Black money: ‘Elephant bonds’ can help India recover $500 billion stashed abroad, says govt panel

A high-level trade panel estimates that India could recover up to $500 billion of black money stashed overseas if it implements its proposal to issue a type of long-term government bond to those with undisclosed wealth. The High Level Advisory Group on Trade Policy (HLAG), which released its recommendations to boost India’s trade this week, intends for the money collected via this mechanism to be used towards funding infrastructure projects in the country.

These ‘elephant bonds’ would be an avenue for people to bring their offshore undisclosed wealth into India without fear of prosecution, suggests the report. Subscribers will invest 40 per cent of their undisclosed wealth in the bonds and will be issued a fixed coupon security.

“The HLAG estimates that creation of elephant bonds could help fund (approximately) $500 billion worth of infrastructure projects,” stated the HLAG, which was set up under the Ministry of Commerce and Industry last year and chaired by economist and former member of the Economic Advisory Council to the Prime Minister, Surjit S Bhalla. He has recently been appointed Executive Director for India at the IMF. He is also a Contributing Editor to The Indian Express.

“If we get even $300 billion, that would solve our infrastructure finance problem and finance the gap between investment and savings. It will bring about an immense lowering of the real interest rate…it will also have a tendency to strengthen the rupee,” Bhalla told The Indian Express.

While 45 per cent of the wealth brought in by subscribing to these elephant bonds will be credited with the depositor, the remaining 15 per cent will be collected as tax deducted at source by the government. Of the amount invested in the bonds, the HLAG has recommended that 75 per cent of the interests earned be collected as tax. One of the key features of the proposed mechanism is that those disclosing their black money will receive “immunity from all laws including under foreign exchange, black money laws and taxation laws,” stated the group’s report.

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“Countries around the world are now co-operating in a crackdown on black money, and this provides a perfect opportunity to escape from illegal (black) money,” said Bhalla, adding that those with undisclosed wealth would only be paying 15 per cent tax and no penalties under the elephant bonds instrument proposed.

“There is a gap in the market for specialised security product, the proceeds of which will only be applied towards addressing the infrastructure requirement,” stated the HLAG.

Countries like Indonesia, Pakistan, Argentina and the Philippines have already launched their own tax amnesty schemes for persons to disclose undeclared income without the risk of prosecution. Indonesia, which had launched its tax amnesty scheme in 2016 to forgive taxes and criminal sanctions, received declarations of hidden assets valued at $367.9 billion from around 970,000 participants during the amnesty period, according to the HLAG.

“This scheme is much more stringent than what Indonesia had implemented, and they managed to collect around $1.5-$2 billion,” Bhalla said. The scheme will also be consistent with the earlier directions of the Supreme Court on undisclosed income in India, according to him.

Apart from this, the HLAG has also proposed measures that would simplify the country’s regulatory and tax framework to attract more overseas investments both from individuals and funds. “What we are proposing is, you can participate in the Indian market even if you’re stationed on the moon,” said Bhalla.