Mumbai businessman admits to Rs 800 crores in Swiss bank???

I have always maintained that estimates of black money held in international banking accounts have been vastly exaggerated. Today’s papers talk of IT raids on some big time industrialists and politicians – based on information received from the French Government. The raids have been going on for over two months now. One of the more interesting points in the story was the “acceptance” by a “top industrialist” from Mumbai of having a family account in HSBC, Geneva containing some Rs 800 crores.

I find this story in line with my own belief that the money actually stashed abroad is limited. Rs 800 crores looks like a lot of money to many people – but don’t forget, if it’s a top industrialist, then his/her personal wealth could be in excess of Rs 75 thousand crores or more (even if the industrialist is a much smaller “top” industrialist, his personal fortune would be in excess of Rs 10,000 crores). For someone who is this seriously rich, what is the big deal about Rs 800 crores? By the way, I am not sure if the industrialist has admitted this is “black” money (as in money stashed abroad illegally). It could very well be legit money kept internationally as per Indian rules. We’ll have to wait and see what the truth there is.

I am not the first one saying this. There is zero incentive today for any black money to lie abroad. Over the last twenty years at least, India has been on a fast track to growth. Just like the brain drain that characterized India prior to 1990 reversed itself since then, the flow of black money has also reversed its direction since liberalization began. Prior to 1990, tax rates in India were obnoxious. The highest incremental tax rate was upwards of 90% at one point in time. There was zero incentive for industrialists to keep declare their earnings. This was the main reason for corporate headhonchos to stash money abroad. Besides, opportunties to invest in India were limited. Post 1990, tax rates have been made extremely reasonable – lesser than in most developed countries. And opportunities for growth have abounded in India. It can be said with near certainty that most of the money has returned back to India. And is still returning back every single year.

The recent report by Kotak Institutional Equities is interesting in this context. It analyses the export performance of India over the last few years and finds that the export claims (official claims) are not backed up by similar numbers reported by top exporters in the country (bottom-up calculations). While engineering goods are reported officially to have grown by some 79% in the last one year (growth of some $30 billion), the figures of the top engineering exporters show growth of a much lower order (some $1.5 billion or so). The report hints that this could be a case of illegal money coming back into India in the form of exports (but is actually capital stashed abroad returning back). The report seeks some sort of clarifications for this anomaly even as it accepts that there may be other explanations for the same.

That’s why Advani’s rhetoric of asking the government to get back the black money from accounts abroad is just that….political rhetoric. There is not that much money lying abroad which can be brought back. There are certainly not lacs of crores of rupees that he talks about in his public speeches.

This is not the same as saying that black money never existed in the first place. It surely did. All this means is that the black money (whatever the quantity) has most likely already returned back to India. To that extent, the positive impact this black money supposedly stashed abroad can have on the Indian economy is limited. The positive impact has already been felt in the higher growth rates of the last 20 years.

I think we should be happy that the Income Tax authorities have mounted this investigation against tax evaders. What I quite like is that the operation started a couple of months back – outside the glare of media. It shows that when it wants to, the government machinery can work on its own. Apparently the tax authorities have already recovered some Rs 300 crores in tax penalties from those who evaded tax in the first place. Another story in the TOI says that the government appears firm about levying strict penalties on tax evaders – and could go beyond mere monetary penalties. What this indicates to me is that the government appears to have woken up to the angst in the country – created no doubt by the Anna movement – against corruption and black money. The PM promised again yesterday that the government is serious about bringing about a strong Lokpal Bill in the winter session starting Nov 22^nd.

Another story in the papers indicates that while the government may want to introduce and pass many bills against corruption and associated issues – to clear the charge of inaction against it – the opposition may actually like to stall proceedings yet again – so that the pressure doesn’t ease off so quickly and easily. Ideally, they would like the matters to be delayed to closer to 2014 – so that maximum political gains can be derived. I have written in the past that the government will try and expedite all matters and the opposition delay. That may well turn out to be true….

The real truth is that there is progress happening now on several fronts. We have to be patient. And we have to appreciate good work when its done. I am told the government has signed deals with other tax havens to get more information out of them. If we can see some tangible gains happening, it will help restore some confidence back in all of us…..