Johnson Cherian.
Finance Minister Arun Jaitley on Saturday blamed the Election Commission for failing to check the use of ‘invisible money’ in elections and slammed political parties for preferring the status quo instead of suggesting improvements to the electoral bonds scheme proposed in the Budget.
Speaking at the Delhi Economics Conclave, Mr. Jaitley said the government is already seeing first signs of improvements in direct and indirect tax compliance due to reforms such as demonetisation and the introduction of the Goods and Services Tax, both of which will make it difficult to generate cash in the future.
The Minister also hit out at Indian businesses for functioning under the belief that banks don’t have to be repaid, revealing that one firm had even claimed in a Court of law that the right to not repay banks is part of the Right to Equality.
“For 70 years, India’s democracy has completely been funded by invisible money – elected representatives, governments, political parties, Parliaments — and I must say that the Election Commission completely failed in checking it,” Mr Jaitley said, before hinting that the EC and political parties have a problem with the solution proposed by the government in the Budget to facilitate transparent political funding through electoral bonds.
“Therefore, having failed to check it for 70 years as to how the world’s largest democracy is functioning, the solution doesn’t lie today in finding a fault or a problem with every solution that is suggested. In the last Budget I did suggest a solution that we are actively working on,” he said.
Despite having personally asked political parties, both orally in Parliament and in writing, to offer a better solution than the electoral bonds, Mr Jaitley said: “Not one has come forward till date, because people are quite satisfied with the present system.”
“Every second day, there’s a debate on television how political parties and leaders have utilised those funds. I think when we deal with the subject of cash, it doesn’t merely relate to businesses and the leakages being blocked, but also deals with how political system is now going to be funded — hopefully, in the future, by at least more transparent methods and cleaner money,” the finance minister said.
The government, he said, had been consciously striving to fix what he called the “Indian normal” of having high tax evasion and a huge number of transactions undertaken outside the system. “There was almost helplessness in trying to deal with this situation,” Mr Jaitley said, adding that successive Budgets only made marginal changes with no lasting impact.
“Therefore, steps had to be taken to make a significant impact. If we look at the totality of the various steps we have taken rather than look at them in an isolated manner, each one of them are decisions which will not only have a great long term impact but also has a substantial ethical rationale behind it,” the finance minister asserted.
Laundering dirty cash
While the first major step by the NDA government to shake up the system was the black money law that laid down severe penalties for stashing money abroad, the decision to crack down on money laundering through shell companies under the 1988 Benami property law has sent shivers down the spine of many businesses, bureaucrats as well as politicians, the finance minister said.
“One easy form of conversion had always been the shell companies – a benami route that was followed through multi-layering of companies and then introducing cash in the books and bringing it back as your own income. This had almost become a standard operating procedure, not just for businesses, but also used for round-tripping corruption money by politicians, bureaucrats,” he said.
The revenue department had already started acting on cases after the Centre’s decision to invoke the Benami property law and this would be a big deterrent, Mr Jaitley said. “The sooner this business of routing this money through the shell companies collapses, the better it will be for the formal economy in this country,” he pointed out, before questioning the inaction on implementing a law passed in 1988.
“…It’s a typical illustration of inaction… the law ministry opined sometime a decade and a half ago that the law was unimplementable… We left it at that, didn’t frame rules and didn’t invoke the law. Finally the 1988 law was invoked after amendments in 2016 and it’s sending a shiver in the spines of those who conventionally used this methodology of round tripping of tax avoided money or corruption money back into the system,” he said.
Insolvency Code
Arguing that the Insolvency and Bankruptcy Code would ‘radically alter the manner in which businesses are done’, Mr Jaitley said, “You can’t have structured businesses operating on the premise that bank-funded money is never to be paid back. We had a sufficient belief in this argument which had gone to an illogical extent and created the problem that banks face today.”
“More as a lawyer, which was my earlier profession, rather than as a minister, I was quite surprised by an argument being entertained in court recently that there is a right of equality in the matter of not paying the banks back. So the system really needed to be shaken,” he said.
