15:41 September 20, 2011
Black money comes mainly from India, proclaimed Wikileaks founder Julian Assange. Currently, there is wide media coverage to issues regarding black money and there is a clamor to bring back black money. Various people from Baba Ramdev to industry leaders to Anna Hazare have opined on the subject. I thought I would also pen my thoughts and try to predict the most likely outcome.
The most likely event will be a launch of an amnesty scheme for overseas slush money. The last time the government launched such a scheme was under Shri P Chidambaram in 1997. The famous VDI scheme or Voluntary Disclosure of Income Scheme, allowed people to disclose their income, pay a tax on it and the names were kept confidential. It was a big ‘black to white’ conversion scheme. I expect a similar scheme to be announced within the next 6 months.
Historically, most Indians have been parking their ill-gotten gains overseas. “Go West” was the motto. They perhaps hoped to migrate to US or Europe to enjoy a higher quality of life in developed countries. Many politicians and bureaucrats have their children studying abroad. Enough and more has been written and said about the privileged few who have no need to rough it out but rather enjoy the luxuries of staying in large apartments, driving the latest SUVs and so on.
The Rupee was earlier a depreciating currency and if you kept your assets abroad in hard currency like dollars, then automatically your Rupee returns went up by at least 5% because of currency appreciation. Now, if you look at the Rupee, except for the huge volatility of last week, it is a fairly stable currency. In such an environment, it does not make any sense to keep money abroad, especially when there is so much turmoil in Europe and USA. Apart from the turmoil, even foreign banks are looking shaky. Imagine your wealth being managed by a Lehman wealth manager and one fine morning, you wake up and find all wealth gone, and you can’t even launch a lawsuit. Easy come, easy go. And if you believe in media reports, then Lehman repeats are not unlikely. Thankfully, Switzerland is in good shape, and I understand most slush money is in Swiss vaults. It will be interesting to know what happens when a private bank goes belly up.
The developed world is taking strong action against corruption and bribery. Most of the companies which bagged government contracts by bribery are now been taken to task in their home jurisdiction. In emerging countries especially in India and China where corruption is a norm, you need to grease palms to get business. Soft channels like “consultancy fees” are also getting scrutinized and share holder activism is also on the rise.
In developed countries like Switzerland, there is public indignation about corruption because of ill-gotten gains slashed in their country. There is a remote possibility that those countries will make the names public. The last thing an Indian politician or bureaucrat or businessman wants is to see their names on the front page of Wall Street Journal. I am sure they are smart enough to hold it in proxy names but with noises against corruption gaining momentum, the chances of actual beneficiary names being revealed has just got higher. We have all read the disclosures of minister’s wealth in newspapers but not many will believe that those numbers are the real figures.
Wikileaks of course is also another threat. Earlier most of the data used to be in physical form. Dissemination of such documents and information was very difficult. You had to make multiple copies and then send it. Now because of the electronic age, stealing is also very simple; all you need to do is CTRL C and CTRL V which is Microsoft’s biggest contribution to mankind and at the press of the button you can send it to multiple people or entities. No more giving business to Xerox or other copiers. No need to seal an envelope and send to the Chief Justice. All you need to do is mark it to around 500 people and the internet will do the rest. Some may choose to put up something on You Tube and watch the viral effect. A case in point is the entertaining Radia tapes on You Tube.
So what can we expect in the months to come? I think there is going to be a VDI scheme in which people will be allowed to get their overseas money. Worsening fiscal condition is another trigger. Pay tax and same will be converted in some kind of infrastructure bond. Government needs to spend on infrastructure but does not have money.
The dhak dhak girl, Madhuri Dixit is back to settle down in India. Like reverse brain drain, we may have reverse wealth drain too. After all, people want to leave America and Europe to come to India and China.