The Swiss money alternative - Straight from the Hip by J Mulraj
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3 SEPTEMBER 2011


Let's admit it. The Government is unlikely to demand details from Swiss (and other offshore bank havens) banks about accounts held by Indians. That would put a lot of politicians and bureaucrats at risk.

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Perhaps the solution offered by Britain is a way out. Under a recently concluded agreement between Britain and the Swiss Government, the identities of account holders will be kept secret, except in criminal or money laundering or terrorist funding cases, but the Swiss will help Britain collect taxes on the funds.

Switzerland will immediately pay Britain $ 5 b. towards past taxes and henceforth will deduct, and remit, a tax of 48% on income earned and 27% on capital gains.

Subsequent to this, the German Government also entered into a similar treaty and collected an upfront payment of $ 8 b. Tax evasion is not the preserve of India alone!

Britain, though, is trying to tackle corruption. The Bribery Act has been introduced wef July 1 making it illegal to offer or accept bribes and an Indian is one of the first to be caught taking one. The Chinese are even more determined. The Vice Chairman of China Mobile, the world's largest telco, got sentenced to death for taking a $ 1.5m bribe.

In India we have a weird drama being played out starting with a CAG report of a whopping Rs 1.7 lac crores loss due to corruption in allotment of 2G spectrum, with several people, including former Telecom Minister and Secretary behind bars. The Ministry now says there was no loss, as the basis of its computation is notional, and erroneous. The CBI also states that the case against one company, Unitech, cannot be proved.

Soon we may be told that the CWG was a model of probity.

That the Adarsh building was perfectly legal.

And the version of the Lokpal bill which the standing committee would approve would be an ineffectual one. As mentioned above, the objective of getting elected is to make money, not to govern properly.

The UK and German treaty with Switzeraland is an idea worth considering. With a refinement. The upfront payment thus collected, and all future taxes, should go into a pool for election funding. A major source of corruption and a large factor for our poor governance is that funding for elections comes from private sources and is unaccounted for. Thus contesting elections, with the help of such favours of funding, becomes an exercise in money making, and of returning favours through appropriate policy, rather than of running the country in the most honest way possible.

If the funding were to come out of a pool created through such a treaty, it could help cleanse the polity of the rot that has spread like cancer through it. The Law Ministry is contemplating proposing a law that would prevent anyone charged with a crime from contesting elections. The figures are shocking. Today 44 of the 206 Congress MPs(21%) are so charged, 44 of BJPs 116 (38%), 9 of SPs 23 (38%) etc. Of course, the possibility of misuse of such a law by the ruling party is eminently possible (all it has to do to prevent a worthy opponent is to file charges). A better way would be if the judicial process can be speeded up substantially, but that's another story.

One could also introduce, as suggested by Warren Buffett, a disqualification of any sitting MP if the fiscal deficit crosses a pre defined limit. In the first four months of this fiscal, the deficit is Rs 2.2 lac crores, more than twice the figure in Apr-Jul 2010 of Rs 0.9 lac crores. This is how the developed world has landed itself in problems, and the direction in which we are heading. It will only be a matter of time before India also finds itself in a position of unsustainably high debt, leading to bankruptcy.

Iceland went bankrupt because its banks went bust. Now a Chinese businessman wants to buy 0.3% of the country for $ 100m.

Bank of America, in which Warren Buffet recently invested $ 5 b., is in need of capital. Where did it get that from? It sold half its stake in China Construction Bank to raise $ 8.3 b.

So, whether a bank, or a company, or a state or a country, what matters is how it is managed.

Take the case of Delhi's power distribution companies. Distribution of power was privatised in July 2002 and different companies took over power distribution to different parts of Delhi. Two of them, BSES and Reliance Infra, have defaulted by over Rs 900 crores to NTPC, which is now threatening to stop supplying power. The Tata distribution company is, however, paying on time so its customers won't be affected! Delhi may plunge into darkness soon, which would be very vexing even though it is used to political darkness.

Gujarat is seen to be administratively well managed as a result of which it has attracted the third auto plant, Peugeot, following Tatas (driven out of West Bengal) and Ford. Good governance attracts investment and creates jobs.

We need jobs, if we are to encash the demographic dividend that is ensuing India. It is heartening to know that the Government proposes to create mega industrial zones, with world class facilities and tax benefits, in order to create millions of jobs and to increase industry's share of GDP to 25%.

One can expect more such economic reform pronouncements from a beleaguered Government wishing to detract attention from corruption scandals. The dirty tricks department of the Government has not learnt its lessons - it is targeting two members of Anna Hazare's team, one by framing a breach of privilege motion against and another by framing IT claims against. Given the popular angst against it, both will fail, just as the arrest of Hazare did.

The FM maintains that GDP will grow at 8.5%, which is difficult to see, and the PM wants it to be over 9% in the next 5 year plan. This is eminently achievable, but with good governance. Not the type currently being displayed.

In corporate news, Sahara India gave an ad. proclaiming its intention to prepay deposits taken from the public, by Dec 2011, instead of 2015 as directed by the RBI. The amount of deposits? Rs 67000 crores! This raises more questions than provides reassurance. One, how did a private group manage to hit such a figure of borrowing without anyone questioning it? As per newspaper reports (ET Sep 3) the publicly available figure of deposits was Rs 13,235 crores - did it increase by some Rs 54000 crores in 18 months? Were accounts not filed for the year ended March 2011? Did Company Law Board or RBI ask why accounts were not filed? Most curiously, how is it able to repay Rs 67,000 crores in the next 4 months? Does it have the liquidity? If it has the liquidity of Rs 67,000 crores, or can create it, was the RBI wrong to worry about its financial stability? Alice would have been right to remark 'curiouser and curiouser!

The BSE-Sensex gained 963 points last week, to end at 16821, and the NSE-Nifty added 293 to end at 5040. It may pause for breath in the coming week.

However, more economic reform announcements could spur the bulls into action, although one expects these to be spaced out. One can thus expect a flat week ahead.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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11 Responses to "The Swiss money alternative"
Amitav
Sep 23, 2011
Sir,
I am a regular reder of your Valued Column. I request to kindly throw some light as to Why Dollar is rising although we all know That US Economy is in Bad Shape. Which are the predominat factors that has basically reverse the age old economics like "Currency values are broadly determined by three factors: the performance of the issuing country’s economy, the credibility of its central bank, and the size and liquidity of markets for financial assets denominated in the currency in question"
Like 
sudhir apte
Sep 13, 2011
Jawahar

Apathy is undesirable,accountability is a must.

I guess RBI objection is a blessing in disguise for Axis bank. I think poor Sheekha Sharma was taken for a ride by old hand like Vallabh Bhansali. In my opinion no brokerage firm in India is worth anywhere near 2000 crore. Time to buy Axis Bank on this news ?
Like 
laljipatel
Sep 12, 2011
I didn't understand clearly as to what you want to say. Like 
D G KENI
Sep 11, 2011
Comedian Conan 0'Brien talks about McDonald's offering an Obama Value Meal in which one can order anything one likes, and the guy standing behind in line pays for it! He is right because in USA every one whether he is common citizen, or belong to working force or employee of white collar or industrialist of small or big no one want to sacrifice for their national economy which is under crisis and the result of it is inevitably explain/express by Comedian Conan 0'Brien.Unless any scarifications of something no one will get anything it also apply to country economic situation like this in USA now. Like 
Prakash Basrur
Sep 10, 2011
(1) 7.5% GDP growth for a "newly opened" developing country with huge un-fulfilled production capacity and a large middle class hungry for quality goods is not a great thing ! What about the inadequate infrastructure , unequal income distribution , sagging investment in the core production sector in last two-three years ?
(2) If a common-man Indian's earning comes from the agriculture sector then why those massive farmer suicides in Bharat a country of "Jai Jawan Jai Kisan"?
Why this great hurry by the two Sardars , one P.M. and the other Planning Commission Head , in reducing Farmland and increasing the SEZ land all over India ?
(3) If , as you say , our economy is robust then why does it get affected by the slightest "coughs & fevers" in the foreign economies and that too in spite of our economy still ( almost 65% ) being controlled by RBI ?
(4) If India's economic parameters have been strong for the last decade , as is being trumpeted all around in India , and US economy's parameters going down post 9/11 decade then why has Rupee not got stronger against the US dollar in last 10 years ?
(5) Why is our capital market so much dependant on the FII money from abroad ? Why is the "aam aadmi" Indian retailers investor hesitant in investing in our "Share Bazaar" ?
(6) With there being no strong "opposition" political party or a coalition , the traditional "family concern" ruling paty is likely to continue forever to "rule" this country ! In that case we are going to have more and more "Lalu's","Kapil's", "Foot-in-mouth court-jesters like Diggi Raja" , "Kural-quoting" southerners like "Chiddu", Left-oriented & "Mata-friendly" Pranabs, "Bollywood-friendly" Amars and the "Mai-Baap Jodi" of the "Padayatri Gandhis" on our political scene for the next 100 years unopposed !
What "real" future does India that is Bharat has ? Vande-Mataram !
Like 
RITA SHAH
Sep 10, 2011
Dear mulraj,

YOU ARE NO MORE AN EXCEPTION TO A GREAT POLITICIAN PRAISING HIGH COMMAND HER THEORIES AND WHAT NOT YOU ARE PREDETERMINED TO REPLACE MANMOHAN SINGH WITH WORSHIP OF NEHRUS DICTATORS AND ANARCHY KEEP IT UP AND BE MORE POPULARIZED TO GET A CAKE OF WORSHIP FRUITS.

KEEP IT UP AND GOD WILL BLESS YOU NEXT AFTER BLESSINGS OF YOUR RESPECTED SONIAJI AND RAHULJI,

GOOD OPPORTUNITIES BE WON BY YOU VERY SOON!

RITA SHAH

Like 
g.m.singhvi
Sep 7, 2011
The esteemed author is a reputed and learned person but i wish he is less cynical and confines himself to the his own field. The political views betray his lack of understanding of the issues involved, otherwise he may be biased. Despite numerous shortcomings, i do not understand how thinking people can demean our Union Govt.,when we also see great things happening.No doubt we deserve better governance in many ways and improvement is visible for those who wish to see but ultimately we get the govt. we deserve. Like 
Piyush Dubey
Sep 7, 2011
This article came through my mail. I am not surprised that Countries like Britain and Germany has done it, but India will not do it. Otherwise may be 80% of the politicians/bureaucrats will be exposed.

What Rasesh says is right. All rules, policies are for aam aadmi and not for these politicians and government officials. For them everything happens under VIP quota so they do not know the pain of common people.

In fact these corrupt politicians/officials are traitors and should be severely punished. Instead this useless government is bringing breach of privilege motion against people who are raising crusade against corruption.

This government is very shrewd. First they separated Baba Ramdev from Team Anna and then crushed him manipulatively by divide and rule. Now they are trying to do the same with team Anna. Govt have moles in Baba Ramdev's team and they are trying to malign him so much so that he does not raise his head against govt. or talks about black money. They will do the same with Team Anna.
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s.a panicker
Sep 6, 2011
Hi,
Forget the Swiss money during this Govt. If this Govt.has any intention to save Indian economy, only one action will solve it for good. Why India should have Rs.1000/- and Rs.500/-Bills while USA has only $100
and UK has only 50 pounds. If we simply withdraw these to denominations, inflation will be history in India, Land priaces shall plummet to one tenth at least and Billons of fake Rs.1000 and 500 will be burnt. Terrerism will end for ever, graft will be minimum...
To print Rs.1000 it takes only Rs.40/- the most loucrative business in India is black money printing whether it is inside the country or outside the country...to bribe one crore using Rs.100 bills will be an uphill task to count and carry....forget the multibilion bribes.....when will our Government realize it? Good luck...
Like 
Nikhil H. Shah
Sep 6, 2011
Last week there was a news item that cabinet ministers have declared their assets on the PMO website.

Do the concerened govt official have the courage to ask Kamal Nath how did he manage to have 263 crore rupees worth of assets being a cabinet minister?

This a farce!!

How much did our friend Sharad Pawar declare??

Nikhil Shah
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