Let us mentally reconstruct the profile of the hoarder of black money. On the one end of the spectrum are the more dreaded criminals, perpetrating all kinds of anti-national activity etc. On the other are those who are engaged in the seemingly benign but unconscionable activity of tax evasion. This itself is a very large stratum. The petty civil servant who fails to report a windfall gain, or some other incidental income, is just as culpable as the corporate tax evader of astronomical amounts of money. The Voluntary Disclosure scheme was targeted at this group of people, and the step that followed was fair notice given. So, those political parties and others that are questioning the morality of this decision should think about it.
This brought to light another parallel economy which has not been recognized till now; d; the money that went underground for very laudable motives of thrift and frugality , as a safety net created by the housewives’ funds accumulated over years and hidden from the head of family who is obliged to report his income should it qualify to be taxed.Despite being largely untainted this has also become imperilled. It was always known that there were such funds but its spread and quantum comes as a surprise, and such a contingency does not seem to have been planned for. The inconveniences to the poor and logistical inadequacies are important issues which need to be discussed separately.
What are the options before the hoarders of black money? Not many; either they go to the Bank or forget about their hoarded cash. If they forget about it, it is good riddance to bad rubbish. The money that does not enter the over ground economy decrease the liability of the Reserve Bank to redeem money to that extent. In the end, it will help banks revitalize their sagging financial condition. Griping critics have said that it is a clever move by the government to improve the financial health of the banking sector. And why not? If the evader and white collar criminal is not made to pay for it, who will? You pity the poor plumage and forget the dying bird!
The enforcement agencies and the hoarder of ill-gotten money have entirely opposite expectations of money; while the former would like his money to be untraceable to its owner, and have pure exchange value, be infinitely mobile, and be able to disappear from one jurisdiction and materialize in another, without let or hindrance. The enforcement agencies, if they had their way, would like every single bit of money, every paisa, to be legible, to bear its ownership as well as its origin. Which is perhaps just as well. Why should money that originates in criminal activities and tax evasion, money earned through kidnapping, bootlegging , prostitution, corrupt practices of the public servant , tax evasion etc., command that same respect and the same purchasing power as the money earned through honest enterprise ? The popular parlance does recognize the difference. Black money, dirty money, hot money etc. are certainly not very edifying epithets. But the Banks, which are the prime centers of all financial activity and act as a clearinghouse for all money generally, do not. (Things have improved considerably all over the world in view of the pervasive terrorist threat.)
What many knowledgeable people are saying today that the hoarder of black money will now convert it into denominations of 2000, and live lot happier with less inconvenience and less unwieldy hoard? Indeed, it is possible, but for the old money to retain its status as money, it has to end up in the bank and change into new currency. Therein lays the rub.
The banks, by and large, do not recognize the colour of money. (Only now after terrorism became such a threat and under international pressure the norms have become a little strict). For them, customer confidentiality and profitability are overriding considerations. The enforcement agencies pursuing the audit trail often run into the formidable wall of Bank secrecy and customer confidentiality norms. Banking regulation in every jurisdiction makes it difficult to obtain information. Section 4 of the Indian Bankers Book Evidence Act 1891 provides for the production of the certified copies of the entries in a banker’s book in a legal proceeding. Section 5 of the same Act stipulates that a no officer of a bank shall in any legal proceeding to which the bank is not a party be compelled to produce any bankers’ books. The standard demand made by the banking agencies for proofs of the criminality of the funds begs the question. The criminality cannot be established without the willing co-operation of the bank authorities if one is looking for suspicious or criminal transactions.
Even in a wholly domestic environment it is extremely difficult to secure the cooperation of the banks. In an international context, it is nebulous and subject to fewer controls of the jurisdiction where the money was earned. An assurance of absolute secrecy and hiding from prying eyes is marketed as a privilege by the offshore banks, which can be bought relatively cheaply. That is the reason our leaders and captains of industry, and the other hoarders of black money, flock to them. This is the corpus of money that distorts, subverts and otherwise compromises the economic live of the nation
The underground money is being driven over ground, and for sheer survival they have to end up with the bank. At the same time the banks are being compelled to record ownership. Let us recall that the objective of agencies responsible for containing white collar crime and tax evasion is to identify their funds and establish its ownership. To describe the situation the word ‘Compellence”, a word that I came across in the context of strategic debate, would be eminently suited. “Compellence” has been described as a set of actions or positions that force an opponent to take some action desired by the initial actor. It is the opposite of deterrence, in which the actions are intended to prevent an opponent from taking some action. Here it is a two way compellence.
Of course there will be intermediaries, middlemen, third party transactions. But they will be people, identifiable by their PAN Cards. The more the merrier. The more numbers of people come in, the financial inclusiveness policy will get a boost, but there will be a precious hoard of data for future investigations to keep them busy for long. The connection can be established at leisure by any enforcement agency that knows its marbles.