The latter may be a legacy of the past, but the accumulated unaccounted wealth held by Indians, both at home and abroad, is so vast that any future direct tax reform which ignores this aspect would at best be termed as a half-hearted exercise. Because, at least the old black money will continue to remain in circulation and the government's revenue losses from the income out of the transaction of this unaccounted cash will grow.

The amount of black money held by Indians at home and abroad is no longer left to some wild guess work by political parties, planners and economists after the recent sensational disclosure by the Swiss Bankers' Association of Indian deposits in Swiss banks till 2006 leaving the UPA government totally red-faced. Indian deposits in Swiss banks are among the largest by entities outside Switzerland, including the United States and Russia. If one also takes into account Indian deposits with banks in places such as the Bahamas, Cayman Islands, St. Kitts, Las Palmas, Isle of Mann, Liechtenstein, etc., the Indian black money held abroad could be close to US$ 300 billion. Back home, India's 'parallel economy' would be worth US$ 1.3 trillion.

If the government is truly serious about unearthing the black money held in India, all it needs is to carry out a 'property census' which will identify the owners, the value of their assets, the number of bank accounts and their transaction records, the names and addresses of their lawful owners and the details of bank lockers. The next stage starts with an exercise to match the asset value with the declared income of its owners. The government may then decide on how to deal with the tax evaders or the owners of the illegal assets. The government can also think of an attractive amnesty scheme for those who voluntarily disclose their black income and pay the tax dues in installments or at one go. The government may also allow full amnesty to those, who invest their black money in construction of low-cost housing and rural infrastructure and pay tax on subsequent income from such investments. The post-world war II, Switzerland itself adopted a similar policy to unearth the Swiss black money to solve its acute housing problem.

However, the government can do little to uncover black money held abroad by Indians both in movable and immovable assets. The indirect actions such as keeping a close tab on Indian businessmen who conveniently turned NRIs more to use the status as a tax shelter in the last 20-25 years only to run big business activities in India may help locate the original sources of their funds. This new generation of NRIs is operating in a host of capital-intensive sectors such as civil aviation, telecom, energy, real estates, metals, industrial products, liquor, food processing, healthcare and education. These so-called NRIs, who owe their super-luxurious existence in Europe and the USA almost entirely to business earnings in India, have also been using large funds from Indian banks and Indian investors to carry on their businesses. A strict disclosure norm for both existing and future foreign direct investment (FDI) and institutional investment (FII) into the Indian market with clear information on the sources of these funds may help trace a portion of Indian black money held abroad and its owners.

Tracing Indian black money and their real owners abroad are by no means an easy task. The Swiss Bankers' Association disclosure about Indian deposits with Swiss banks came rather accidentally only after the Association was put under heavy pressure by the US government and a few powerful OECD members to either divulge the accounts details of some of their big-time domestic tax evaders, having possible links with suspected terrorist groups, or get black-listed. Indian authorities hardly enjoy a similar clout with the international financial market to obtain the details of accounts held by Indians in Swiss banks simply on a random basis.

The Indian government has to do its homework well and come up with specific cases and meet the legal requirements of Swiss banks to obtain their accounts details. There is no way that the Indian government can get these details by adopting 'fishing expeditions' or indiscriminate trawling through Swiss bank accounts. Neither the Income-tax department nor the other regulatory bodies and investigative agencies such as the Reserve Bank, Securities and Exchange Board of India (SEBI), the Enforcement Directorate and the Directorate of Revenue Intelligence are capable of making a quick list of suspected big-time tax offenders who have stashed unaccounted money in Swiss bank accounts. In fact, they may never be able to prepare such a list under the present regulatory framework of the government and because of the limited powers in their disposal. They have little choice but to go for 'fishing expeditions' and remain at the mercy of Swiss banks.

The genesis of the massive black money accumulation over the last 50 years can be traced in the incidence of high rates of direct tax, asset restrictions on large private industrial houses and the foreign exchange control regime in the Nehru-Indira Gandhi era. Even till the early 1980s, the highest rate of individual income-tax was 82.5 per cent. Resort to tax evasion was worth the risk. Understatement of incomes and assets, benami transaction of assets and funds, over-invoicing and under-invoicing of imports and exports, holding benami accounts and assets, kick-backs in large foreign and local supply contracts in public sector projects for ministers, influential politicians and bureaucrats were the order of the day. They helped a section of powerful Indians amass huge black money at home and abroad. The rise of the havala transactions since the 1980s further boosted the practice of illegal transfer of funds from India to the USA and Europe and vice versa.

Time is ripe to book the black money monster. It is worth the effort. An integration of black money with the white economy will be of great value to the country and its future economic progress and development. The government should sincerely work on a strategy paper on how to integrate the two monies without prejudice and fuss and take advantage of the proposed liberal direct tax policy to ensure its best and effective compliance. Such a strategy paper should be circulated among all concerned and discussed in several brain-storming sessions across the country to take a final call. India must act first before it wants the Swiss banks act. It will be foolish to expect Swiss banks, which manage about 27 per cent of the world's off-shore wealth, to co-operate with the Indian government until and unless the latter meets the banking rules and legal requirements of Switzerland. (IPA Service)