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Corruption, Black Money, and Swiss Numbered Accounts: Indian Praxis

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Message Jagdish Pathak

Baba Ramdev wants black money from Swiss bank accounts or elsewhere by Indian citizens to be brought back to India. He made it a plank of supporting BJP-led political grouping during the recently concluded federal parliamentary elections in India. He is a patriot like most of Indian citizens and everyone wants this black money stashed abroad in secret accounts to be brought back. India needs it more than anyone ever. Baba Ramdev, or anyone who believes that this money has been taken by filling in gunny bags from India, is wrong at the onset. Yes, you can easily see hundreds of millions of Indian currency bills being transported in trucks during the election season. The declaration by the election commission of India to this effect is a valid proof of black money existing within the boundaries of the nation.

It is a problem of our corrupt mindset. A study conducted by Transparency International in year 2005 found that more than 62% of Indians had firsthand experience of paying bribes or influence peddling to get jobs done in public offices successfully. In its study conducted in year 2008, Transparency International reports about 40% of Indians had firsthand experience of paying bribes or using a contact to get a job done in public office. We do not want to pay taxes ourselves resulting into this huge bulk of money unaccounted and invisible in the eyes of any regulator. Everyone wants money but does not want to pay taxes. There are hundreds of roadside business owners, living life of pauper apparently to all, might have a cache of millions of Indian currency bills kept safely in the home or invested in gold and real estate without anyone even knowing it.

Indians do not want to pay tax in any form a belief Indians carry is actually partially faulty. The tax money collected by the governments help improving life of average citizen. When I say partially true also means part of this collected tax money is wasted in front of the eyes of these very citizens in various ways. Indian politician too try to get as much share from this loot as possible. Subsequent investigations reveal it to the public how much corruption is taking place at every level of governance. Innumerable scams and scandals have been brought out in open by the media and some good Samaritans and about which all of us are even aware off.

My last visit to India opened my eyes on the manners and processes to evade taxes by the goods and service providers. I do not remember if anyone ever gave me proper voucher or receipt of payment. Worst of all, I was literally forced to carry currency bills in large quantity because suppliers/service providers were unwilling to take cheques (one cheque was taken on the condition that it will be self-drawn only!!!) or payment through credit card. Even, the photographer firm too did the same. Now, one thing is very clear that my entire spending of hard-earned tax-paid rupees went into the pockets of all these people without even a trace of transactions anywhere for government to collect taxes. This untaxed money is black in the pocket of receivers and unrecorded in any book of the government. My example is just a small personal example. There are instances where huge cash exchanges take place in the real estate sector. People buy a house for which they are forced to pay a fixed percentage of the value in cash resulting in tax evasion and creation of black money. What such examples suggest that we as individuals have no choice but to become unwilling partners in this game of corrupt practices.

The causes of corruption in India include excessive regulations, complicated taxes and licensing systems, numerous government departments each with opaque bureaucracy and discretionary powers, monopoly by government-controlled institutions on certain goods and services delivery, and the lack of transparent laws and processes. There are significant variations in level of corruption as well as in state government efforts to reduce corruption across India. Black money gets into existence through such corrupt measures and banks do not get to know about this privately held currency, which accumulates at a much faster pace and leads to a booming parallel economy. Indian economy has this big problem from the days of our independence. Drug trafficking, prostitution, and political corruption are other major sources of black-money generation in India. Gold smuggling was lucrative till gold control was in existence and gave us some big name underworld gangsters but once government policy became liberal, this nefarious activity got replaced by money laundering. India is in core of drug money and drug trafficking golden triangle. Such money gets converted into dollars through hawala transactions operated by the Mafiosi of gang lords in the large cities. This is one way to convert dirty money into secret account money. Many importers/exporters do over billing/under billing and these money balances coolly gets into those secret bank accounts.

Of course, international laws are applicable to Swiss banks too but a clear distinction was made in money earned through crime including tax fraud and money earned through tax evasion till 2009 when this law was changed to remove this 'difference in the terms'. But, this change in the law is applicable to international clients and not the Swiss clients. Very few people are aware that since 9/11 incident, USA has forced a major Swiss bank to provide complete personal information of US citizen accounts and even OECD made certain declarations that became acceptable to Swiss authorities. Swiss banks are no longer as secret as these used to be before. Black money also goes to Mauritius, Cayman Island, Singapore. Hong Kong has become new port to keep the ill-gotten wealth. Singapore banking privacy laws are far stricter than Swiss banks. Indian money that might have been kept in the numbered Swiss accounts perhaps reached new shores. Money trail in international movement is not very easy for India to capture unless a power like USA helps. Cinema producers/actors, corrupt politicians and bureaucrats, corrupt defense executives, drug lords, gangsters of large metros, and many more with corrupt mindsets find places to park ill-gotten wealth for future use. Importers/Exporters help assist such movement of money across the borders. Hawala plays big time role with some unscrupulous bankers too coming to their help. Famous HSBC scandal in South America suggests that even bankers may help such corrupt people. HSBC is simply a tip of the iceberg. Many private banks might be target of such corrupt practices.

Indian law does not tax agriculture income. This practice has helped most of these corrupt people in owning a farmhouse and declaring huge income earned from agriculture, which is basically conversion of black money into white money by using a loophole or the weakness of the tax system. Look around your neighborhood and see the people owning farms specified under the income-tax law. These farms in real are places of fun and frolic for rich and mighty and also tax heavens for the owners. Let income-tax department identify how much earning is shown by its owner in income-tax returns. A good way to know how much black is made into white.

Indian government will never be able to crack open Swiss bank numbers in the five years' tenure, not adequate enough for this government. India has to acquire status of USA where it can arm-twist Swiss or any other secret banking island to get any and all that is needed. Perhaps Baba Ramdev or any one of his ilk might have to wait till such time.


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Dr. Jagdish Pathak is an award winning research professor of business policy and systems, An OP/ED contributor, and an avid nature and wildlife photographer settled in Canada. He writes on socio-political contemporary issues faced by under (more...)

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