This has always been a ‘hot button’ issue in Indian politics. Politicians have been making a lot of noise and BJP had made it a huge campaign issue. As it is with most other issues in India, facts have been either scarce or twisted out of shape. Wild and crazy numbers are thrown about with ‘lists’ floating in Twitter and elsewhere showing figures running into trillions of dollars. A certain amount of nationalistic sentiment is being pandered to as well.
The issue is not religious, ideological or national. It is plain and simple economics. Let us look at what got us there and what can go about rectifying the situation.
How we got here
It would be not just churlish, but downright foolish not to acknowledge the various reasons that got us to this position. Most of it is self inflicted injury.
We had 90% tax rates and were taxing soap and toothpaste sets as ‘luxury’ not too long ago. Diluted versions of this nonsense packaged as ‘socialism’ continued until very recently.
Not just that, we developed a culture of worshiping poverty, and demonising success and treated industrialists and entrepreneurs as criminals except when it came to collect bribes.
We never provided safe, legal and red-tape free process by which such funds can be invested in productive assets in India itself.
We made it horribly slow, even impossible to import anything, even spares and crucial supplies, almost forcing industrialists to setup piggy banks overseas through under invoicing or other such tactics to keep their businesses running. Our overseas traveling ‘allowance’ for ‘hard currency’ was so pathetic, businessmen had to beg their contacts to buy them lunch or dinner to stay within limits, unless they had dollars stashed abroad.
We made retrospective and illogical changes to tax laws, making it impossible to predict what may happen in next few years, even to money legitimately earned and taxed.
And most importantly, our fiscal and monetary policies turned rupee into waste paper, declining in value year after year, eroding savings and wealth. Even with sky high interest rates, it made little sense to keep funds in rupees unless forced to do so.
We made businessmen, politicians, babus and so many others stakeholders in this looters’ regime, batting for license permit raj, exchange controls and ‘socialism’ because it suited them perfectly. Entrenched state employed labor, always much more organised than the unemployed and daily wagers, happily joined the bandwagon. They were minting money. The only losers were the real proletariat whose ‘protection’ these policies were created for in the first place!
Why it is difficult
- Firstly we don’t know how much or where. No one is going to give us a list.
- It is so easy to move money around. It takes seconds to transfer from Switzerland to Hong Kong or London.
- Switzerland has been tamed by Uncle (for his own benefit) but we don’t have similar clout. By the time a list is received, the money may be gone.
- New tax havens that are not democratic, open and driven by good conscience abound. We can do very little about them. Unless we are like Uncle Sam that can send marines or be a Godfather that makes ‘offers that cannot be refused’
- Recent liberalisation means that a lot of wealth CAN legally flow abroad. RBI allows legal remittances of US$100k per year a limit that is going up. We have millions of NRIs with legitimate wealth abroad. It will be hard to tell which is which.
- It will take years of work for which no regime has the time or bandwidth. After all, another election is due in five years, not fifty. Quick results are important.
How to go about it
Take the cause into account in finding cure
That means the state acknowledges its own share of blame and hence treats the wealth stashed overseas as an opportunity and not as a pure crime fighting operation. Regardless of what the letter of law says.
Once this approach is adopted, the solutions will flow automatically in that spirit and hence have higher chances of success. We are also not at the mercy of tax havens that simply have no interest in cooperating. After all, we can’t even bring Dawood home, even after knowing his precise address and GPS location.
Not all overseas wealth is ‘loot’
Lot of it is just money kept abroad legitimately for various reasons. It is also important to keep the doors open for trade, commerce and business investments to flow. It is important to sell this to the ‘aam aadmi’ so that pragmatic policies can be pushed and loony suggestions from the likes of Ramdev tamed.
Transparency and predictability is the key
Government should firstly declare policies in advance and guarantee that they will not change at least during its own term. Further, major opposition (now Congress) should be taken on board to make the tenure even longer.
Transparency is also key. Laws should be clear, concise, easy to understand and follow. Above all reasonable.
Incentives, not stick, except in rarest of cases
It is important to find quick ways of attracting funds to return. The best way obviously is if the tax payer or citizen voluntarily remits it home because he is getting a fair deal and decent returns. There is nothing wrong in offering an attractive amnesty because money once returned will stay and contribute to growth. It is also far more cheaper and comes with less onerous conditions than foreign aid, loans or investments.
Hope PM Modi keeps these principles in mind in choosing the way forward.