India SocioPolitics

Black Money in Foreign Banks: All Talk, No Action?

In America, “everyone talks about the weather and nobody does anything about it” (Mark Twain). In India, everyone talks about black money and nobody does anything about it. Even the Supreme Court is making long commentaries on black money stashed in foreign banks for the past several days. Justice B Sudershan Reddy-led Bench of the Supreme Court started hearing the case on black money stashed illegally in foreign banks by Indians on January 27, 2011.

Every prominent politician from the opposition parties is talking about it. There are daily news commentaries in print and electronic media and blog postings. Of course, there are chain e-mails. Talk of black money is everywhere.

Black money is the money accumulated by way of illegal transactions without declaring it for tax purposes. It is part and parcel of everyday and almost everybody’s economic life in India. It is an accepted fact. For example, most legal real estate transactions in India are carried out to evade registration costs by understating the actual value of the transaction. The current excitement around black money is not about all black money, but it is about the money stashed away in foreign banks. The amounts of money allegedly run into lakhs of crores – the numbers are eye-popping and mind-boggling. And some reports claim India beats all other countries by a wide margin in terms of the amount of money stashed away in the secret off-shore tax havens.

The BJP leader Lal Krishna Advani claimed that resident Indians had deposits between $0.5 and $1.4 trillion (Rs. 25 – 75 lakh crores) in Swiss banks. In more recent utterances, he is sticking to Rs. 25 lakh crores. PC Alexander, a prominent statesman and politician in a recent Deccan Chrionicle column (Jan 05, 2011) writes: According to a Swiss bank report of 2006, India topped the list of depositors of wealth in banks in Switzerland to the extent of $1,456 billion (around Rs. 75 lakh crores) compared with Russia’s $470 billion, UK’s $390 billion, Ukraine’s $100 billion and China’s $96 billion. It appears that there is no such report from any Swiss Bank. It is also not true that India leads other countries in terms of money stashed in off-shore banks. The volume of black money outflows from India is only the fifth or sixth highest (depending upon the method of estimation) among developing countries.

Anyway, the huge numbers created a sensation and outrage all over the media and blogosphere.

A chain mail says, “280 lac crore of Indian money is deposited in swiss banks which can be used for 'taxless' budget for 30 yrs. Can give 60 crore jobs to all Indians. From any village to Delhi 4 lane roads. Forever free power supply to more than 500 social projects. Every citizen can get monthly 2000/- for 60 yrs. No need of World Bank & IMF loan. Think how our money is blocked by rich politicians. We have full right against corrupt politicians.”

Sensations have a way to bury facts, grow rumors and breed cynicism. Even reasonable and thinking people fall prey to the adversary impacts of cynicism and hopelessness. In the heat of the moment, everyone forgets one critical fact that the money is in SECRET accounts. Swiss banks refused so far to release any details of these accounts. No names or no amounts of these accounts are revealed. The fact is that nobody really knows real numbers. How did PC Alexander and LK Advani get those numbers? The numbers are all guess work of some smart people.

The Rs. 25 - 75 lakh crore range appears to come from Global Financial Integrity (GFI) report, Illicit Financial Flows from Developing Countries: 2002-2006 (http://india.gfip.org/). The report critically reviews 5 older models and proposes a new model. It is important to note that not all six models give the same results. Ashok V. Desai, Economist and Consultant Editor of The Telegraph (Calcutta) raised important questions on the weaknesses of the models used in the GFI report to estimate illegal outflows (http://www.telegraphindia.com/1090505/jsp/opinion/story_10890118.jsp). Dev Kar of GFI stressed in his columns about the problems they faced to make good estimates of illicit financials flows and he clearly stated that GFI favored Rs. 20-25 lakh cores as the estimate of illegal money of Indians. In spite of that, the higher number of Rs. 75 lakh crore is supported by R Vaidyanathan, professor of finance at the Indian Institute of Management, Bangalore and head of a taskforce set up by Advani for preparing a strategic document to get back the national wealth agrees with that estimate. (see http://www.dnaindia.com/money/report_indian-money-in-swiss-and-other-banks-is-over-rs-70-lakh-crore_1244317)


Economic models are widely used to make estimates, predictions, and projections of an economic activity or a policy. The numbers that come out of these models are generally treated for guidance and are used to make policy adjustments. The estimates from models are not facts.

The distressing part of the current talk on black money is that Advani, Alexander, Vaidyanathan, the Supreme Court, bloggers and chain e-mailers are peddling the estimates of an economic model as verified facts. That is flatly wrong and a disservice to the country.

The real fact of the matter is -- It is all talk. Nobody will do anything about it. Like weather, black money in India is an extremely complex issue – not as simple as the Supreme Court commentaries suggest.

posted by Govinda Bhisetti @ 3:08 PM