmen and industrialists to collect party funds. This way, huge sums can be collected to fund the party without any obligation to industrial houses within the country. It was presumed that there would be no whiff of corruption if discreet payments were made to Swiss bank accounts.

This grand plan, however, went for a toss when the Swedish Audit Bureau reported that arms manufacturer AB Bofors had paid ‘commission’ to certain individuals in connection with the sale of field guns to India in 1986. Despite that embarrassment, there is no indication of any change in the attitude of the Congress towards collecting funds. This is also the reason why the party is dragging its feet on the black money issue.

When the pressure from the Supreme Court became unbearable, the Government cleverly announced the setting up of a “high-powered committee” to keep the court at bay. This committee is supposed to examine the problem and outline a plan of action to bring back the loot. The Government offered a similar bait to Baba Ramdev the other day, offering to set up “a committee” to draft a law to bring back black money.

After making this offer, the Government claimed that it had met “all the demands” of Baba Ramdev and wanted him to end his satyagraha. When he failed to oblige, the Government responded with police brutality. The use of brute force to end a peaceful agitation is reminiscent of the Emergency days. This was exactly how Mrs Indira Gandhi responded to Jayaprakash Narayan’s campaign against corruption 36 years ago.

In fact, the parallels between 1974-75 and 2010-11 are striking. Jayaprakash Narayan’s movement began with the campaign against corruption in Gujarat and with the demand that then Prime Minister Indira Gandhi probe the allegations against LN Mishra, a senior Minister in her Cabinet. Mrs Indira Gandhi did none of this. Instead, she used brute force to crush the movement.

Mr Manmohan Singh, too, has resorted to an Emergency-style operation to crush the satyagraha at Ramlila Maidan. Also, in typical Mrs Indira Gandhi fashion, he has defended the midnight police raid and said the Government had no option but to resort to such action. There are other eerie coincidences. It should be remembered that Mrs Indira Gandhi imposed her dreaded Emergency in 1975 after a massive Opposition rally which, incidentally, was held at Ramlila Maidan and in June.

This only shows that more things change, the more the Congress remains the same. The party continues to be extremely vulnerable when corruption is discussed and the party’s fascist tendencies come to the fore whenever its Government is cornered on this issue. That is why all those who believe in democracy need to be on high alert after Mr Singh’s Ramlila Maidan operation. Needless to say, eternal vigilance is the price of democracy.

http://www.dailypioneer.com/345653/Back-to-dark-days-of-1970s.html

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