Whither Rajan’s India

Hello world,
i am following Narendra Modi and Governor of Reserve Bank of India for last 23 years. Narendra Modi was then Mr.No Body.Today he is Mr.Prime Minister of India.i observed working of R.N.Malhotra S.Venkitaramanan, Dr.C.Rangarajan, Dr.Bimal Jalan, Dr.Y.V.Reddy, Dr. D. Subbarao and Dr.Raghuram Rajan as Governor of Reserve Bank of India. During that corresponding years I observed Chandra Shekhar,P.V. Narasimha Rao, Atal Behari Vajpayee,H. D. Deve Gowda,Inder Kumar Gujral,Dr. Manmohan Singh and Narendra Modi as prime minister of India.i recollect Yashvant Sinha, Jashwant Singh, P.Chidambaram, Dr.Manmohan Singh,Pranab Mukherjee,I.K.Gujaral and Arun Jaitley as finance ministers. The pair of P.V.Narasimha Rao and Dr.Manmohan Singh was the best.S.Venkitaramanan Dr.C.Rangarajan were RBI governors during that spell. As compared to political setup of those days to present one, no governor had any freedom or courage of conviction to tell a spade a spade. Dr.Raghuram Rajan is the first RBI governor in 23 years to tell finance minister and prime minister that sickness of economy is due to (mismanagement of) “lands and natural resources (for persons having) right political connections”.Dr.Rajan is the first person to stand with erect spine and tell the truth, absolute truth about Black Money.

Dr. Raghuram Rajan is reported to have expressed the winds for foreign investment in India fair and favourable but the pick-up is slow.during recent Washington visit.The Hindu ‏@the_hindu: #RBI Governor Raghuram Rajan http://thne.ws/1C2t2PO

Dr. Raghuram Rajan is correct in his assessment.

But I differ from him on the causative factors responsible for sluggish economy and failure to get expected results from that sense of sickness.

Slow pick up is mainly due to lack of capital created mainly by the highest ever proportion of black money in/within India and bad debtors of public sector banks. The most of the nationalised banks are inefficient in recovery of loans and hence are devoid of funds leading them to near bankruptcy. The bank scamsters & defaulters include members of parliament, MLAs and others having and enjoying patronage and protection of all powers of reckoning that call the shots. The mortgages done/made at the time of these loan borrowings have book values of properties. Actual market value is much higher than that. Book value is according to juntry which is hardly 30-40 % of the actual market value. More over the properties under bankers’ lien is rented out thus to make the confiscation impossible despite the
mortgage deeds. This pre emptive rentals are as as a hidden, unwritten prior agreement/settlement with the bankers. This is the most important flaw in realization of borrowed money. All auction attempts result in naught. Whenever this rental hitch is removed, the stage of public auction comes. The bid is almost below the debt comprising of principal amount of loan, interest thereof , penalty and administrative expenses. The attempts are deliberately failed so as to facilitate the bankers to create a stage of one time settlement at a much lower amount often less than the loan amount. Banks bleed and bankers earn. How?

The vast difference between the actual market value and the value at which the one time settlement is achieved generates Black Money. That is distributed among bankers, agents working as middle man/men, government officers , politicians, ministers, judges and media.

The legal wrangles about the residential and commercial properties are around the validity of clear title and bank’s rights to confiscate the same. That problem worsens when the mortgaged property/ies constitute/s open lands, non agricultural lands and agricultural lands. Illegal encroachments on such lands by land grabbers and mafia gangs worsen and complicate bank’s/bankers’ woos. There, the nexus of politician, minister, government officers, police, advocates and judges invariably comes in the picture. The position at the time of execution of mortgage deed and actual loan disbursements changes qualitatively and quantitatively in cases of erstwhile agricultural
lands hypothecated to banks after reservations ,urbanisation and implementation of town planning schemes. The issues of inheritance under Hindu ,Muslim, Parsi and common law arise specially when the stakes become very high. Even though the Supreme Court of India held the agriculturist status of the creditor bank as an institutional agriculturist valid and therefore the sole right of the bank as deemed and actual owner of the agricultural land in question after summary failure of the debtor to honour the repayment of the loan in toto, it is not easy to sell this impugned land.* Why ?

There is the practical battleground created due to the Black Money involved!The actual market value of the lands has to be paid by the buyer but the bank as an institution is unable to transact and accept black money involved in the sale. There the issue arises about the distribution of the black money. If a buyer is ready to pay entire amount by cheque as per market value the documentation itself will compel the generation of subsequent cycle of events that will require revalidation of documents of all properties sold and bought in the region in the context of stamp duty, registration fees ,capital gain tax and income tax ! Near bankrupt status of the PSU banks has a foundational ground due to this situation. The chairpersons of few select PSU Banks had to go due to their dubious deals by adopting this modus operandi. The problem becomes acute in case of a co-operative bank! The board of directors , even if desires to wrap up the deal in camera by reaching understanding amongst themselves about the distribution of black money the matter can not remain a secret from the shareholders of the co-operative body. The subsequent /ensuing annual general body meeting becomes a war field! Unscrupulous local politicians, registrar and secretary of the government’s co-operative department,concerned minister and chief minister will naturally be partners in distribution of black money. How can Reserve Bank of India’s co-operative banking department remain aloof from the loot?

This sort of impugned properties add year after year to non- performing assets of PSUbanks and co-operative banks only to be reflected in the annual reports. Banks as institution becomes poorer year by year and bankers including chairperson,members of board of directors and the entire corrupt linkage becomes richer and richer in/by hoarding black money.

If a gullible or innocent agriculturist by sheer worries for his and his money’s safety and security deposits the entire payment received by cheque ( 30-40 % the deal -accounted money reflected in buyer’s books) and number two money ( 60-70% of the deal- all received in cash , unaccounted hence not reflected anywhere in buyer’s books constituting black money)in any of his/her account, a funny situation arises. The pay in slip of bank has to be accompanied by Permanent Account Number in case of all cash deposits of INR 50,000/-fifty thousand rupees or more.Due to the prevalent banking provisions,bank’s central server and a server at IT department get automatic intimation of all transactions.Grave complications arise for the buyer and seller because of the deal registered would be of 30-40 % the actual price of the property in question.**

In case this agriculturist has to pay a bribe he/she has to withdraw in cash to pay in cash! ***

Very interesting and intriguing situation arises in civil and criminal cases in trial courts, sessions courts, high courts and supreme court of India. In their documents, land grabbers show minimum amounts paid by cheque and maximum amounts paid in cash , never less than INR 50,000/-and always in minimum seven figures. The addresses of the land grabbers are invariably fictitious and often in slums !The courts have never taken economic part of these cases in cognisance and till to-date no court has ever referred any case to income tax office to verify and cross check the tax paid and not paid for the assessment years shown in the documents under perusal for judicial scrutiny. The stamp duty paid for agreement-Sata Khat would not be commensurate with the sums mentioned in the documents. Genuine buyers refrain from executing the real agreement of the sale/buy deal because of the duty and income tax problems. They make two agreements, one showing the actual amount of transaction and the other showing the amount as per juntry value to be paid by cheque and the rest of the amount to be paid in cash. The first agreement is destroyed on completion of schedule of payment of unaccounted money to be paid only in cash. The agreement mentioning the accounted payments is registered with appropriate stamp duty.
On one side banks have made it mandatory to mention payer’s PAN in pay in slip for cash payments of INR 50,000/-fifty thousand rupees or more and on other side no court considers such payments worth referring to Income Tax authorities. If all the cases are referred to IT department, majority of cases will see premature and automatic disposals. Income Tax department need not be joined as a party in such litigations.It has to just take cognisance of all case papers and scrutinise the payments claimed to be made and denied to be received by examining the books on both sides. It is just a similar job the department does at the time of seizure of huge amount of cash at the time of election or verification of documents like diaries, notes, files, CDs, hard disks confiscated/seized during anysearch operation/raid conducted by the department. Why courts feel shy to involve Income Tax Department? Whose interests are best served by not involving the tax authorities? Litigants,their advocates or judges? Who benefits the most by not involving tax authorities? All documents and diaries searched out during raids to unearth hawala rackets have been infructuous because of lacunae in the Indian Evidence Act. Finance minister and law minster were practicing SCI advocates well versed in all tricks employed by litigants on both sides! Let them tell the Apex Court what to do in the issue or let the Apex Court investigate and opine.

The courts are much harassed by black money. How?

The majority of cases regarding dishonouring of cheques are the results of transactions of black money, unaccounted money. Any writing or receipt purporting to serve the purpose of promissory note is rendered useless when the amounts involved are not reflected in books of account of mainly the applicant.The party receiving the money gives a cheque to his/her creditor mostly without date or of the scheduled payment date, knowing fully that in court the receiver of the same will not be able to substantiate or authenticate the claim of payment solely because it was/is an unaccounted transaction, though willful, fully illegal . Civil courts are burdened by ever increasing number of suits arising from unaccounted transactions of Black Money. In a way courts have accepted the existence and menace of black money. Unless and until proved otherwise, any transaction is for benefit. Investors’ fears are thus valid.

The investors in stock market now adopt foreign route !They transfer black money by hawala to a foreign destination and the white money comes back as foreign investments. Politicians, government officers, industrialists adopt this channel. Western countries generally do not ask the aliens the source of money brought. EXIM route is known to everyone. Under voicing, over voicing, counterfeit receipts are few of the ways adopted. But it is not risk free. Investors in shares and fixed deposits in companies have no legal protection whatsoever. The annual report or financial statement of the bankrupt company has assets having book values as per juntry. When companies are closed sine die the employees and investors in shares and fixed deposits do not get anything. Why? The assets when sold will fetch 60-70 % in Black Money only to be passed on to owners of the company! 30-40% of the realisation of assets will be in white i.e. accounted money which is invariably insufficient to pay back the dues to employees and investors. Here, too, courts feel the hot and cold of black money. Trade unions fighting for employees know everything of everything. There is settlement. Everybody’s interests are settled except the investors i.e. share owners and fixed depositors! Arbitrators, judges, lawyers, union leaders and proprietors get rich after every bankruptcy case!

The companies having overseas operations prefer to be very secretive in all respects. What they disclose to the Government of the USA has nothing to do with the Government in India! Forget the shareholders and bankers! This has been very convenient after liberalisation la globalisation. See the paradox of this development. Indian prime minister is a virtual beggar of foreign investments and Indian industrialists are major investors in foreign countries. Mergers, Acquisitions, Demergers are ploys to siphon the funds obtained from investors and bankers. The annual reports and annual general body meetings ate all stage managed. No one abroad thinks and asks the Indian prime minister, why your industrialists are investing outside India? If India has money shortage,from where Indian industrialists get money to invest in the west and China? If they are shifting their activities from India out of fear, what is that fear? If they are busy in M & A abroad out of strength,what is that strength ? Why do they not apply that strength in India? Is it black money that is the main driving force?!

How foreign investors will be secured in India? Even if the government of India assumes the role of a land grabber for them and give them lands at the cheapest rate they are most welcome with the go back banners from land losers ! In no case land owners will part with the lands .Why? Here it is once again that 60:40 and 70:30 game! Will foreign investors come with black money?! How will they acquire the lands? At what price? In which mode, all white ? 60 : 40? 70:30? Will government 9.,central or state , acquire the lands at juntry rate and deprive the land owners 60-70 % of the actual price? How the land owners will be compensated for that loss ?At what rate the government will provide them water and electricity ?What will be tax benefits to them? What will be labour policy for them? Will they hire employees on fixed wages as government has employed ad hoc fixed wagers as teachers for colleges and schools ,administrators for governments from panchayat to central secretariat , all mostly below five figures per month while raising salary etc. for ministers, MPs, MLAs and bureaucrats ,judges etc up to seven figures per month? Will there be a regime of hire and fire as has already been started by government itself? What sort of compensation law will be there? Will government allow them to practice Bhopal Model for safety of citizens? If, by sheer ill luck and chance they fail, how will they get back their investments? Will they be allowed to keep double books of accounts as is the practice of a select few Indian companies? Will they be allowed to create a cobweb of piggy companies like MN Ambani @ RIL and corner maximum profit into promoters’ accounts?****

World Bank –WB and International Monetary Fund-IMF are in India since Nehru’s days. Are they aware of Black Money in/within India? Do they know the reasons for accumulation of Black Money? If they know, what are the steps they have taken to safeguard their interests? If they have pressurised the Government of India to remove black money, when did they do so? What was the response? If they do not know about it , then, that speaks volumes. If they know and have preferred to remain silent ,then ,that speaks volumes and volumes.

How Black money in/within India can be abolished ? Will devaluation and/ or demonetisation help? Will the present government of Narendra Modi be able to do this ?Will he make the majority of Indians monthly ad hoc fixed wagers of below five figures ? Will he be able to decriminalise the present parliament while keeping criminals in his closest stable and giving tickets to confirmed goons to win the elections?

Investors in India are worried about their own black money. What is the best method to hide it? Investment in properties? Investment in gold?Investment in silver ? Investment in Singapore dollars? Will the ratio of silver to gold remain 1:7 or 1:6 ?

With the fate of Baroda Rayon Corporation’s share owners and fixed deposit holders they are away from markets. Only if they have easy money to waste they will invest in stocks.

Computerisation of banking system has made them and their black money vulnerable to tax authorities. The pertinent curiosity for them is to find the address of safe haven for the black money of ministers, bureaucrats, judges, industrialists etc. The most important answer is the hawala transactions. From Nehru to Modi no government could do any harm to hawala operators. Grease the palm is the mantra hawala racketeers have deployed successfully.

India is on a tip of inferno. Counterfeit currency and black money are competing with each other to have an edge to become hedge against the firewalls of the government. When growth of the very select few is the rule and the degree of unreliable attitudes is the maxim ,foreign investors will throw their money in India only if that money is of their shareowners and investors ! In India there will be Antilia of impeccable strength on one side and numerous residences and bridges,dams and roads built by government having maximum consruction guarantee of thirty years ! Indian Ocean of disparity between haves and have-nots have started telling its toll.

When sir Thomas Roe, King James I’s envoy presented his credentials at the court of Emperor Jehangir in 1614 , India was described as ” golden sparrow”. When the British were compelled to leave India in 1947 India was a poor country. In 67 years India has become ” black sparrow” due to Black Money in/within India. Dr.Manmohan Singh selected Dr.Raghuram Rajan with a far sight.

I absolve Dr. Manmohan Singh of all his acts of omissions and commissions for his decision regarding Dr.Raghuram Rajan . Narendra Modi is the historical accident in Indian politics. Both personalities match each other. Dr.Raghuram Rajan is not just an ordinary secretary. He can just throw his papers on NaMo’s face and reduce him a laughing stalk. NaMo just can’t make him sign on his dotted lines. This is the best combination of Prime Minister of India and RBI Governor. If both of them will fail to eradicate Black Money in/within India ,no one will ever succeed to do so.

In this situation, investors of the world, unite, you don’t have to lose anything but your savings and black money !

Footnotes :

*Supreme Court of India delivered a judgment clearing the hurdles faced by banks to sell agricultural lands confiscated on failure of debtor to repay the loan with its subsequent charges. This has opened a pandora’s box for unscrupulous bankers, ministers, secretaries, chief ministers and prime minister.RBI should publish this landmark verdict of June-July2014. With best efforts I could not get it. Reason is obvious.

**Where assessee had deposited sale consideration in his bank account and himself had filed complaint about deficiency in stamp duty in sale deed and witness to sale deed and bank manager had confirmed stand taken by assessee, sale consideration could not be treated as undisclosed income of assessee
We, therefore, find it appropriate to direct the Registrar General of the Court to forward a copy of this judgment to the Chairman of the Central Board of Direct Taxes to cause an enquiry into the conduct and motives of XYZ,Income Tax Officer,Ward-1,xxxxx in framing the assessment and raising demand of income tax against the petitioner

*** In a case like this an agriculturist at Kosad, Surat received compensation money from Ministry of Railways. Agriculturist had an understanding with land acquisition officer who granted all pleas for higher compensation. Immediately on realisation of compensation cheque the land acquisition officer demanded the bribe money. Agriculturist had no provision for huge amount to be paid in cash i.e. number two, black money. He withdrew the entire bribe amount by a single cheque. I was alerted by my informant. i flashed a letter to Governor, RBI, I made a mistake of clubbing two issues in a single letter . I demanded a punitive action against Niraa Raadia for her violations of provisions of FERA and FEMA in acquiring a farm house near New Delhi.She was then a British citizen and she attracted punishments under at least three central acts. At that time there was MN Ambani’s shop manager’s government at New Delhi. The Niraa Radia was MNA’s liaison officer at New Delhi. The heat reached all the seats and I received a letter which convinced me the ineffectiveness of the Apex Bank and the need of hour to explode the clout of MN Ambani @RIL.

**** RIL- Reliance Industries Limited is the mother company. It has various subsidiaries, registered and/or unregistered ,which are daughter companies. Each of daughter companies has various third generation granddaughter companies, registered and/or unregistered. These are piggy companies. Many companies are closed and a new one comes up with a new sign board. These are all tax evasion tricks.


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Driven substantially by the higher education sector, real estate deals and mining income, India’s black economy could now be nearly three-quarters the size of its reported Gross Domestic Product (GDP). These are among the findings of a confidential report commissioned by the government and accessed exclusively by The Hindu.

Since there were no “reliable” estimates of black money generated in India and held within and outside the country, the UPA government commissioned the National Institute of Public Finance and Policy (NIPFP) to estimate the black money in India and held overseas by Indians.

The Special Investigation Team on black money, constituted by the Narendra Modi government on May 27 in compliance with a Supreme Court directive, is studying the report
Though the report was submitted to the Finance Ministry in December 2013, the UPA’s Finance Minister P. Chidambaram did not place it in Parliament. Nor has his successor Arun Jaitley done so
The capitation fees collected by private colleges, on management quota seats in professional courses, last year was around Rs 5,953 crore, the report estimates.”

Keywords: Black money, GDP, Indian economy, government report

“His latest report, published in December 2013, based on a different methodology, however, revises upwards the estimates of illicit outflows from India. Based on the revised estimates, the black money sent abroad comes to more than 4% of India’s GDP.

Why Mauritius is more important than Switzerland

But black money sent abroad is not the same as black money held abroad. Funds are moved out of India not to be stashed away in Swiss banks but to be brought back as foreign investment, said an official with an investigative agency who did not wish to be named. This is called “round-tripping”.

In the case of India, this mostly happens through sham corporations registered in Mauritius. While the money comes back as investments, the earnings on such investments are not taxed in India because India and Mauritius have a double tax-avoidance treaty.

The primacy of the small island to the subcontinent is apparent from this statistic: Between 2000-2012, 38% of the foreign direct investment in India came from Mauritius, while only 6% came from the US. Mauritius accounted for $8,059 million of $18,286 million of FDI in India in 2012-’13.

If the government were serious about tackling the black economy in India, it would achieve more by closing the loopholes in the Mauritius route than by investigating Swiss bank accounts, said a government official on the condition of anonymity.

Real Estate is the big storehouse of black money

Where do the foreign funds that come into India go? A major destination is the real estate and construction sector. Between 2005 and 2010, FDI in India’s real estate and housing market jumped 80 times. In 2010, nearly $5,700 million of foreign funds were invested in the sector.

The legal real estate sector accounted for nearly 11% of India’s GDP in 2011. But economists studying the black economy say the illegal real estate sector could be nearly as large, if not larger.
It is common knowledge that the sector generates black money when buyers and sellers of land keep the value of their transaction hidden from authorities to evade stamp duty. But as this ‘White Paper’ prepared by the Central Board for Direct Taxes in 2012 states, investment in property is also “a common means of parking unaccounted money”.

Economists believe the infusion of black money has contributed to the sharp and sustained rise in land prices, which is making housing unaffordable for an overwhelming majority of Indians.
Urban land prices have risen five fold in the decade 2001-’11, writes Sanjoy Chakravorty, professor at Temple University. A citizen with an average national income would need to work for 62-67 years to buy property at the highest end of the market in Hong Kong, London, Tokyo and Paris. In contrast, it would take her 580 years to buy property at the highest end in Mumbai and 100 years to buy a modest 800 square feet flat at the metropolis-wide average rate.

In villages too, the prices of farmland have been showing puzzling spikes, as this report in the Economic Times said. It found that even villages far away from cities, highways and industrial projects were seeing inexplicably high land prices.

A CBDT report prepared in 2012 said, “Land and real estate are possibly the most important class of assets used for investment of black money.” Of the undisclosed incomes that the IT department detected in 2011-’12, the largest chunk – amounting to 40% – came from the real estate sector, PTI reported.
A private consultancy firm, Liases Foras, estimated that 30% of transactions in the property market in the first six months of 2012 went unaccounted. Speaking on the condition of anonymity, government officials said they believe the ratio is much higher – which means a larger portion of India’s GDP could be parked undisclosed in real estate deals within India than in secret bank vaults abroad.

There is another reason why cleaning up the real estate sector in India could be more fruitful than trying to bring back black money from abroad: despite signing hundreds of bilateral treaties to compel tax havens to share information on secret bank accounts, even the powerful G20 countries have failed to do so.

The second part of this series will look at the international debate on tax evasion.
June 8, 2014

Why global efforts to fight black money have been ineffective Despite treaties compelling tax havens to share information, evaders simply moved their deposits to destinations not covered by such agreements. What is the way forward?
Supriya Sharma • 2 months ago

Photo Credit: Bertrand Langlois/AFP

Indians are not the only ones outraged at the idea of rich people evading taxes and hiding their wealth in secret Swiss bank accounts.

So are the French, the British, the Americans, the Germans and others.

Under pressure from their citizens after the financial crisis of 2008, the G20 countries – a club of the major economies of the world, including India – compelled offshore tax havens to sign bilateral treaties to share information on bank deposits held by their nationals. More than 300 information exchange treaties were signed between April and December 2009.

But these treaties were not very successful in bringing back the funds, a new study has found.
Neils Johannsen of the University of Copenhagen and Gabriel Zucman of the London School of Economics studied bilateral bank deposit data for 13 major tax havens from 2003 to 2011.

They found that the treaties had “a modest impact on bank deposits in tax havens: a treaty between say France and Switzerland causes an approximately 11% decline in the Swiss deposits held by French residents.”

Second, rather than repatriating funds, “tax evaders shifted deposits to havens not covered by a treaty with their home country. The crackdown thus caused a relocation of deposits at the benefit of the least compliant havens.”

Part of the reason why the treaties failed to work was that they provided for information “upon request”, which meant governments had to first gather leads on possible tax evaders to identify accounts for which they could place requests. Given the nature of tax evasion, gathering such information was extremely difficult.

Another reason for the failure was that the treaties were bilateral – signed between two countries – and hence allowed for movement of countries not covered by treaties.

Johannsen and Zucman suggest that instead of bilateral treaties, “a comprehensive network of treaties providing for automatic exchange of information” might help make tax evasion impossible.
Network of treaties
This is precisely the direction in which the world is moving.

It started with the United States of America passing the Foreign Account Tax Compliance Act in 2010. Under FATCA, foreign financial institutions must report information on accounts held by US taxpayers or risk being charged a punitive 30% withholding tax on payments cleared through the US banking system.
FATCA was initially greeted by consternation – it was seen as an American law with extra-territorial reach. But with America offering to share reciprocal information, several countries lined up to sign intergovernmental agreements. As many as 48 countries – including India – have either signed or agreed to sign the agreement.

Last year in April, inspired by the FATCA, France, Germany, Italy, Spain and the UK decided to exchange information amongst themselves. They further endorsed the proposal of the Organisation for Economic Cooperation and Development for a new global standard for automatic exchange of tax information.
The OECD defines automatic exchange of information as “systematic and periodic transmission of ‘bulk’ taxpayer information” by the source country to the residence country of the account holder.
“With the signing of the OECD Ministerial declaration in May 2014, more than 60 jurisdictions have committed to implement the new single global standard on automatic exchange of information,” said Monica Bhatia, head of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes , in an email to Scroll.in.”These jurisdictions include all OECD countries, all G20 countries and other significant financial centres such as Switzerland, Singapore, Liechtenstein and the Cayman Islands. More countries are expected to commit to this standard over the next few months. This ensures that the standard will be truly international and implemented across the globe

What does this mean for India, which has agreed to adopt the standard?

“The advantage of automatic exchange is that India would receive the information on its residents automatically without having to make a specific request and without having first identified instances of non-compliance,” Bhatia said. “This is expected have a significant deterrent effect on taxpayers who seek to hide money abroad and will help enforcement efforts of the tax administration.”
Disadvantage for developing countries

But there are concerns that the condition of “reciprocity” in such exchanges would disadvantage developing countries. “Anyone who participates in AEOI has to put on place the legal framework and the infrastructure to collect and provide information to treaty partners as well the infrastructure to receive and use the information received,” she said. “One of the most important requirements is the ability to safeguard the information exchanged and ensure its proper use.”
Creating such infrastructure might be costly and unaffordable for poorer countries, which could get excluded. This is problematic – for one, more illicit funds flow out of developing countries than the developed ones.

“To understand why reciprocity is a problem, consider first how many wealthy Nigerians are likely to stash assets secretly in Switzerland – then consider how many wealthy Swiss are likely to have located their secret stashes in Nigeria,” says the UK-based advocacy group, Tax Justice Network, in its critique of the OECD standard. “Nearly all the active tax havens are located in rich countries, and the flow of illicit money is in one direction only: from poor countries to rich.”
Two, the failure to include all countries would leave open room for illicit funds to move to places that have not participated in the new standard.

Lastly, as Tax Justice Network points out, the new standard does not fully take on arguably the biggest vehicles of tax evasion: trusts and foundations that hold assets and make investments without disclosing the names of those who have put in money. “The standard only requires a single settlor to be named, instead of all settlors and contributors of assets to trusts.” To end the tax evasion of the rich, TJN says the veil of secrecy of trusts and foundations must be lifted.

What does this mean for India’s fight against black money?

The flow of illicit money is an international problem and cannot be tackled by one country alone. A new global architecture is needed to fight illicit funds.

But while that architecture takes shape, there is something that India can do on its own: reform and regulate the sectors within its domestic economy that create, multiply and store black money. That neither requires an international treaty nor a high-powered special investigative team.
The first story in this series examined where India’s black money is stashed away: not in Switzerland, as is popularly believed, but in real estate in the subcontinent.”




Bhupesh Bhandari | New Delhi
August 14, 2014 Last Updated at 21:44 IST

“In his 2012 book, Breakout Nations, Ruchir Sharma said that any country that produces too many billionaires, relative to its size, is in all likelihood off balance. “If the average billionaire of a country has amassed too much wealth, not just billions but tens of billions, the lack of balance can lead to stagnation,” said he. At that time, he had said that “many of India’s super rich still inspire national pride, not resentment, and they can travel the country with no fear for their safety”, but this “genial state of affairs could change quickly”.

That point may well have been reached. Reserve Bank of India (RBI) Governor Raghuram Rajan on Monday came down heavily on crony capitalism – the nexus between “corrupt businessmen” and “venal” and “corrupt politicians” – which, he said, is “killing transparency and competition” and is “harmful to free enterprise, opportunity and economic growth”. The issue of cronyism had played out in full during the recent general elections. “If the debate during the elections is any pointer, this is a very real concern of the public in India today,” Mr Rajan added. Some argue that the charges of cronyism hurled at Narendra Modi during the election campaign, especially his closeness to Mukesh Ambani and Gautam Adani, did not stick; otherwise, how would his party, the Bharatiya Janata Party, have gained a majority in the Lok Sabha? In this narrative, the fear of cronyism is exaggerated.

It would be wrong to infer from Mr Modi’s victory that public resentment at cronyism is dormant. On the contrary, it has never been stronger. And the prime minister, by all indications, is aware of it. In early July, I met several businessmen and lobbyists to find out which way the Budget would lean. Mr Modi, it came across, did not want to be seen as favouring any one business group. That’s why the Budget did not contain any decision that could go in favour of one business house or a small coterie. “We are close to nobody,” a businessman was told bluntly by a finance ministry bureaucrat after he had reminisced about his one-time closeness with Finance Minister Arun Jaitley. That’s probably the reason why Messrs Modi and Jaitley refrained from scrapping the retrospective tax amendment altogether in the Budget – it would have been seen as a favour to one company, Vodafone. Mr Modi, it is learnt, wasn’t happy after reports broke out that Nitin Gadkari, as the minister of surface transport, was batting for e-rickshaws even as his brother-in-law was one of the manufacturers. As a result, most industry associations and lobbyists admitted that their task had become really difficult this time.

One school of thought says that Japan and South Korea progressed rapidly because a handful of their companies were singled out for special treatment by the government, and they delivered the results. Most of them have become global conglomerates. That may be true but the Indian experience inspires no confidence. What did telecom companies do when the government gave them inexpensive spectrum? Some of them sold stakes to foreigners at a huge premium. It was only after the Comptroller and Auditor General quantified the loss – it could be up to Rs 1.76 lakh crore, it said – that the people got to know of the extent of the scam. Similarly, the special economic zones became an opportunity for land grabbing. And coal blocks were bagged to lay hands on an undervalued natural resource.

These instances shouldn’t surprise anybody because cronyism has been an integral part of Indian business. In the pre-liberalisation age, many business houses got industrial licences and just sat on them in order to create a scarcity that would keep prices high. Most worked behind the scenes to ensure that rivals were denied licences. “An important issue in the recent election was whether we had substituted crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for pay-offs to venal politicians,” RBI Governor Rajan said.

Cronyism acts as a significant entry barrier into regulated businesses. It is not easy to take on entrenched players who have decision makers in their pockets. If they can cause ministers to be shunted out, imagine the damage they can inflict on newcomers. That’s why most young entrepreneurs these days are happy to confine themselves to unregulated sectors such as information technology. One way to end cronyism in the allocation of natural resources is to move to transparent auctions, like it has happened in spectrum. So far, it seems to have worked well. There is no reason why it can’t be replicated in other sectors. The government needs to put in place safeguards that will ensure that there is no collusion between bidders.

So strong is popular resentment at cronyism and private-sector corruption (two businessmen and a bank chief find themselves behind bars on graft charges) that nobody has dared to name a businessman for the Bharat Ratna this year. The last such demand was made almost 12 years ago when then telecom minister Pramod Mahajan said Dhirubhai Ambani should be given the award. When Bharat Ratna could be given to nachnewale and ganewale (dancers and singers), why not the businessman, he asked? Soon, Atal Bihari Vajpayee, then prime minister, dropped Mahajan from the Cabinet and asked him to work for the party as a general secretary.”

Raghuram Rajan|Lalit Doshi Memorial Lecture|indian economy|Crony capitalism
Crony capitalism a big threat to countries like India, RBI chief Raghuram Rajan say

” RBI governor Raghuram Rajan. (TOI file photo by LR Shankar)
The author has posted comments on this articleTNN | Aug 12, 2014, 02.45AM IST
MUMBAI: Reserve Bank of India governor Raghuram Rajan has warned against crony capitalism which he said creates oligarchies and slows down growth.

“One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today,” said Rajan while delivering the Lalit Doshi memorial lecture in Mumbai on Monday.

The last general election was fraught with allegations of the nexus between politicians and business groups.

Rajan extolled the virtues of India’s democracy before turning to its darker aspects. “An important issue in the recent election was whether we had substituted the crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politician who perpetuates it?”

Rajan continued by saying, “One widely held hypothesis is that our country suffers from want of a ‘few good men’ in politics. This view is unfair to the many upstanding people in politics. But even assuming it is true, every so often we see the emergence of a group, usually upper middle class professionals, who want to clean up politics. But when these ‘good’ people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?

“Apart from the conceit that high morals lie only with the upper middle class, the error in this hypothesis may be in believing that problems stem from individual ethics rather than the system we have. In a speech I made before the Bombay Chamber of Commerce in 2008, I argued that the tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives.”

The governor’s warning against crony capitalism and oligarchies is a reiteration of his statements four days before the Lehman Brothers collapse in 2008. In a speech at the Bombay Chamber, Rajan had highlighted that India had the highest number of billionaires per trillion dollars of GDP after Russia. While excluding NR Narayana Murthy, Azim Premji, and Ratan Tata as ‘deservedly respected’, Rajan had said “three factors — land, natural resources, and government contracts or licenses — are the predominant sources of the wealth of our billionaires. And all of these factors come from the government.”


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3 Responses to “Whither Rajan’s India”

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