AUGUST 29, 2015

By TIOL Edit Team

AS the time flies, the Government of the day keeps gathering governance deficit. BJP-led NDA Government cannot claim immunity from this universal disease. The truth about this disease was evident to any regular tracker of news on the Independence Day when Prime Minister Narendra Modi spoke about his Government's success in taking on black money and allied problems bedevilling the economy.

Mr. Modi stated: "we have taken some very important steps one after the other to check black money, and that too in a very short span of time. The day we formed the Government, we constituted an SIT (Special Investigation Team) under the supervision of the Supreme Court. We did what was pending for three years. The SIT is doing its job."

The Finance Ministry is, however, doing a half-hearted job in tackling the menace of black money and related aspect of money laundering. And there are three concrete developments to drive home this point. And Mr. Modi did not mentioned these developments in his speech.

First of course is the Ministry's public declaration that it would not act promptly on SIT's recommendations on tightening the regulations for foreign investment on the stock market through participatory notes (PN). These tradable offshore derivative instruments (ODIs) are issued by registered foreign institutional investors (FIIs) to foreign entities, which often operate through tax havens.

SIT, in its 3rd report, recommendation initiatives to unmask the real beneficiaries of PN investors. It also called for proactive detection of shell companies and certain allied initiatives.

When the Government released these suggestions on 24th July, the stock market developed jitters. The manipulators hammered shares shortly after the markets opened on Monday, the 27th July. They have successfully used this ploy during UPA regime to browbeat the Government to not to tighten the transparency norms.

And the stock market manipulators won this time too as is evident from the fire-fighting done by Finance Minister Arun Jaitley and certain top ministry officials. Mr. Jaitley reportedly told reporters outside Parliament: "It is too early to say what view the government would take. But it will certainly not take any such action in a knee-jerk reaction, particularly one which has any adverse impact on investment environment."

How is it that Government's belated action on tightening the norms for PNs would constitute a knee-jerk reaction? Different committees have either recommended tightening or phase out of PNs over the years ever since Joint Parliamentary Committee on 2 nd stock market scam found in 2002 that the Government was clueless about usage of PNs by FIIs.

Instead of knee-jerk reaction, NDA emulated UPA in knee-bending response towards the might of FIIs. They virtually dictate what the Government should do or not do in areas that impact their fortunes.

It is indeed disturbing to find Modi Government going soft on black money channels in the same way as the predecessor regime did. And it is more disturbing in the present case because NDA came to power on the promise of taking on black money menace. The present regime, however, won't find it easy to prevaricate on PNs as Supreme Court is expected to take a call on delay in acting on SIT recommendations.

The second instance of Modi Government going soft on black money is its lackadaisical approach towards preventing abuse of India-Mauritius Double Taxation Avoidance Convention/agreement (DTAC/DTAA) by tax evaders and money launderers.

In reply to a question on this issue raised in Rajya Sabha on 7th May 2015, the Government stated: "No negotiations took place between India and Mauritius for revision of Double Taxation Avoidance Convention (DTAC) during the visit of the Prime Minister of India to Mauritius in March 2015. It was decided that two sides will continue discussion on this treaty within the existing framework of Joint Working Group (JWG). India's apprehension on DTAC concerns its misuse through treaty shopping."

JWG was formed in 2006 to put in place adequate safeguards to prevent misuse of the India-Mauritius DTAC. Several rounds of discussions have taken place so far. Consensus appears to be elusive as ever. The public expects Mr. Modi to fix a timeline on such crucial issues that directly impact financing of social welfare and jobs generation, both of which are very close to his heart.

The third instance of NDA Government's soft stance towards black money is the delay in making public and in taking action on the findings and recommendations three vital studies on black money.

UPA Government had assigned these studies to National Institute of Public Finance and Policy (NIPFP), National Council of Applied Economic Research (NCAER) and National Institute of Financial Management (NIFM).

NIPFP, NCAER and NIFM submitted their final reports to the Finance Ministry on 30th December 2013, 18th July 2014 and 21st August 2014 respectively.

The Ministry's stock reply to Parliament questions on these studies is: "The reports are under examination of the Government, inter alia, for formulation of the Government's response. The reports along with the Government's response thereon are to be placed before the Standing Committee on Finance as action taken report on their directions/recommendations in this regard."

The Government must immediately make all these reports public. It should issue a consultative paper on its strategy to minimize the generation and circulation of black money in the economy. This must cover outflow and inflow of black money into the country.

The Government ought not slip into complacency through repeated trumpeting of its notable legislation The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

The battle against black money has to be a multi-facet one and a continuous one.