India’s black money problem was largely misdiagnosed.
The ensuing legislative measures in addressing the black money problem have fallen short of constitutional and economic rationale.
What are the shortfalls in black money laws?
Being high on populism and low on constitutional wisdom, the Black Money Act was a draconian law that was bound to fail.
The Act aimed at bringing back a few lakh crore of unaccounted money parked as overseas assets.
Sadly, it was able to accomplish only 5 to 10% of what was expected of it.
At minimum tax rate of 60%, it gave only marginal incentive for the hoarders to come clean.
Lawmakers overestimated the writ of international laws and made no economically persuasive case.
Resultantly, as of May 2019, the total untaxed foreign assets mined was Rs. 12,500 crore.
Wholly recovered, this would not even pay Prasar Bharati’s bills for 4 years.
Even this recovery was aided greatly by international exposes such as the Panama Papers in which the government’s legislation had no role to play.
In comparison, Indonesia recovered about Rs. 25 lakh crore under similar schemes.
Instead of doing course correction, the government passed an even more confiscatory law, the Fugitive Economic Offenders Act.
Demonetisation was among the government’s purported measures to fight the black money menace.
However, the international media called demonetisation as a ‘massive theft of people’s property’.
Similarly, the announcement that Rs. 15 lakh will be deposited in each citizen’s account was found to be nothing more than a political bait.
What is the limitation?
No clear estimate of black money owned by Indians and stashed abroad is available.
Between 2008 and 2012, various reports quoted anywhere between $500 billion and $1.5 trillion.
However, these turned out to be false.
In March 2019, National Institute of Financial Management reported that the estimate is about $216 billion-$490 billion.
This is just one-seventh the estimate quoted ahead of the 2014 elections.
In essence, India’s foreign black money problem was misdiagnosed and unverified.
Consequently, the exaggerated numbers went into satisfying Parliament that draconian financial laws are justified.
What is the key concern?
Any fiscal system must have not just legality but also legitimacy.
A system loses legitimacy when there is a breach of faith on the part of the government in its dealings with the taxpayer.
A democratic state cannot unjustly enrich itself by making citizens pay for what is not rightly owed.
What does this call for?
The true intent of both the Black Money Act and Fugitive Economic Offenders Act could have been achieved by a few tweaks in the existing laws as the Income Tax Act.
The government should give up the belief that being an intrusive, pressurizing confiscator enriches Indians. This, clearly, does not work.
This approach is only impoverishing the country into an economic depression.
The draconian fiscal laws must at once be repealed.
Increased international cooperation, technological advances and banking penetration would address the black money concern better.
India’s war on black money can only be won through democratic, persuasive and economically-sound means.
