Column in Business Standard, April 8, 2016
Hard as Finance Minister Arun Jaitley and Reserve Bank of India (RBI) Governor Raghuram Rajan may promise to sift the wheat from the chaff, that is, to separate legitimate Indian wealth from ill-gotten gains in offshore accounts, the public perception of the Panama leaks is this: that the rich and powerful, operating in a corrupt and lax political ecosystem, can get away with it. Their stash of cash, including huge sums owed in tax evasion, is not easy to lay hands on. Given the labyrinth of shell companies set up by Mossack Fonseca, their disparate locations and complex transactions, it could take investigators months if not years to track the hidden wealth. Several such investigations have got nowhere – or are carrying on in the vain hope of cornering the guilty. Good luck to the newly-conceived “multi-agency group” to rob thieves of a good night’s sleep. Given the recent record, it will need it in spades to dig the dirt.
It’s nearly a year since “Modigate” broke but the notorious cricket czar remains ensconced overseas despite Interpol notices and the government’s assurance of bringing him back to Indian soil. The Enforcement Directorate (ED) has reported little progress in the matter. In Lalit Modi’s case it could be said that powerful friends like Sushma Swaraj and Vasundhara Rajeactually acted beyond their call of duty to help him stay abroad. Liquor baron Vijay Mallya required no such assistance: despite charges of money-laundering by the ED, and a sensational debt of Rs 9,000 crore to banks that shocked the nation, he coolly left the country on March 2. Mr Mallya’s assets may have dwindled at home but he is not short on luxuries elsewhere: lavish details of his many homes include the English countryside, the California seaside and a 25,000-acre game reserve in South Africa.
Although the RBI governor dripped sarcasm when Mr Mallya ordered a grand 60th birthday party last December neither he, nor Mr Jaitley, have a clue about his return nor how (if ever) his massive debt will be redeemed. Rich crooks are sometimes smarter than those managing the country’s finances.
Now and again the learned judges of the Supreme Court, too, are seized of the mystery of the missing millions and announce that something must be done. After years of procrastinating, a two-member Special Investigating Team was appointed in May 2014, headed by retired Justice M B Shah, to track illegal accounts held by Indians in foreign banks. To say that it is going anywhere would be an understatement; its desultory progress has been widened to address the overall problem of black money at home – an issue that is as old, worn-out and omnipresent as proving the existence of God. No one seems to take much notice of Justice Shah’s submissions: they are evidently headed for instant burial in the vaults of the finance ministry.
If the finance minister really wished to give big time tax evaders some sleepless nights, he would go after the notorious middlemen who acted between bankers, politicians and business groups and known as “loan arrangers”. No less flamboyant than the Mallyas and Modis, these political wheeler-dealers (some can be sighted on the Panama list) were responsible for the mountain of bad debt heaped on Indian banks – by RBI’s own estimate it escalated from Rs 15,551 crore in 2012 to Rs 52,542 crore in 2015.
Project costs were vastly inflated. The scale of borrowings was a sign of political clout and influence with politically-appointed bank directors. What the non-performing assets of public sector banks reflect is overcapitalised infrastructure costs. A report in the news website The Wire estimates loans of Rs 7.3 lakh crore in businesses invested in power, highways, telecom and real estate. Many of the companies can no longer meet their interest payments, some have gone bust, but the profligacy of the loan melas implies massive bilking of public funds. Some of the money ended in shell companies in distant tax havens.
A lot of it went into real estate, the vast swathes of surburban sprawl transformed into skyscraper-land with dizzying rapidity. Loans were easy and cheap and land available. But the builders’ bonanza has proved a bubble, with demand unable to keep pace with overbuilding, rising construction costs and falling land prices.
Raghuram Rajan is right in advising caution in pursuing the Panama trail too zealously. Like numerous investigations before, it could end up with slim pickings, lead to ugly political witch-hunts and severely dampen entrepreneurial animal spirits. The only way to curtail corruption and illegal flight of capital is stronger regulation and reform in banking, tax collection and infrastructure development. It may not put rich crooks out of business but will block their escape routes. Getting away with it will be tough.