By Abishek Gaurav

Edited by Shambhavi Singh, Senior Editor, The Indian Economist

Of late, public discourse on black money has gathered a lot of steam in India, especially after the tall claims made by BJP before the general elections.  Before analysing the successes and failures of the past and the current government in this matter, let us first look at a few fundamental points relating to the issue of black money in India.

As per the Indian laws, a resident or a non-resident Indian can maintain a bank account outside the country.The violation of laws happen, if the money has been undeclared in both the home and foreign country. As per the law, violation of foreign exchange management act (FEMA) 2000 does not qualify as a criminal offence, but only a civil contravention. No one can be criminally prosecuted for violating FEMA, which further narrows the probability of charging the culprits and bringing the money back. To complicate matters further, tax evasion is not a cognizable offence in Switzerland, unlike in India. Also, parking funds abroad without concealing income does not violate the law even in India. In fact, in cases where the income has been concealed, the income tax authorities are allocated the discretionary power in deciding whether or not one has to be prosecuted. Thus, they may tend to pick and choose names which could make the whole process politically motivated. Given these complexities, it may well be difficult for the government of the day to not just establish criminality, but also bring back smoothly the huge amounts stashed abroad. It is, also highly probable that much of this money may have already been laundered into India after it has been turned white via various tax havens like Mauritius. Reports by economists, notable among which is Prof. Arun Kumar, have pointed out that the proportion of black money may have risen to as much as 65 lakh crore rupees this year, which is roughly 50 % of our GDP. His study also points to an interesting result that only around 10% of this black money generated in the country actually goes abroad. Even out of this 10% money going abroad, a major chunk is consumed and invested, leaving only a small liquid portion remaining with the bank. Thus, the hue and cry is limited for a small chunk of money and not the market as a whole.

The Supreme Court in a recent judgement instructed the government to hand over the complete list of raw names featuring in the foreign account holders’ list to it in a sealed  envelope. The Supreme Court would itself decide the future course of action against the offenders by instructing the special investigating team. Meanwhile, the government would have to satisfy the other countries with which it has a double taxation avoidance agreement, that it has not breached confidentiality. DTAA (double taxation avoidance agreement) implies that if a person earns some income in a country like Switzerland and pays tax there, he need not pay the tax back in India. DTAA only involves declared income, and not undeclared assets. Currently, the BJP finds itself on a slippery field, mired in the same issues of DTAA and confidentiality breaches which haunted the UPA regime. Amidst all this, it remains to be seen whether it is just the political will or political conscience too that would be needed to make this a reality.


Abhishek Gaurav is a B.S. – M.S. dual degree student in Economics at IIT Kanpur. He has a prior experience with the development economics centric research arm of MIT, Abdul Latif Jameel Poverty Action Lab (J-PAL), primarily working in the area of evidence based policies. His interests lie at the intersection of economics, politics, policy and finance. He can be reached at: abhishekgaurav001@gmail.com.

Posted by The Indian Economist | For the Curious Mind