In July 2011, a Supreme Court Bench headed by Justice Sudershan Reddy pulled up the Union Government for not “showing seriousness” in bringing back black money stashed abroad. It constituted a Special Investigation Team (SIT) and directed the Union government to issue a notification forthwith regarding the appointment of the SIT.
In the order, Justice Sudershan Reddy stated, “The volume of alleged income-taxes owed to the country, as demanded by the Union of India itself, and the volume of monies, by some accounts $8.04 billion, and some other accounts in excess of `70,000 crore, are said to have been routed through various bank accounts of Hassan Ali Khan and Tapurias… All of these factors, either individually or combined, ought to have immediately raised questions regarding the sources being used for unlawful activities, affecting national security and transfer of funds into India for other illegal activities, including acts against the State…
There is still no evidence of a really serious investigation into these other matters from the national security perspective.” The response of the Congress government was one of deafening and continuing silence for the next three years. The NDA government under Prime Minister Narendra Modi, at its very first cabinet meeting in February 2014, passed the necessary orders as directed by Justice Sudershan Reddy.
“Better late than never” is an ancient saying, but it took a fundamental change in the political scene to carry out what was clearly necessary. By June 2016, as a result of the government’s active pursuit of black money, the Income Tax Department scrutinized transactions of cash deposits of over `10 lakh in savings bank accounts and transactions in immovable property valued at `30 lakh or more. It found 90 lakh such transactions in the period 2009-10 to 2016-17 which did not have PAN linked to them! Alongside this search activity, the government also announced an amnesty for tax evaders from June 1 till 30 September 2016 if they paid a 45 per cent penalty.
The government even provided for installments of tax and penalty: 25 per cent by November, another 25 per cent by March 2017, and 50 per cent by September 2017! Added to this, Prime Minister Narendra Modi, speaking at a function jewellers organised to felicitate him, said that those with undisclosed wealth, most of which is parked in jewellery and real estate, should come clean in order to sleep peacefully. He said he was aware of people going to bullion merchants with “cartloads” of money and a message had to be delivered to them to come clean using the amnesty. Stating that people have been jailed in the past for evading taxes, he said the government should not be forced to resort to the same after September 30.
Stating the matter in clear understandable language, he told the jewellers and the people concerned, “Aur us paap ko karna nahi chahata hu jo September 30 ko mujhe karna padega” (I do not want to commit the sin which I will have to do after September 30 against black money holders). By the end of September, the amnesty declarations had exceeded `65,000 crore. Hyderabad emerged as a top source with `13,000 crore, followed by Mumbai (`8,500 crore), New Delhi (`6,000 crore) and Kolkata (`4,000 crore).
The success of the scheme is attributed to the fact that the Income Tax Department was aware of exactly who was evading tax. A tax officer is reported to have said that, “Besides the 900,000 notices that were sent out, we intimated individuals whose information we had. Most of them chose to declare it under the scheme to avoid the risk of prosecution after the window closed.” Still there were many who did not take advantage of this scheme or take the Prime Minister’s warning seriously.
This is the context in which the demonetisation of the 1000 rupee and 500 rupee notes needs to be seen. Together these notes account for nearly 82 per cent to 85 per cent of the total currency of the Government of India. It is a tragic reflection on past governments—mainly Congress—that the legitimate and sovereign currency of the Government of India has been used to finance, fund, pay and reward all activities which are illegal under the Indian Penal Code, Customs, Excise and Narcotics Acts, the Prevention of Corruption Act as well as the Representation of People Act.
Import and production of narcotics, smuggling of gold and prohibited weapons and explosives are also funded by black money. Corrupt actions of all public and elected officials are solely financed by black money. As for elections, both the electors and those standing for election transact in black money.
This has made a mockery of the whole democratic process of electing our leaders. This is also one reason why there has been no attempt at controlling the generation and stocking of black money. The whole system of governance, legislature, judiciary as well as commerce and industry— even private educational and health-care institutions—has been corroded by the acid of black money.
Moreover, Pakistan has produced and circulated counterfeit 1000 and 500 rupee notes to fund their anti-Indian terrorist activities. It is comforting that this government has taken the drastic action that it has. But more needs to be done to ensure in future black money is not generated and used. Disincentives for criminal activity work only when there are incentives to be honest also.