Will bring back black money in 150 days: Rajnath Singh

The only real decision of note taken by the new government at its first Cabinet meeting on Tuesday was to set up a special investigation team, or SIT, under two retired Supreme Court judges, in order to investigate various black money cases.

The Bharatiya Janata Party (BJP) has long spoken of the need to unearth illegal tax-evading accounts held by Indians abroad. 

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Lal Krishna Advani made an issue of it in the 2009 campaign, and Narendra Modi repeatedly raised the matter in this campaign.

Other political players close to the BJP, such as the yoga teacher and entrepreneur Ramdev, have also spoken on the need to repatriate black money.  

Indeed, the BJP president, Home Minister Rajnath Singh, promised that black money would be brought back "in 150 days".

It is, therefore, natural that the new government should focus early on this issue.

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The government must do its best to follow through.

Certainly, it should avoid the temptation to unilaterally break treaties that enjoin secrecy on it - the purpose of the investigation is not to score political points but to close loopholes. 

However, it should use its political capital to renegotiate treaties that have caused severe problems for India's attempts to control black money.

The tax avoidance treaties with Mauritius and Singapore, widely seen as being used by some to evade Indian tax authorities and launder, or "round-trip" illicit money, need to be relooked at. 

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Nor should the role that participatory notes, or P-notes, have in round-tripping money be underemphasised.  

The United Progressive Alliance government twice, out of fear that foreign investors would sell their holdings in the Indian stock markets, ducked out of properly regulating P-notes.  

In 2007, when it was proposed that they be phased out, the government ultimately refused to do so.

The second was in 2012, when the current account was beginning to be stressed, and anti-avoidance rules were redesigned to avoid being applied to P-notes. 

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But P-notes are intended precisely to anonymise transactions in Indian securities and, thus, will inevitably attract those who wish anonymity to confuse the taxman - and not just business rivals.

The fact is that the markets are, at the moment, riding high enough for the government to look foreign institutional investors (FIIs) in the eye and tell them the era of easy anonymity is over.  

If the government is serious about black money, then it must not stop at an SIT meant to "bring back" black money.

After all, as a White Paper released by the previous government persuasively argued, much black money has likely already been brought back into the Indian economy. 

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 After all, as a White Paper released by the previous government persuasively argued, much black money has likely already been brought back into the Indian economy.

The real aim must be to close loopholes and end round-tripping. And, in order to do that, financial reform is required.

The need is to ensure that FIIs are held to the same know-your-customer requirements that they would be in mature markets. 

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As expressed in repeated G20 resolutions, and in a series of aggressive actions by the United States and the European Union, the mood of the world is to close such tax loopholes, and to end the era of tax havens.

India must do its bit. An SIT is a good beginning, but it needs to be followed through.