Atanu Dey On India's Development

Shourie on Indian Money in Tax Havens

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For 55 years, the Congress has been the party in government of India. India has been a command and control socialist economy, which implies that politicians who controlled the license-permit-quota-control raj had the opportunity and the means to collect rents from businesses and put them away off-shore. This is not the most surprising thing in the whole world.

I am sure that if I had the opportunity to grab billions of dollars, I would have been sorely tempted. I most certainly don’t claim to be totally incorruptible. If the system permits it, and if the temptation is large enough, who can blame another for giving in? The important thing then is to make sure that such tempting opportunities don’t arise in the first place. The institutions we build matter more than the character (or lack thereof) of individuals involved in government.

Arun Shourie has done a masterful deconstruction of the arguments that the Congress put forth in response to Shri Advani’s recent insistence that the Congress-led UPA government has been dragging its feet on the issue of following up on the matter. Shourie is a master of the written word and his logic is impeccable. So even if one does not know too much of the story, just reading his deconstruction is enough for one to get the facts.

Below the fold are some excerpts from the piece by Shourie, “Congress Caught in its Own Web.”:

Stupefied by the strong endorsement all across the country to the demand that the money looted from India must be brought back, the Congress has tied itself in knots.

Its spokesmen have given five reactions:

• Why is Mr. Advani taking up this matter now, on the eve of elections?
• The GE-20 meeting was not the proper forum for taking up the issue.
• There is doubt about the figures.
• Why did the BJP government replace FERA by FEMA, and thereby make the offences compoundable?
• Is Mr. Advani not unwittingly alerting those with illegal money abroad to spirit it away from Switzerland to other tax havens?
• What was the NDA doing when it was in office? In any case, there is doubt about the figures.

The reactions betray panic as even the littlest reflection would have shown them to be indefensible.

• “In any case, there is doubt about the figures”.

As is its custom, the Congress is trying to cover up the basic question of money which has been looted from India and is lying in tax havens, by raising questions about the precision of figures and estimates. This is quite the kind of legalism with which persons like Mr. P. Chidambaram and other legitimizers tried to cover up the loot from Bofors.

The OECD itself has stated in accounts published in early April 2009 that there are $1.7 trillion to $11.5 trillion, which are today parked in tax havens. This estimate of the OECD has been widely reported in the Indian press. The basic point is: even if the amounts are just scores of billion dollars and not one and a half trillion dollars, why should they not be brought back to India? And can they be brought back to India when the attitude of the government continues to be as determinedly inactive as that of the present Government?

Can the Government which allowed Ottavio Quattrochi, the Italian power-broker who is the main accused in the Bofors scam, to take his money out of banks after it had been frozen be trusted to bring back the loot that is lying in Swiss banks and other tax havens? Can the Government which prostituted the CBI so that he may get away from Argentina be trusted to bring the loot back?

. . .

• “Why did the BJP government to replace FERA by FEMA, and thereby make the offences compoundable?”

Again, the Congress is relying on the short memory of its audience. The fact of the matter is that no one had been pressing more for the replacement of the harsh provisions of FERA than the Congress itself. The changes were being contemplated since 1996. The demand for doing away with the harsh provisions came to a crescendo during the Government of Mr. VP Singh when FERA came to be used for interrogating captains of industry under harsh circumstances. As news reports of that period themselves indicate, FEMA which was approved by the Government in July 1998, was on the lines of a draft which had been prepared under the leadership of the preceding finance minister, Mr. P. Chidambaram.

The reasons for changing the law are well set out in the following passage:

“Until recently, we had a law known as the Foreign Exchange (Regulation) Act. Its object was to conserve and augment the forex reserves of the country. The way to hell, it is said, is paved with good intentions. Like many well-intentioned laws, FERA paved the way to disaster. FERA created a flourishing black market in foreign exchange. It brought into the economic lexicon the word ‘Hawala’. Illegal forex transactions became the fuel for the growth of crime syndicates with trans-border connections.

“FERA also became a tool of oppression. Successive governments persisted with FERA and added COFFEPOSA and SAFEMA. International markets do not respect draconian laws that run counter to common sense. India’s reserves, far from being augmented, dwindled at an alarming rate… Mercifully, FERA was buried finally on May 31, 2000.”

The author? None other than P. Chidambaram, in the article he contributed to the Indian Express on 25 August 2002!

Go read it all.