The government may be upset that the Supreme Court has not accepted its plea to disband the Special Investigation Team set up in 2011 to bring back the vast hordes of Indian black money hiding in Swiss vaults, but it has to share a very large part of the blame. If the court has said that bringing back India’s black money would cut the tax burden by 30%, it is because the government has not put up a credible defence, so every number that gets mentioned as the size of the black economy—from LK Advani’s $462 billion to yoga guru Ramdev’s $8.8 trillion—gets etched in the public consciousness. The Global Financial Integrity report, on which Advani based his estimates, for instance believes India’s black economy has risen from 27.4% of GDP in the pre-reforms period to 42.4% in the post-reforms period—how is this possible when import duties have been cut from 47.4% in 1991 to 7-8% today or when corporate tax rates are down from 45% to 32.5%? The fact that India’s tax-to-GDP ratio is up from 15 % in FY91 to a high of 17.5% in FY08 when the economy was growing at around its fastest, to 17.3% today, is proof that tax compliance is rising. Instead of talking about this, or the National Institute of Financial Management study that puts the black economy at 17% of GDP—down from 30% in the early 1970s—the Congress party’s election manifesto talks of appointing a Special Envoy to pursue this agenda.
And while the government has shown its commitment to unearthing black money by releasing a letter written by finance minister
P Chidambaram to his Swiss counterpart asking for information of
Indians who have accounts in HSBC, this is nowhere near enough. Indeed, if the Swiss are cooperating with the US authorities—and this is cited as evidence of Indian authorities not being interested in unearthing the black money—it is not because the US sent polite letters to the Swiss. For the last 6-7 years, the US taxman and the Department of Justice have been gathering evidence of Swiss banks helping US citizens avoid taxes and have successfully prosecuted them in US courts—as a result of this, top Swiss banks have paid fines for doing this. While UBS acknowledged its role in facilitating US tax evasion, and paid a $780 million fine along with turning over the details of 4,700 accounts to the US