Demonitisation: The invisible economic assassination



Mr Jaitley while defending his demonetisation scheme described the 750 words speech of the former Prime Minister Mr Manmohan Singh in Parliament, as lacking in substance and that the 2G and coal scamsters had forfeited their right to lecture on probity.

Harsh words from a lawyer, whose knowledge of economics or the lack of it, has plunged the entire nation into an unprecedented man-made financial chaos which will be his epitaph, irrespective of whether he or we are all dead in the long run or the short run!

Mr Jaitley would do well to answer the following questions with embedded answers which is also an expose on his track record on black money:

Questions on Phony efforts to unearth black-money/wealth abroad:

  • Is it not a fact that while these tiny offshore tax-haven countries which have played havoc with the India’s black money by providing a legal shield for laundering money, it was the larger countries like Germany and France which provided information on tax evaders?
  • Is it not a fact that despite the tall promises made during elections on recovery of huge amounts of black-money stashed abroad, the government was unwilling to act against sundry tiny countries which were responsible for laundering most of the black money into India?
  • Is it not a fact that the information that the government had on foreign black money was from the German government, which paid Heinrich Keiber $ 7.9 million to obtain information on money stashed in LGT Bank of Liechtenstein, and the French Government, which paid for information on HSBC Bank in Switzerland to whistle-blower Hervé Falciani. And is it not a fact that both governments shared the information with the Indian Government for free?
  • Is it not a fact that the Indian Government refused to pay the same informer Hervé Falciani when he offered more information on Indian entities than the 1600 entities provided by French Government?
  • Is it not a fact that under the Black Money UFIA Act only 644 disclosures were made and that these were from entities whose names were on the various lists but to whom notice was not given under section 71 for accounts held in other Banks?
  • Is it not true that the scheme in effect was a bailout for these persons and others involved in stock market scams and who were already under the scanner by the SIT so that they would pay lesser taxes and not have their names revealed and leave their reputation intact?
  • Is it not true that 95% of the black wealth is neither held as deposits in foreign bank accounts or in Indian currency but is converted into wealth in assets all over the world, or invested in India either through the stock market (P notes, FDI FPI etc.), real estate or gold and bullion or other assets?
  • Is it not true that that large holders of black money have laundered their money through small and insignificant countries like Mauritius, Cyprus and Singapore after sending it abroad through havala and bringing it back through faceless and anonymous front companies into India as ‘Foreign Investments?’
  • Is it not true that all this black money laundered through the tax havens by round tripping method has become legitimate white money and is no more considered black money by the Government/RBI/SEBI?
  • Is it not true that apart from the black money brought in as FDI, large amounts of this anonymous black money is invested in the Stock Market through P-Notes whose true ownership has not been allowed to be declared by the Government/RBI/SEBI?
  • Is it not true that the SIT constituted by the Supreme Court identified these P Notes as the major source of black money, recommended that the true identity of the persons (beneficial ownership) investing in P-Notes be revealed and the loophole be plugged?
  • Is it not true that the outstanding on P-Notes in Jan 2015 was Rs. 2.15 lac crores?
  • Is it not true that the outstanding Offshore Derivative Instruments (ODIs) from the tiny island of Cayman Island alone was Rs. 85,000 crores as stated by SIT below?

It is clear from above that a major chunk of outstanding ODIs invested in India are from Cayman Islands i.e. 31.31%. This translates to roughly Rs. 85,006 Crores. The Cayman Islands had a population of 54,397 in 2010 according to Wikipedia. It does not seem conceivable that a jurisdiction with a population of less than 55,000 could invest Rs. 85,000 crores in one country.

  • Is it not true that the government refuses to act against the black money laundered through these tiny islands, despite the recommendation of the SIT and orders of the Apex Court, as its considers this black money as good black money, in the national interest of getting foreign investment and its bullish effect on the stock market?
  • Is it not true that while the GOI is acting against the helpless poor and the marginalised who are either depositing their own money or renting their account for petty deposits along with the domestic hoarders of black-wealth in currency, it is powerless against these tiny countries like Mauritius, Cayman island, Singapore, Seychelles, Panama, British Virgin Island etc. and has negotiated soft and humiliating treaties with them to let off the big sharks involved in generation and laundering of black money?
  • Is it not true that all the treaties negotiated with all these tiny countries are with prospective effect, that is from 2017 onwards when they would be obliged to make disclosures and share information on tax evasion but does not cover the prior period?
  • Is it not true that information from Switzerland will be made available for accounts opened after Sept 2018 and that too in Sept 2019?
  • Is it not true that no person is foolish to leave his cash in foreign banks and that all black money laundered through foreign countries has become legitimate money?
  • Is it not true that for all practical purposes only Rs 2428 crores in taxes is all that has been received from the much-touted black money lying abroad along with some amounts which may come in because of information provided by the German and the French government, no further black money will be unearthed from the large evaders who have used the foreign route to launder their money?
  • Is it not true that it was the earlier NDA government which had replaced FERA with FEMA to undo the criminal liability and then took almost three years to enact the Prevention of Money Laundering Act which had criminal liability and this move emboldened the super-rich in salting their wealth abroad?

Domestic Black Money and Disclosure Scheme

  • Is it not true that the second round of domestic amnesty under the Income Declaration Scheme on payment of 45% was preceded by a massive amount of income tax notices (around 7 lac) to ensure its success?
  • Is it not true that most of the money declared under the domestic IDS was declaration made from the popular practice of laundering money on the stock market by claiming fictitious long term gains (with zero tax) from appreciation of penny stocks whose prices were manipulated by brokers on the stock market?
  • Is it not true that instead of proceeding with criminal charges on these brokers on price manipulations they are being rewarded by allowing them to get listed on NSE and the BSE so that they sell their shares at huge premium?

Existing sources of generation of black money like bribes etc. to continue:

  • Is it not true that most of the black money is generated from bribes, real estate transaction, capitation on education, over invoicing of costs, and proceeds from crime like drug trade, kidnapping, protection money, child trafficking, prostitution, smuggling, grant of mining leases through renewal of licenses, betting on outcome of cricket matches etc?
  • Is it not true that neither bribes or any of the above-mentioned activity can be conducted through white money and that white money must be converted into black to pay for bribes and the rest of the transactions mentioned above?
  • Is it not true that far from taking steps to prevent the future generation of black money changes in law has been proposed to encourage the generation of black money?

On legal steps taken to promote corruption

  • Is it not true that the government has done nothing to discourage corruption but on the other hand has taken steps to encourage it?
  • Is it not true that not even the initial steps have been taken for the appointment of Lokpal in the last two and a half years?
  • Is it not true that the public servants who were bound to declare their assets under the Lokpal Act have been given six extensions since 2014 to declare their assets and they too could have availed the benefit of the two income tax amnesty schemes to launder their loot stashed abroad and in India to legitimate assets through their close relatives?
  • Is it not true that amendments to the Prevention of Corruption Act is proposed to dilute the Act and to liberalise the definition of Corruption?
  • Is it not true that undue benefits given to favored persons will not be considered corruption and prior permission from the government must be obtained to commence investigations against corrupt officials?
  • Is it not true that the key section of the PCA, 13(1) (c) and (d) under which most of the corrupt are charged is being deleted?

On black money in real estate:

  • Is it not true that the difference in taxation on investment made in stock market and investment made in real estate is one of the main reasons for investing black money in real estate?
  • Is it not true that while long-term gains on investment in shares has zero tax, there is a tax of twenty percent on long term gain in real estates?
  • Is it not true that long term gains in shares is defined as one year while it is defined as three years for real estate?
  • Is it not true that an additional 8% of stamp duty is to be borne by the buyer?
  • Is it not true that because of this disparity of 28% in taxation there is undervaluation and creation of black money in property deals as properties may not appreciate by a 28% in three years in addition to the reason of 30% bribes paid by builders to get clearances?

Black money in the education sector:

  • Is it not true that the discretionary management quota is responsible for the auction of seats in professional courses?
  • Is it not true apart from hefty under the table payments on discretionary quota admissions, in most cases of routine admission a coercive donation to the trust is a must?
  • Is it not true that the faithful have been allotted land by the States under BJP to profiteer by opening private educational institution?
  • Is it not true that the Government ensured that the common medical entrance test under NEET upheld by the Apex Court, was over-ruled to ensure that the private state medical colleges conduct another test?
  • Is it not true that private education is supposed to be not-for-profit organisation but nevertheless make massive profits through sub-contracting?

Why losses caused to the exchequer by the present government far more than the losses in the 2G and Coal Scam:

  • Is it not true that accusing the previous government of various scams is a favorite pastime of the present government whereas the truth is that far more losses has been caused to the public exchequer by the present government compared with the previous government?
  • Is it not true that several iron ore mines whose leases were expiring and should have been put to auction have been renewed and benefits of lacs of crores been given to these mine owners, the prominent one being Anil Agarwal of Sesa Goa/Strelite?
  • Is it not true the iron ore mine renewed to favour Anil Agarwal of Sterlite alone is worth more than one lac crore?
  • Is it not true that the lease for the oil fields like Panna, Mukta, Tapti which too is expiring and in which industrialists like Reliance and Essar have made billions of dollars are proposed to be renewed instead of the government resuming them? The benefit to Essar/RIL etc. is worth billions of dollars.
  • Is it not true the lease of the land based oil fields of Cairns Vedanta which produces oil at an operating cost of three dollars is also being proposed to be extended? This benefit would be worth four to five billions to Anil Agarwal’s company depending on the duration of extension and the price of crude and gas.
  • Is it not true that by these renewal of leases, the government is going to lose billions of dollars?
  • Is it not true that in the 2G scam, due to intervention of activists like Prashant Bhushan and Dr Swamy, the Hon’ble Court overturned the government decision and thus no losses took place when the auction took place? (It may be mentioned that the first FIR in the 2G scam was filed by the CBI on the complaint of the author of this article and finds a mention in the 2G judgment)
  • Is it not true that similarly the anticipated losses in the coal mine scam was salvaged by the decision of the Court ordering the subsequent auctioning of the mines?
  • Is it not true that the losses were prevented by the Hon’ble Court and activist litigants (Dr Swamy had not merged his party at the time) and that the BJP had no role to play in it?
  • Is it not true that the losses by renewal of leases of iron ore mine fields and oil-fields is/will be greater than the actual losses of the 2G and the coal scam?

Black money generated by over-invoicing:

  • Is it not true that despite seizure of records of massive over-invoicing of coal imports and power equipment of over Rs 45,000 crores by prominent industrial houses resulting in money laundering and generation of black money, no action is being taken against these industrial houses?
  • Is it not true that the case against Ravi Rishi, the manufacturer of left hand drive Tatra trucks being supplied to the Armed Forces accused of over invoicing of trucks for decades, by the former Chief of the Army and now a Minister, has been closed?
  • Is it not true that the government is losing almost every taxation and arbitration cases involving large corporation and in one case the AG, who had earlier appeared for the opposite side, also appeared for the State and lost the Rs 700 crore case with the order of the Apex Court stating: Delay condoned, dismissed?

Re: Black money from criminal activities to continue

  • Is it not true that there has been no campaign or crack down on the black money generated from the usual criminal trades like drug trafficking, kidnapping, protection money, child trafficking, prostitution, smuggling, betting on outcome of cricket matches etc?

On monumental mismanagement

  • Is it not true that when the announcement of demonetisation was made on 8/11/16, normalcy and a smooth transition was assured in three days over the weekend?
  • Is it not true that the government had thought that liquidity of 15 lac crores in Rs 500 and Rs 1000 notes could be replaced with 2 lac crores of Rs 2000 notes and had not printed any new Rs 500 notes before the announcement?
  • Is it not true that the hoarding of smaller notes, due to shortage of liquidity ensued and this too was not anticipated by the decision-makers at RBI and the Ministry?
  • Is it not true that it was only after a national crisis was caused that the government decided to print and introduce the new Rs 500 notes immediately?
  • Is it not true that it will take at least six months to remonetise the economy given the capacity of the currency printing press?
  • Is it not true that most of the fake currency which is substantially higher that the government estimates too will be deposited without getting detected by the Banks and this may further boost the deposits to a higher figure that the notes outstanding?
  • Is it not true that the fake currency is printed by hostile government who have access to similar technology of note-printing and hence detection of fake is difficult?
  • Is it not true that the government decision of demonetising 15.44 lakhs crores of currency without any remonetisation plan in place was not only a monumental managerial failure but a monumental blunder?
  • Does not the country have a right to know as to who was responsible for the execution of the remonetisation of the 85% of the currency and why responsibility is not being fixed for causing untold hardship to the people of the country for no fault of theirs?

Implication of surgical strike against black money, collateral damage, loss of savings of the unbanked?

  • Was the freezing of the liquidity of the entire population without any alternative not a criminal act against those who needed money for financial emergencies, against the daily wage earner who remained unemployed and against those who are out of the banking system?
  • Was the surgical strike planned with the inputs of the experts, namely the economists, currency officials, re-monetisation experts or was this surgical strike the brain child of the ill-informed persons who did not know the fallouts of their decision?
  • Is it not true that due to lack of banking infrastructure, Ponzi companies like Sahara, Pearl and Saradha sprung up to provide them with door step service and the poor unbanked people deposited their hard-earned savings with them and lost them?
  • Is it not true that in spite Sahara depositing over 10,000 crores, the poor who have lost their life time savings have not received even Rs 100 crores of their deposits back and the government will appropriate the deposit of the poor unbanked people by claiming that it is unclaimed?
  • Is it not true that in spite of the unbanked persons in the rural arear losing thousands of crores to the ponzi companies no concerted efforts have been made to provide them banking services by opening larger number of rural branches?
  • If demonetisation was a surgical strike against the black money of the political opponents and tax evaders, then were not the rest of the citizens victims of the collateral damage?
  • Is it not true that the collateral damage involved more than 95% of the population and if so then as to whether this type of excesses is acceptable in a democracy?
  • Is it not true that this lack of liquidity is effecting those the most who are not serviced by banks, do not have a smart phone, are illiterate and technologically challenged?
  • Is not money a means to live and denial of access to one’s own money denial of right to Life which is a fundamental right?

On holding wealth in cash

  • Is it possible to distinguish which cash is black and which cash is white or which cash is savings of years or cash for transacting legal/illegal business?
  • Is it not easier to trace illegal assets like house property, gold, smuggled goods, investments on the stock market?
  • Is it compulsory to deposit one’s money in banks which are bankrupt (their net worth is less than the bad loans)?
  • Is it not true that there are many Indians who for various reasons do not deposit their savings in the Bank and hold in cash and cannot produce a record of the cash holding?
  • Is it not true if the Finance Minister can hold cash of 1.35 crores (return filed with election commission) then other citizens too can also have a high cash holding?
  • Does not the FM need to explain the necessity to hold such large amounts of cash in hand when there are all types of different digital modes of payment? Is this cash because of withdrawal from the Bank?
  • Is it not true that now you see the scheme failing, as the unscrupulous elements are taking advantage of the ambiguous nature of cash deposits that you are going against the people with a vengeance and frightening them with misuse of IT Act even on the small deposits of savings being made by the poor and the marginalised?

Motive of demonetisation to help the super-rich responsible for making the banks sick

  • Is it not true that the entire exercise of demonetisation was done with the motive of lowering the interest rate in order to keep on providing cheap loans to the large capitalist and to recapitalise the Banks to provide them with more loans?
  • Is it not true that the net worth of the Banks has been wiped out because of dubious loans to large business houses, who have been defaulting on the payment of their loans?
  • Is it not true that for every Rs 100 borrowed by the capitalist they must spend Rs 10 on bribes (party donation, administrative clearances, loan sanctions etc.) and divert another Rs 10 as promoter’s equity/or as his contribution for obtaining the loan/salted away leading to unviability of the project and the account becoming sick?
  • Is it not true that the NPAs (Non-Performing Assets) of the Bank are around Rs 8 lakh crores and that the actual net worth of some of the Banks is negative?
  • Is it not true that the Banks are turning sick by lending the money of the depositors to crony capitalists like Essar, Reliance and Adani, who in turn have been found to be converting the depositors’ money into black money through over-invoicing of imports.
  • Is it not true that the Banks’ imprudent lending has led to unrecoverable loans of over 8 lakh crores and this is going to be funded by the depositors and the and the tax payer?
  • Is it not true that this gap of eight lakh crores was sought to be partly filled up by the demonetised scheme in which it was estimated that atleast 3 lakh crores would not be deposited?
  • Is it not true that this money would have been used to recapitalise the Bank who would have the means to relend to the crony capitalist who in turn would create more black money for themselves, the political parties, and the bureaucracy?
  • Is it not true that the ADAG (Anil Ambani Reliance Group) alone owes 1.22 lac crores to the Banks, Adanis owe 0.96 lac crores, Essar 1.01 lac crores and are not in a position to even pay the mounting interest liability of around ten thousand crores.
  • Is it not true that these companies are also involved in massive over-invoicing of coal imports and power equipment of Rs 45,000 crores, resulting in money laundering and no action is being taken against them?
  • Is it not true that ADAG group entered into a tie-up with the French manufacturer of the Rafale jets the moment India signed a deal? Is it a mighty coincidence or evidence of crony capitalism?
  • Is it not true that no due diligence or security clearance has been done while involving the group in a critical area?
  • Is it not true that the $21 million Coal/Railway/Port project of Adanis in Australia which has full backing of the government and is to be funded by the SBI is also a manifestation of crony capitalism?
  • Is it not true that demonetisation is a devise to use the wealth and savings of the informal sector/labour/poor, the mid- sized trader/producer to subsidise the crony capitalist of the government through cheap loans which are to turn into NPA?

Quantum of black wealth in currency and demonetisation Ineffective:

  • Is it not true that only a small portion of wealth created through black money is in currency and this could not be more than 2% of the total black wealth in India and abroad?
  • Is it not true that most of the big fish having large amounts of demonetised black currency have managed to convert them into legitimate assets by discounting it in the market and this too has generated more of black money to the persons concerned?
  • Is it not true that the losses due to fall in GDP, unemployment, foregone consumption, fall in the stock market index, withdrawal of foreign investment which are directly attributable to the demonetisation is far greater than any gain that may accrue?
  • Is there not a strong possibility that more money will be surrendered than the 15.44 lakh crore outstanding on account of gross underestimation of counterfeit currency which will go undetected?

Better methods of increasing government revenue:

  • Will the government impose 20% tax on long term capital gains on shares as against nil presently and bring it on par with the capital gains on real estate, to boost the government revenue by thousands of crores if not a lac crore each year?
  • Will the government give informers on Income Tax evasion parity with the informers on Central excise, customs and service tax evaders?
  • Is it not true that while 10%-20% of tax recovered along with interest and penalty can be paid to informers without any ceiling in case of evasion under the CBEC, in case of informers of Income Tax it is subject to a maximum ceiling of Rs 10 lacs to an informer and the total reward paid by Income Tax to informers in a single year is maximum of 3 crores which means that only Rs 30 crores of tax is recovered through the informer channel as against the seven lac crore of Income Tax collected?
  • Is it not more logical to announce that reward of 10% without limit will be paid to informers, give wide publicity to the scheme, ensure its implementation through a separate authority supervised by an ex-Supreme Court Judge to ensure that black money on which tax is being evaded is eliminated as the mere the threat of being informed will act as a deterrent?
  • Is it not true that substantial revenue is lost by the government due to SEBI and stock exchanges colluding with the delinquent corporates?
  • Is it not true that neither the government nor SEBI is willing to investigate the price manipulation and insider trading by RIL in which Rs 3500 crores was made illegally and on which three times penalty can be levied?
  • Is it not true that in another case SEBI gave a largesse of over Rs. 650 crores to the erstwhile owners of Bank of Rajasthan group by letting them off with a petty fine of only Rs 30 crores, in spite of a complaint pending with you on corruption?
  • Is it not true that it was only after the constitution of the SIT that the money-laundering on the stock exchange going on for decades through the bogus long term gain was checked?
  • Is it not true that lacs of crores have been laundered through this route?
  • Is it not true that the government is unwilling to disclose the name of the persons who have disclosed their black-money in the amnesty scheme or those who are major defaulters with the Bank?

The Finance Minister

  • Is it not true that being the lawyer of first choice in appearing against PILs while practising as a senior counsel has in some ways made the FM insensitive to public suffering? Is it not true that FM brings the same passion in arguing in favour of grossly mismanaged demonetisation which is not public interest?
  • Is it not true that the presumptive tax introduced by the FM in the last budget for which no accounts has to be kept on a 2-crore trade for 8% profit and 50% profit on Rs 50 lacs income of professionals is a loophole to launder money and to generate further black money?
  • Is it not true that as an opposition MP (not LOP) the FM was appearing in Court and earning substantial fees while Parliament was in session, a practice carried on by many senior counsels who are members of the Parliament?
  • Is not true that life is not an argument which has to be won, and if blunders have been made then it is better to admit and re-work the policy rather than stick it out and make people suffer further?
  • Is it not true that the government being vindictive and using all legal means to terrorize the people of this country after the failure of the demonetisation scheme?
  • Is it true that scheme is causing far more suffering than was caused during EMERGENCY?
  • Will this monumental blunder of demonetisation be the EPITAPH of the government?

(Arun Agrawal is the author of the book Reliance: The Real Natwar. The opinions expressed by the author and those providing comments are theirs alone, and do not reflect the opinions of Canary Trap or any employee thereof)