Category Archives: Capitalism in crisis
A Cure for Capitalism – Richard Wolff and his socialist perspective
Global Capitalism: January 2016 Monthly Update
Head to Head – Has capitalism failed the world?
The country that tricked the world: Fears over the true state of China’s economy
By Ana Swanson 6:00 AM Monday Jan 11, 2016
• Experts unsure as to true state of China’s economy
• Fears that it will pull down global markets
• George Soros believes world heading for another GFC
• READ MORE: Dollar on slide as concerns about China hit
China’s stock market took a breather after plunging this week, pulling global markets down with it. But the financial turbulence rocking China has brought to the surface a deeper fear: That its economy is sinking, and that its downfall will derail the still-fragile economic recovery going on in other parts of the world.
What makes those fears worse is that few people have a good understanding of how well China’s economy is really doing.
The country’s official growth figures paint a rosy picture that any country would aspire to: In the third quarter, China said its economy expanded 6.9 percent from the previous year, far above US growth of 2 percent.
But how much should we believe those figures?
“Not a lot,” says Mark Williams, the chief Asia economist at Capital Economics, a research consultancy based in London.
“They are absolute make-believe,” says Leland Miller, the president of China Beige Book International, which compiles private surveys on the Chinese economy.
China’s economy has been gradually slowing from the double-digit rates it recorded in past decades, due to a variety of factors, some of which are the inevitable result of many years of fast growth, and some of which are not.
Billionaire investor George Soros believes the world could be headed towards a new global financial crisis. “When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008,” he told a recent an economic forum.
“Unfortunately China has a major adjustment problem and it has a lot of choices and it can actually transfer to the rest of the world its own problems by devaluing its currency and that is what China is doing. We are facing a very serious transitional problem which is quite recent and it is, I would say, (a situation) that amounts to a crisis, and we are at the beginning of that.”
Experts widely disagree on exactly how much the economy has slowed. While some analysts estimate the growth in China’s gross domestic product (GDP) at as little as 1 or 2 percent, other estimates are higher, even if not as high as the country’s official read.
Williams’ firm – which set up its own measure for Chinese economic growth in 2009 based on figures like cargo freight volumes – believes China’s economy is likely growing at 4 or 4.5 percent. The chart below shows how his firm’s estimates for China’s growth have recently sunk below the official figures:
Miller’s firm estimates that China’s current growth is around 4.5 percent, though he calls the focus on GDP “sort of a distraction,” since GDP reflects aggregate growth, rather than the type of real productive economic activity that is sustainable and leads to more growth. “If China wants to generate aggregate growth, all it has to do is build a bridge, tear it down, build a bridge, tear it down, and keep going,” he says.
China denies allegations that it cooks its books.
China does not underestimate its GDP deflator and we don’t overestimate our GDP.
The question of China’s official growth statistics is one of credibility.
If the country is overstating growth a bit, then it might mean that the world economy will be a bit weaker in coming years than expected. If it is overstating it a lot, it could mean China’s government is really worried about whether it is coming in for a hard landing, with far more serious implications for both the country and the global economy.
Many analysts say political pressure is certainly behind the inflated numbers. Achieving growth targets is a matter of political importance in China, and there’s evidence that someone somewhere is fiddling with the numbers.
For one thing, China’s No. 2 leader, Li Keqiang, admitted as much in 2007.
A diplomatic cable released to the public by Wikileaks quoted Li as saying during a dinner that GDP figures were “man-made” and therefore unreliable. Li said he personally looked at electric consumption, rail cargo and loans disbursed for a clue to how the economy was operating, rather than official growth figures.
“All other figures, especially GDP statistics, are ‘for reference only,’ he said smiling,” the cable reads.
There’s also a lot of numerical evidence that something fishy is going on.
In most years, if you add together the estimates that each of China’s 31 provinces give for their economic activity that year, you’ll get a figure that is much larger than Beijing’s independent calculation of what each sector produced that year. So much larger, in fact, that it looks like China is missing an entire province – suggesting that local leaders are being more than a little optimistic about their growth.
According to calculations by Capital Economics, the wealth of other economic data coming out of China suggests that GDP figures are overstated. And China’s growth figures in times of economic turmoil – like the Asian financial crisis – have been suspiciously steady. Unlike most emerging economies, China’s “real growth rates are uncannily stable from quarter to quarter, which suggests that there is routine smoothing going on,” Williams wrote in a note in October.
The culprits are usually thought to be the official growth targets that leaders set for different provinces and the country as a whole.
For decades, China has set an official economic growth target as part of its “Five-Year Plan,” which is exactly what it sounds like – a wide-sweeping development plan for the country for the next five years. In order to be promoted, officials at all levels must do their part to meet the goals in the Five-Year Plan.
China always manages to meet its annual growth targets. And despite growing evidence that the economy slowed in 2015, leaders have said that the country will still meet its goal of growth “around 7 percent.”
Westerners sometimes describe China’s record of satisfying these growth targets as a conspiracy – as if someone in a back room at China’s statistics bureau is tasked with changing 0s to 7s until all the numbers add up.
In reality, the errors may be much more widespread and haphazard than that.
When statisticians calculate growth, they have to make a lot of assumptions about missing data. In most countries there are errors in both positive and negative directions.
But because there is political pressure in China to hit a growth rate that is close to the official target, “all those interventions tend to push the figure in one direction,” says Williams.
Many Western analysts have argued that China should scrap this growth target altogether, instead putting its focus on unemployment and inflation, like most developed countries do.
I think that the only way that China will be able to hit its targets over the next five years would be in the short term to pursue some very undesirable stimulus policies, which would only create bigger problems down the road, or by faking the numbers.
Setting a growth target not only distorts China’s official statistics, it is also likely bad for its economy, since it can encourage short-sighted policies that boost growth right now and hurt the economy later – like taking out more loans or building wasteful infrastructure – rather than a focus on more sustainable growth.
But China seems unlikely to do away with targets anytime soon.
In November, President Xi Jinping announced the country’s new targets for the next five years: Average annual economic growth of 6.5 percent between 2016 and 2020.
As Andrew Batson, the research director for economic research firm GaveKal Dragonomics, explained, China’s puzzling devotion to growth targets is all about politics, not economics.
The targets that Xi recently announced put the country in line to reach an economic level in 2020 that his predecessors Hu Jintao, Jiang Zemin and Deng Xiaoping all aimed at before him.
In China’s one-party system, following the goals of past leaders, especially Deng Xiaoping, the father of China’s economic reforms, is just good politics. The targets “are a way by which successive Chinese leaders have tied themselves to the legacy of Deng Xiaoping, and thereby increased their own legitimacy,” writes Batson.
Unfortunately for Xi, China’s economy may refuse to cooperate with these political aims. China’s economy has been slowing, due to its aging population, wasteful spending, a build-up of debt, and other factors. As the chart below shows, the gap between China’s growth targets and its actual growth has narrowed significantly in recent years.
So the setting of a relatively high target of 6.5 percent growth for the next five years – a time in which economic forces are likely to continue to drag on China’s economy – suggests that we could see a lot more fiddled growth figures to come.
“I think that the only way that China will be able to hit its targets over the next five years would be in the short term to pursue some very undesirable stimulus policies, which would only create bigger problems down the road, or by faking the numbers,” says Williams.
Chinese economic woes go beyond market crash
http://www.usatoday.com/story/money/markets/2016/01/08/china-stock-market/78503578/
BEIJING — The crash in the Chinese stock market this week unnerved investors around the world, but many here who don’t gamble in stocks have other economic worries on their minds.
Waste recycler Che Zhongqing, 52, is a perfect bellwether for the problems that are besetting the world’s second largest economy beyond a volatile stock market and falling currency.
The paper, plastic and old electrical items she collects from homes in the capital are turned into materials for China’s manufacturing sector, whose exports have fallen amid a drop in demand for Chinese goods from abroad.
Che is feeling the effects of the slowdown — demand for her wares has dropped substantially over the last two years.
Today, old fridges, which contain copper and other useful metals, sell for 50 yuan ($7.6) — a third of the amount Che got for them in 2014 — and the price of plastic bottles has dropped from 1 mao (2 cents) and 0.3 mao (0.5 cents).
“There’s no money in the trade any more. I have heard it because factories are closing,” she said at her informal street-side sorting point.
For most of the last three decades, China has enjoyed breakneck levels of growth by exporting vast quantities of cheap consumer goods worldwide thanks to its vast workforce and scant concern for labor rights or the environment.
But faced with rising labor costs, an aging population and escalating pollution, the ruling Communist Party is now struggling to shift to a new economic growth model based on innovation, domestic consumption, higher-end manufacturing and services.
Matters came to a head this week when China’s problems set off a global stock market rout.
On Thursday, the Shanghai composite benchmark plunged by 7% within half an hour, halting trading for the second time in a week. The rout, set off by concerns thatBeijing is allowing the yuan to weaken too fast against the dollar, came after the Shanghai composite dived 6.9% Monday, prompting a global stock sell-off.
Thursday’s chaos led Chinese authorities to suspend the new trading “circuit breakers” — intended to damp panic — four days after they were introduced amid concerns that they were causing further volatility.
On Friday, Chinese stocks rebounded to finish 2% higher, providing respite in a roller-coaster week. Analysts said the recovery was likely due to buying from Chinese government bodies.
American financier George Soros warned that China’s flagging economy and subsequent devaluation of its currency were undermining financial stability in ways reminiscent of the global crisis of 2008.
Zhu Ning, an adviser to the People’s Bank of China, the country’s central bank, was similarly downbeat in an interview with USA TODAY on Friday.
“China is in a bubble period so that is a big uncertainty for China now and that will have profound repercussions to the rest of the world economy,” he said. “So I think Soros has a point.”
He said China’s vast and growing middle class would continue to support growth, adding that Chinese authorities have more tools at their disposal — more stimulus and more intervention in the stock market and exchange rate — to tackle the current crisis than most Western governments.
Without structural reforms such as decreasing the role of the state however, China’s service sector would not grow fast enough to compensate for a slowdown in other areas of the economy, he said.
“The biggest uncertainty is if we don’t see more reforms coming along, then China is doomed,” Zhu said.
Some other economists take a more a sanguine view, saying the recent market turmoil in China does not reflect the country’s economic fundamentals.
“China’s stock market wasn’t a mirror of the economy’s health when it was booming and it doesn’t reflect a sudden economic downturn now it’s collapsing,” said Mark Williams, the chief Asia economist at Capital Economics in London.
“The equity market is a shambles but the economic outlook is far better than commonly perceived,” he added.
That is little comfort for Che as she stacks her three-wheeled truck with flattened cardboard boxes.
“I am a farmer with no education, there is nothing else I can do,” she said.
It is for ordinary people like Che that the Chinese economy needs to keep growing.
Strategist talks ‘return of the northern peso’ as Canada’s oil shock enters new phase
Strategist talks ‘return of the northern peso’ as Canada’s oil shock enters new phase
For the Canadian dollar, 2016 has been looking an awful lot like 2015.
Amid prolonged softness in commodity prices, the adverse effects of lower oil prices on the Canadian economy have proved to be more severe and enduring than the nation’s central bank anticipated.
The loonie stumbled to a 12-year low relative to the U.S. greenback on Thursday morning in the wake of an abysmal shortened session of trading in China coupled with a fresh leg of weakness in oil and ahead of a speech from Bank of Canada Governor Stephen Poloz.
In “The Return of the Northern Peso” – a note title referencing the Canadian dollar’s dog days in the 1990s – TD Senior FX Strategist Mazen Issa asserts that there are still dominoes to fall stemming from the downwards move in the country’s terms of trade.
“Canada is progressing through a terms of trade shock as the knock-on effects from the collapse in energy prices continues to resonate,” he wrote.
Despite a shock rate cut to kick off 2015, Mr. Poloz and the Bank of Canada’s Governing Council were optimistic that the nation’s economy would weather a period of lower crude prices without too much aggregate damage.
As of April, the Bank was still professing the belief that pain would be short-lived.
“The negative effects of lower oil prices have begun to emerge and seem to be more front-loaded than expected in January,” read the Governing Council’s Monetary Policy Report. “The Bank’s estimate of real GDP in the first quarter of 2015 has been revised down since the January Report, to essentially no growth, primarily reflecting the pulling forward of the impact of the oil price shock.”
However, after a second rate cut in July, monetary policymakers soon started to sing a different, more nuanced tune on the state of the economy.
“Canada’s resource sector continues to adjust to lower prices for oil and other commodities, with some spillover to the rest of the economy,” read the September interest rate statement. “These adjustments are complex and are expected to take considerable time.”
TD’s Issa echoes these sentiments, explaining that the Canadian economy is near the end of the second phase of a three- stage negative sequence in response to the collapse in oil prices:
Broadly speaking, these effects tend to be seen in three stages. The first round is typically marked by the terms of trade shock with a hit to incomes. Capex intentions are typically reduced but a more advanced stage of actual capex reductions begins to unfold in the second round and may also lead to more severe headcount reductions to preserve margins. Households may also liquidate assets at this stage as well. The third round is potentially most severe with a burst of local credit conditions.
The strategist cited tightening credit conditions as evidence that regional economies might be entering into the third stage of the swoon. Moreover, oil companies have to grapple with continued losses on U.S. dollar-denominated debt and the expiration of hedges that helped cushion the blow last year, Mr. Issa added.
Meanwhile, the trend annual growth rate of non-energy export volumes, expected to pick up steam in part because of the decline in the currency, slowed significantly over the course of 2015 even once November’s better-than-expected trade figures are factored into the equation.
Issa suggests that the nation’s non-energy real export gains have been blunted by the widespread currency depreciation relative to the greenback, a structural loss of market share, and the U.S. manufacturing sector’s woes, as the supply chain linkages with Canada are vast.
As such, the strategist sees a possibility that the Bank of Canada will have to increase monetary stimulus, perhaps as soon as this month, as the economy waits for greater fiscal spending at the federal level to materialize.
“Though additional cuts may not necessarily be the ideal policy prescription compared to fiscal (which will occur), the Bank may not want to stand idle while conditions deteriorate further,” he wrote.
TD anticipates that the Canadian dollar’s malaise will continue for three to six months and see U.S. dollar to rise to the mid-1.40s versus the loonie.
“We think the Canadian dollar is vulnerable to acute pressures early this year,” concluded Mr. Issa.
The Superpower Politics
The following were my tweets which I want to share in this blog.
1. Korean war lasted for 4 years by all foreign countries and ended with the the split of the country but the 2 sides remain tense since then.
2. Vietnam war lasted full 20 years led for most part by the US fighting ‘communists’ and lost to Viet Cong of Ho Chi Minh.
3. In the case of VietNam war the first phase of the war was fought by the French and they lost to nationalists who were also communists.
4. When the French were defeated the Americans got into action and occupied the south of Vietnam and carried the war for 20 years and lost.
5. In case of Vietnam War, unlike Korean war, the nation that was split was unified. The new nation was dependent on China but soon broke that dependence.
6. The third largest localized war since the second World War was the Afghan war where people elected an anti-Islamic govt but it was communist.
7. Though the govt was known as The Islamic State of Afghanistan & internationally recgonized, the Talibans attacked & captured it in 1996.
8. The Talibans were supported by Pakistan and Saudi Arabia (which literally meant the Americans & the NATO).
9. This was unacceptable to the Soviet Union so it invaded Afghanistan to support its puppet govt.
10. Al Quieda got anointed as the leader of resistance of the Muslim nations supporting the Talibans, by the US and the NATO.
11. In 1989 the Soviets withdrew from Afghanistan paving the way for Taliban rule which became a client state of Pakistan.
12. The end of Afghan war culminated in the proxy war between international communists led by Soviet Union and the ant-communist US.
13. By 1991 Soviet Union collapsed and the cold war ended. Communist China was still a thorn in the flesh for the US hankering on hegemony.
14. Around the year 2000 China under Deng Zio Ping saw the writing on the wall written by the collapse of the USSR and it abandoned Socialism and opted for State Capitalism.
15. Russia the survivor of the ruins of the Soviet Union with its vast resources and nuclear weapons emerged as a superpower nevertheless.
16. Europe began to ail under the mismanaged European Union and its old powers like Britain and France remained as paper powers to contend in the middle-east only.
17. However the NATO and the EU remained partners with the US in all international crises.
18. Thus there emerged 3 superpowers – The US, Russia and China with the Europeans under NATO & the EU as the 4th.
19. What is a superpower? It is a state that can be able to lend money to many small states and command their loyalty. Lending is the basis of Capitalism.
20. These small states also constitute a ‘market’ that is exclusively attached to a superpower. Being a neibhor also greatly contributes in claiming a country as its vassal state. Only Cuba resisted this trend for a very long time.
21. In the 2nd World War many enemies became friends and many friends became enemies.
22. The outcome of the WW II is the defeat of Germany and Japan as superpowers and they became client states of the US.
23. Much of the East European Nations became client states of the Soviet Union.
24. The War freed China from the clutches of Japan. Because of idealogy the Soviets tried and succeeded a bit getting China as a client state.
25. By 1962 the Chinese freed themselves and asserted their sovereignty and blasted their Nukes in celebration!
26. India also got ‘independence’, sort of, but still tied to the Brits as a dominion which was broken only in 1956.
27. India still remained an appendage of Britain through the Common Wealth because it had a begging bowl in the hand!
28. On conclusion of WW II the world got divided into two camps one led by the Soviets as leader of anti-imperialism.
29. The other was led by the US that touted itself as the bastion for freedom from dictatorship and for free-economy.
30. Ex-colonialists like Britain, France were also playing a role of influence on nations that they were exploiting before.
31. Yet the making and functioning of the UN let these superpowers to compromise to not to aggravate tension but yet continue their confrontation.
32. This is the context in which the coming into the scene of Pakistan and India as two ‘nations’.
33. First of all no nations has ever existed on this earth purely as a domain of any religion. Therefore Pakistan is not a nation.
34. Besides Pakistan was in two pieces split apart by hundreds and miles.
35. Clearly Pakistan was set up to squeeze and suffocate India in return to handing over power to lackey Gandhi-Patel-Nehru clique.
36. Gandhi-Patel-Nehru clique saw that refusing the offer would deny them power and the sure return of Subhash Bose. So they succumbed.
37. The role set out for these two nations began to play in frequent wars right from invasion of Kashmir.
38. When Pakistan invaded Kashmir Gen. Kariappa asked for 72 hours to wipe out the agressor but Nehru refused on adivce of lady Mountbatten.
39. Nehru traitorously took the matter to the UN and agreed for cease-fire so the Pakis can keep the piece of Kashmir they had grabbed.
40. In 1965 when Lal Bhahadur Sastri captured West Punjab and Lahore, the superpower Soviets got him into Tashkent and killed him.
41. Such was the fright of the superpowers had of India and its capacity to rise like a phoenix from the grave.
42. When Pakistan indulged in genocide in East Pakistan there were millions of East Pakistani Muslims invading into India as refugees.
43. Indira who was then PM decided to stem the flow and sent in the army to quell the massacre by Pakistani army.
44. The US opposed it but the Soviets supported it because India was a client state.
45. Once the Pakistan Army surrendered it demanded that it would surrender only to Indian army and not the Bangladesh Muktibaahini who would surely kill each and everyone of them.
46. The result was that the Pak Army was brought to India and were sheltered, clothed and fed for months as Pakistan refused to take them back!
47. Even the Muslims of East Pakistan who were Biharis and opted to become Pakistanis were taken into India by Indira.
48. No country on earth would accept such an abysmal compromise but Indira did being forced by the Soviets as part of superpower compromise.
49. The client states and their interests are like pawns to be sacrificed in the compromise deals of superpowers viz. the US and the USSR.
50. As I said before after the fall of the Soviet Union, 3 superpowers emerged because China had adopted to State Capitalism.
51. China also had arsenal of nukes and ICBMs, and have built client states and was willing to lend money to the US.
52. So Pakistan is now protected by 3 superpowers. When India blasted its Atom Bomb the west imposed economic embargo of a type and quietly helped Pakistan build its bombs.
53. India has no client states. China took over Tibet, meddles with Nepal, influences Mayanmar and Srilanka.
54. Congress Party that ruled all the while and the BJP that is alternating to rule too never want to break this shackles.
55. Now let us take the focus away from India and concentrate on what the superpowers do now.
56. The US and the Europeans greedy for the gold hoarded by Iraq and Libya invaded them. The disturbance in the Islamic world started.
57. Syria was a stumbling block so the US imposed economic blockade on Syria’s supporter Iran which the Russians OKed because the Russians can grab the oil market deserted by Iran’s blockade.
59. The US now seeing the Syrian isolated started training and arming of rebels in the same fashion as they did with Al Queida in Afghanistan.
60.The birth of ISIS is the brain child of the US. What it did was a spurt of refugees into Europe to which the Europeans were not prepared.
61. So in the melee the Russians were happy selling oil and grabbing territories in Ukraine & blackmailing the Europeans on gas supply.
62. So the Americans suddenly reversed their stand on Iran and concluded peace with them on condition they dont interfere in Syria.
63. In one stroke the Americans isolated Syria, cut off oil market from Russia and decided to overthrow Syrians with ISIS to stem refugees.
64. The Russians responded quickly by bombing rebel bases in Syria.
65. The Russian air war has provided cover for Assad’s ground troops, who lost swathes of territory to terrorists and rebel groups since 2011.
66. US & Russia are conducting their own bombing in Syria ostensibly to fight terrorists but really to help their allies!
67. Americans are telling Russians ‘let us bomb your allies for 12 hours and then you can bomb ours for 12 hours’!! An easy way to destroy Syria!
68. I am confident the superpowers will not let this escalate into a world conflagration but surely the Syrians will gain in this.
69. In the meanwhile the Talibans are gaining and perhaps the ISIS will find a nest in Afghanistan to fly to.
70. Once Taliban re-establishes itself in Afghanistan the Islamic hoards will attack India which was always vulnerable.
71. Only Dr. @Swamy39 had advocated building alliance with Israel openly and sincerely to meet the threat. Only the future will tell how this will unfold.
Banks too big to fail or too big to sail? And, Gangster or Banker?
IS CONGRESS SERIOUS ABOUT ILLEGAL MONEY IN TAX HAVENS? – PART 1 by Prof Vaidyanathan
April 10, 2013 · by Prof Vaidyanathan · in niticentral.com, Tax Heavens
Leaked documents reveal how the rich, crooks and politicians use offshore banking havens to protect their money, a journalism group in Washington said on Thursday.
The International Consortium of Investigative Journalists collaborated with The Guardian and the BBC in Britain, Le Monde in France, Suddeutsche Zeitung and Norddeutscher Rundfunk in Germany, The Washington Post, the Canadian Broadcasting Corp and 31 other news organisations to analyse the data from 2.5 million documents related to more than 120,000 offshore companies and trusts.
“The leaked files provide facts and figures – cash transfers, incorporation dates, links between companies and individuals – that illustrate how offshore financial secrecy has spread aggressively around the globe, allowing the wealthy and the well-connected to dodge taxes and fueling corruption and economic woes in rich and poor nations alike,” the ICIJ said in its report, “Secrecy for Sale: Inside the Global Money Maze.”
The major findings so far are,
» Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts.
» The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.
» Many of the world’s top’s banks – including UBS, Clariden and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
» A well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.
» Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains. (Source: ICIJ)
There are “612 Indians in this list include two Members of Parliament — Lok Sabha Congress MP Vivekanand Gaddam and RS member Vijay Mallya — and several industrialists such as Ravikant Ruia, Samir Modi, Chetan Burman, Abhey Kumar Oswal, Rahul Mammen Mappillai, Teja Raju, Saurabh Mittal and Vinod Doshi.” (Source: Indian Express)
The list also includes businessmen who have had a brush with authorities such as the Income-Tax department and the CBI. Several of the offshore investments were made in possible violation of RBI and FEMA rules.
For instance that substantial amount of our money is stashed illegally in tax havens. For a long period of time there have been discussions on the black money stashed by Indians in Swiss banks. It is not only Swiss banks but various other off-shore banking centres like Lichtenstein, Luxemburg, and Channel Island etc. At the outset let us be clear that Swiss bank is only a generic name given to many such locations which are called tax havens. There are presumably more than 70 tax havens in the world. At least forty countries used to market themselves aggressively as tax havens — even on the internet.
The common characteristics of these tax havens are no or low taxes, not much of Know Your Customer (KYC) norms, no transparency and confidentiality about the account and in some cases these small countries give asylum in case the originating country goes after a customer. Tax havens do not consider tax evasion a crime.
Anywhere between $500 billion to $1.5 trillion of our money is stashed abroad. Most of this has gone abroad due to trade mispricing that is under invoicing and over invoicing of trade items and commissions on major contracts like Bofors stashed abroad.
President Pratibha Patil, in her address to the joint session of the 15th Lok Sabha on June 4, 2009, had clearly enunciated: My Government is fully seized of the issue of illegal money of Indian citizens outside the country in secret bank accounts. It will vigorously pursue all necessary steps in coordination with the countries concerned.
Even though the issue is not part of the agenda for the first 100 days of the new Government, it is refreshingly different from the election rhetoric of the ruling party which initially denied the existence of such illegal wealth stashed abroad. Later, it questioned the estimates and timing of the revelations etc. Fortunately, after the elections, the issue has not been brushed under the carpet.
Then there was a case by Ram Jethmalani and others about our illegal money abroad and the then Supreme Court wanted a Special Investigative Team under retired Supreme Court Justice Jeevan Reddy be constituted to probe the entire issue. Basically the court enlarged the existing coordinating mechanism between RAW/IB/ED/FIU etc. to be supervised by the SIT. The Government of India has not shown any interest in probing the issue.
The case of Hasan Ali is well known and he is supposed to have had several million dollars in Swiss bank accounts. The Government slapped an Income-Tax notice on him based on its findings. Interestingly the response of the Union Government in the Supreme Court indicates that tax demands of Rs 71,848 crores have been raised against the said person, his wife and other associates. If this were the tax demand then the income on which this would have been raised, may be more than 1.5 lakh crore taking into account compounding, penalty etc. This is a mind-boggling figure pertaining to just one case! Our national income for the current year is of the order of Rs 50 lakh crore. But something even more interesting has been reported.
Swiss authorities have told an Indian news magazine that Indian authorities submitted in the case of Pune-based stud farm owner Hassan Ali Khan, who has a Swiss bank account, a request in January 2007 for legal assistance to the Federal Office of Justice. Swiss authorities, upon domestic inquiry, found that the banking information provided with the request for legal assistance contained “forged documents.” Last week, the Centre, in an affidavit to the Supreme Court, had detailed the action it had taken against Hassan Ali Khan, his wife Rheema and Kolkata-based businessman, Kashi Nath Tapuria, who allegedly were holding about $ 8 billion in an UBS account in Switzerland. In a communication from Folco Galli, Information Chief of the Swiss Department of Justice and Police, Berne, the magazine Hardnews was informed that the Indian authorities had submitted “forged” documents to seek assistance in the Hassan Ali Khan case. In its May issue, the magazine said the Swiss sought more information. “Swiss authorities want to provide further assistance in that case if the Indian authorities could satisfy the Swiss government’s demand to establish dual criminality – what is crime in India is a crime in Switzerland. The Swiss also wanted to know whether the offence was an object of Indian money laundering. Since April 2007, the Indian government has not responded.” (Source: The Hindu).
The Myth of Capitalism and its asuric Aura 