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“Indian Money in Foreign Banks – Retrieving it”

Indian Money in Foreign Banks - Retrieving it

Money, Finance & Taxation,Public Arena


Confiscatory and ill-concerned tax regimes have motivated citizens to move their monies out of India.  We need to now seek to incentivize them to get it back into India for the overall benefit of the Country. A single broad-based Goods and Services Tax regime and doing away with Income Tax will encourage proper tax compliance.

Key Concepts:

  • A Confiscatory Tax regime and Anti-Business bias of the early decades after Independence motivated the then wealthy to get their wealth out of the Country.
  • Corruption in the Political and ‘License Raj System’ created more undeclared wealth, most of which was also moved out of the Country.
  • A pragmatic way of bringing this wealth back into India must be worked out, perhaps as suggested below.
  • A pragmatic and broad based tax regime and domestic investment opportunities must be worked out to make such money transfers out of the Country unattractive and hence unnecessary in future.


Key Facts:

  • Indians have the most money in Foreign Banks, over 3 times that of the Russians who are next.
  • It is a gross misunderstanding to assume that Income Tax (I.T.) is the only way to collect tax for the Government. It was introduced in 1913 in the USA in the then context of being unable to collect the revenue, especially of produce, across a vast country. Today a comprehensive and simplified Goods and Services Tax (GST) is far more transparent and equitable.

It is a gross misunderstanding to assume that Income Tax (I.T.) is the only way to collect tax for the Government. Today a comprehensive and simplified Goods and Services Tax (GST) is far more transparent and equitable.

  • Income Tax is paid by about three percent of our Population and most of such Tax payers are in Government Service (where it is only a case of moving money from one Government pocket to the other).
  • The cost of monitoring and collection of Tax is a very major part of the revenue collected as Income Tax and thus the actual net revenue is that much less. It is likely that such costs, including the current market value of the capital assets and the maintenance costs thereof and of litigation, travel and the perks, pensions etc also incurred, will be more than the Tax collected from the non-governmental tax payers / employees.



To create an opportunity to attract maximum inflow of long term low cost Fund flow, from legitimate sources outside India, into India in order to enable us to take up the provision of additional and urgently needed facilities for fundamental needs (Primary Health and Education), and other essential Infrastructure Projects (Water, Power, Roads, Irrigation, Rural Development and Urban Renewal etc).

The amount of India’s wealth lying idle in accounts in Foreign Banks today is variously estimated to be Rs. 106 Lakh Crores or Rs. 140 Lakh Cores – either is, by any measure, an astounding sum of money. Many times the amount of our present Budget, this money, if brought back and put to productive use in the Country, would change the face of India tremendously. This amount is equivalent to many times our foreign debt. The interest earned on this amount will be more than our annual budget. The Government should thus forget about levying any tax thereon and just concentrate on getting the money back into the Country and put it to productive use. Time is of essence as the need is urgent and also as the value of money drops over time.

The amount of India’s wealth lying idle in accounts in Foreign Banks today is variously estimated to be Rs. 106 Lakh Crores or Rs. 140 Lakh Cores

But how can we get this money back into the Country? There seems to be no realistic way to get all the Foreign Banks to give us all the details of all such account holders and getting only a very few names would really serve little purpose and perhaps not even be cost effective. The only practical answer to this conundrum is to make the very Account holders want to bring their funds back into the Country voluntarily and in a short period. But should we do this even if we can?

We can argue over whether the Indian concerned was an unpatriotic individual who at first opportunity moved much of his / her wealth out of India for non-productive security (even if at a cost), without paying his / her taxes as due in India, or we could recall the near confiscatory rate of taxes (at times totaling to over 100 percent) as due in India; and confiscatory Property laws of the many early decades of our Independence, and understand that perhaps there was some ‘Justification’ for such flight of money out of the Country. Of course those who made money out of corruption and also moved such money abroad do not have even such ‘Justification’. Obviously such movement of Capital could only be done by using illegal and mostly underworld ‘Hawala’ channels, many operated by criminals, thus strengthening their operations further.

We will however now restrict ourselves to considering the matter of the majority of such account holders who are not criminals but perhaps would be from: the erstwhile Ruling / Zamindari families, the Political Parties / Leaders, the Professionals, Bureaucrats in key positions and the Business classes. Once these are removed from the total it would tighten up the System and make it easier to identify and take action against the others who would be mainly from the underworld and also to prevent such activity in future.

Now, before any one goes on about wanting to cast the first stone at such account holders, we need to ask him / her, and also those who were Tax payers or Property owners even up to about 25-30 years, ago the following questions.

  1. How did you or any of your family members move foreign earnings into India to pay for the expenses of your dependent family members here? Did you ask your friend to act as a ‘Hawala Operator’ to take advantage of the arbitrage opportunity between the official and unofficial value of the Dollar / Pound / Rial / Dirham?
  2. Did you or any of your family members, who needed more Foreign Exchange abroad than the RBI was in those days willing to release to you, even when you were certain that you had a genuine need for your medical / educational / business expenses, arrange to meet such shortfall through friendly ‘Hawala’ contacts?
  3. Did you or any of your family members give or accept ‘black’ money in any Property Transaction?
  4. Did you or any of your family members hold or deal in ‘Benami’ Funds or Properties?
  5. Did you or any of your family members under declare, or not at all declare, any or part of any income ever received or of gifts received or of wealth owned?
  6. Did you or any of your family members contribute to the ‘Black Economy’ in other ways such as by
  7. Not paying taxes on purchases?
  8. By paying ‘bribes’ or ’speed money’ for some service or the other, or to obtain some unfair advantage?
  9. By under / over declaring the value of exports / imports?
  10. By evading applicable excise /octroi payments or full payment for services availed from service providers such as the Electricity / Water Departments?

Only those of you who can ‘Honestly’ answer ‘NO’ to ALL the above, and also say that your answer would still have been ‘NO’ even if you too had had the opportunity, can claim the right to find fault. If your answer to any of the above or to other such questions that could be asked of you is ‘YES!’, then you too, ‘dear friend’, are culpable because there is no such thing as being “little pregnant” or “little corrupt”.

But don’t berate yourself yet, as the ‘Nuremberg war crimes trial’ made clear, you were and are, not expected to follow unethical or unjust or immoral orders / laws blindly – and the changes in our Laws and Rules governing such transactions as above have clearly made evident that many of them were so in the past, and unfortunately to an extent some are so even today and need to be corrected at the earliest. (See “Equity in Direct Taxes”).

So instead of wasting effort in trying to ‘throw stones’ at each other out of a meaningless ‘holier than thou’ attitude, we need to see what can be done to turn this situation of such vast sums of our Country men’s money lying unproductively abroad, to benefit our Country and thus all of us even if it means overlooking the advantages to the account holders themselves in the process.

Bother not about what they gain; they must have already also paid, to some extent, in transaction costs and lost opportunity costs. We should bother now only about what we as a Country can gain from allowing proper return to, and utilization of this vast amounts in, our Country.

We are also continuously harping on about our demographic dividend, which has already made itself evident in the Southern States, and is now beginning to be evident in a bigger way in the Northern States (BIMARU States), of our Country. But if this dividend is to be taken advantage of we need to ensure a massive level of investment in infrastructure, to create the jobs, and in health and education, to allow the jobs to be taken up by fit and adequately trained persons and do all this at the soonest. Good wages are the source of growth of the middle class and a decent minimum wage set by the Government along with increased public infrastructure investment and greater incentives to startups and rules and laws that encourage such startups are all essential. This will result in greater consumption and a self sustaining economy. It should be noted that when the ‘Gallup’ organization surveyed the world’s poor (living on less than $ 2/- per day), their first demand worldwide was not for ‘hand – outs’ but for a ‘Good Job’. They were clear that given the opportunity to work at a ‘Good Job’ they could take care of the other things themselves with dignity. (See – “Health Care for All” and “Education in the 21st Century”)

When the ‘Gallup’ organization surveyed the world’s poor (living on less than U.S. $ 2/- per day), their first demand worldwide was not for ‘hand – outs’ but for a ‘Good Job’.

Failure to do this will only lead to unimaginable discontent and discord resulting in lakhs of uneducated, unemployed and dissatisfied youth resorting to violence and lawlessness, further threatening the very fabric of the Nation. Lack of proper opportunity for even the educated and skilled will also result in an even greater flight of wealth and ‘brain power’ and skills, in an ever downward spiral soon extinguishing the hope of India ‘Shining’ or ‘Rising’ or ‘Emerging’.

How can this be done? One such solution could be as outlined below, encouraging the money holder to want to bring in his / her funds voluntarily into the Country. If any better solution exists, you dear friend, are welcome to enlighten the rest of us.

Proposed Solution:

The Government of India should immediately form additional Infrastructure and Services Companies on the basis of the Rural Electrification Corporation, NABARD, National Highways Corporation etc to issue long term (5-15 years), tax free bonds for Infrastructure works such as, for Ports, Coastal Development, Air / Rail and other Surface Transport, Schools and Hospitals, Urban Development (especially low cost housing) as increasing shift of the ever growing population from rural to urban is inevitable and inescapable. Banks and even designated NBFCs may also be allowed to issue such Bonds under proper regulatory guidelines. Investments in unproductive assets such as properties should be discouraged so as to avoid asset bubbles.

Such a scheme is different from a Moratorium scheme which only allows suspension of payments that are due for a specified period. It is also different from an Indemnity scheme (eg: VDIS) which provides exemption from penalties or liabilities incurred.

Here we are considering a proposal to meet the above objective by allowing all the Indians who had earlier taken money out of India and are now willing to bring it back to India’s benefit  (it may also include NRI’s and perhaps even any other non Criminal source etc). If they also stand to gain from this Proposal, so be it – as long as the Country gains more.

It should allow a no-questions asked investment by Indian Nationals / NRIs and Indian Corporates through Tax Free Bonds for 5 / 7 / 10 -20 Years period bearing 3 / 5 / 7 percent interest respectively with a no questions asked guarantee on return thereafter. This scheme could be kept open for anything from 1 to 3 or more years depending on our ability to absorb the inflow. The matter of allowing Foreigners or Foreign Institutions / Corporate bodies, to also invest in such Corporations, if there is any perceived advantage by doing so especially in terms of Skills or Technologies or in the speed of setting up and execution, can be considered separately as long as their investments are also locked in for the periods as specified and the sources of the Funds are verified as clean.

Suggestions for Projects and Methodology for execution and ensuring adequate inflow of Funds:

It is the most urgent and essential need of the day to take up massive and very extensive Infrastructure Projects all across the Country to enable us to better grow our Economy and to also put us in a position to meet the Employment needs of our growing working age population.

What sort of Projects? We should Dream Big and Plan and Work to realize it all!

  1. Highways and Rural Connectivity Roads.
  2. Power Projects and Rural Electrification especially across the lower Himalayas and the North- -East States.
  3. Primary and Secondary Schools and Primary Health Centres / Family Welfare Centres / Tier II Town Government Hospitals. (See “Education in the 21st Century” and also “Entrepreneurial Capitalism – The Case for,”)
  4. Mass Rapid Transport Systems in all Metros. New Railway lines connecting various Sea Ports (both existing and new) to Cities across the Country
  5. Railway Corridors (Delhi-Mumbai, Delhi – Kolkata, Hyderabad – Visakhapatnam) and Rail links to the North East and J & K and Ladakh.
  6. New Ports, Harbors and Marina’s all along our Coast Line and Rail and Road connectivity from them to nearest Large Cities.
  7. Construction of many more planned Cities across India to act as Nodal Development Centres and to control the Urbanization of now Rural India in a proper manner. (See “Urbanization”)
  8. Development of inland water ways along with the linking of Rivers (See “The Grand Irrigation and Power System – GIPS”).
  9. Construction of Helipads and Air Fields especially in Central and North East India and the Ladakh Region
  10. Development of Andaman & Nicobar, and Lacadive Islands for Tourism (also for Scientific Research and Military Bases)
  11. Archaeological Department to upgrade all Museums, digitize all Ancient Documents, renovate and maintain all historic buildings and monuments. This will also lead to increased Tourism and thus Employment of Artisans and semi skilled and unskilled persons in great numbers.
  12. R & D for Ayurvedic, Siddha and Unani Medical Systems to scientifically identify and propagate their benefits.
  13. Low cost housing projects (preferably prefabricated and factory built)
  14. Massive Environmental Remediation Projects to rectify earlier Environmental damage.
  15. Agricultural Research for improvement of Productivity, reduction in the use of Chemical based Fertilizers, Weedicides and Pesticides etc… Soil, Rivers, Underground Aquifers and Coastal waters Remediation. (See – Agricultural Reforms – “Krishi Jagruti” Scheme Own your Farm as a Share Holder)
  16. Development of wild life sanctuary’s and strengthening animal care and anti-poaching measures therein.
  17. R & D in all disciplines of Science and Technology. (See “War – Weapons, Equipment and Transport” at www.ideaz4india.com).

Methodology to ensure adequate Funding for all such activities (Where there is a WILL and clear Objectives, we can always find a WAY to achieve them)

  1. Incorporate as many new Government Corporations as necessary. In case this is likely to take more time, then such Corporations can be setup as 100 percent owned subsidiaries of existing Corporations and later separated out as deemed necessary. (NABARD, REC, NHRC, NTPC, BARC, Shipping Corporation, National Housing Corporation, Engineers India Ltd, Gammon India Ltd, Hindustan Construction Ltd and many other such Public sector Companies can be the Parent Companies for the Corporations needed). Organizations can also be setup with linkages to the Border Roads Organization, GREF and CPWD etc to take up works in difficult areas.
  2. Allow these Corporations to issue Long Term Bonds at interest rates attractive to long term investment from Abroad (say 3 percent for 5 yrs, 5 percent for 7 yrs and 7 percent for 10 yrs and above). As it is not feasible to absorb and digest all the expected inflow immediately, it would be wise to keep the scheme open for at least 3 years.
  3. As the aim is to see that the Nation and all its Citizens get the maximum benefit, we should remember –‘Aam Khane Se Matlab Hi – Pedh Ginne Se Nahin!’. We can take all precautions to ensure that the inflows do not come from Criminal sources.

Also the replies to the Letters Rogatory sent to all Foreign Banks can be dealt with separately and action taken as deemed fit. Though seeking to punish the recent defaulters while allowing the earlier defaulters to escape, due to the limitation period, may not be just or fair or even worth the effort and cost.


Urgency for Action:

There is another cause for great urgency in this matter of getting Investment into India from Abroad and either converting it all into Indian Rupees or using it to acquire essential assets abroad.

This urgency arises because:

  1. In view of the ongoing financial crisis, the U.S Government is very liberal with printing additional Dollars.
  2. All Western Governments and their Banks and Financial Institutions, which so far had been issuing Financial Instruments and Currency against stated reserves of Gold / Silver / Platinum / Chromium / Rare Earths and other such valuable metals are now indicating that such reserves DO NOT exist to the extent stated. This has presently resulted in a quiet and desperate effort by all of them to buy up as much of such reserves as possible. We too need to build up our reserves of such strategic materials.

Please note that today many commodities have a premium of even upto 100 percent if one insists on physical delivery. This portends a fall of the Dollar in purchasing terms (high inflation)

  1. In view of both these facts it is essential that we get as much Investment into India as possible, especially the so called Indian Money abroad, at the earliest.
  2. It is also essential that we ensure that we hold, or contract for, adequate reserves of such precious metals and other essential items such as Phosphate (an essential input for Fertilizer with very limited availability) and for Oil. We may even consider purchasing a share in respective mines and fields to enable us to weather the coming crisis.
  3. The short term pressure to prevent the Rupee from strengthening should be resisted as far as possible. Looking only at the effect on Exports and not at the effect on Imports of more important and essential items for the growth of our Economy (Capital goods and Petroleum products) would be very short sighted. A strong rupee will benefit the much larger community of consumers more than what a few exporters and traders might lose, resulting in a net gain to the Country.

Exports can be further encouraged by permitting the exporters to either themselves use or sell to others, their foreign exchange earnings to allow them to then import essential inputs like petroleum products and freely sell them with in India in competition with the Public Sector companies (See ‘Pricing and Taxation Policy – For Fuels and Other Enablers’)

Action Points:

  1. Make it attractive, as suggested above, for those holding Indian money in Foreign Banks to voluntarily bring such money back into India.

Alternately, to avoid all the hassle of whether it is fair or unfair etc, the inflow could be allowed through existing channels from countries with which we have Double Taxation Avoidance Treaties (eg: Mauritius) into corporations and for purposes as given above. Participatory notes are not transparent and should be done away with.

  1. Act to prevent such money transfers in future by;
  • Ensuring a broad based and equitable Tax Regime (See “Equity in Direct Taxes”). Preferably consider having a purely Consumption / Goods and Services Tax (GST)  based system.
  • Encouraging and incentivizing domestic entrepreneurship (See “Entrepreneurship – Case For” and also see “Money and Financial Boom & Bust cycles – an inevitable income”)
  • Discourage Black Money transactions (See “Counterfeit Currency and Black Money – A Practical Response”& “Equity in Taxation & Comments on I.T.& G.S.T.”).


The aim is to put in place a methodology to incentivize Indians who have their monies abroad, to bring it into India to invest in infrastructure and other development Projects. Also act to discourage people from taking their monies abroad. A comprehensive and simplified GST can be the only tax needed. There is no need to have Income Tax (See – “Equity in Taxation & Comments on I.T. & G.S.T”).

Seek not selective retribution. Seek common prosperity.


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