Indian agriculture is in deep crisis and most farmers are struggling. Yet, paradoxically, many of India's political and economic elite want to be farmers – or at least owners of farmland.
One of them, the chief minister of Himachal Pradesh, Virbhadra Singh, found sleuths of the Central Bureau of Investigation at his doorstep on Saturday as he was leaving for the venue of his daughter's wedding.
The CBI is the latest agency to probe allegations that Singh had amassed illegal wealth between 2009-'12, the years when he served as the Union Minister of Steel in the Congress-led United Progressive Alliance government.
The search by CBI created headlines but the coverage focused on the political slugfest, with Congress leaders accusing the Bharatiya Janata Party-led central government of being "inhumane, cruel and resentful".
Lost in the din were the details of the case against Singh, which the political establishment would rather not debate, since it could throw light on the real reasons why India's rich want to remain part-time agriculturists.
A bumper harvest
Singh owns apple orchards in Shimla. Until 2009, the orchards yielded annual profits of Rs 10 lakhs-Rs 20 lakhs. But in 2012, Singh filed revised income tax returns showing earnings of Rs 6.5 crore from the orchards over a period of three years – Rs 2.21 crore in 2009-'10, Rs 2.8 crore in 2010-'11, and Rs 1.55 crore in 2011-'12.
What pushed up the earnings from the orchards so dramatically?
When asked for an explanation, the manager of the orchards, Anand Chauhan, told the income tax department: "The production of apple is wholly dependent upon weather conditions and the mercy of God."
The investigation by the income tax department found the apples were shipped on scooters, oil tankers and motorcycles to a non-functional mandi where they were sold to unknown firms with non-existent addresses, according to a report in the Times of India.
In effect, the investigators allege the bumper harvest of apples was a fabrication, and that unaccounted income from other sources was passed off as agricultural income by Singh.
Agriculture and black money
As far back as the 1980s, economist OP Chopra, while preparing estimates of unaccounted income in India, noted the widespread use of agriculture for converting illegal funds into legitimate cash. Agricultural income as a form of money laundering featured in discussions within the Indira Gandhi government.
Things have changed little since then. To launder money from black to white, all you need to do is buy a piece of farmland, and attribute the cash piling into your bank accounts to income earned from selling farm produce. Since agricultural income remains tax-free in most Indian states, you need not maintain detailed records of the transactions or submit bills to the taxmen. While tax authorities can initiate investigations into the source of the earnings, such cases remain the exception. That explains why an army of politicians, bureaucrats and other well-heeled people continue to try their hand at growing bumper harvests of potatoes or whatever else is supported by the climatic conditions in the places where they own land.
Agricultural incomes have featured in disproportionate asset cases against several politicians, ranging from Bihar strongman Lalu Prasad Yadav, to Dalit leader Mayawati, even the Tamil Nadu Chief Minister J Jayalalithaa.
More recently, in July 2015, the Lokayukta of Karnataka initiated a probe against a retired chief engineer from Karnataka, N Laxman Rao Peshve, who claimed to have earned Rs 47 lakh from cultivating five acres of land. "The officials visited these lands and found that they were barren lands and no crop was grown there in the last 10-15 years," reported the Deccan Herald.
The government response
In 2012, the Finance Ministry published a white paper on black money in India. One of the recommendations made related to agricultural income. "State governments may consider levy of agricultural income tax with facility for computerised processing and selection verification," it said. "This will on the one hand enhance revenues of state governments, and on the other hand prevent laundering of black money in the garb of agricultural income."
Experts maintain that the government could impose taxes on agricultural income above a certain level, if concern for small and marginal farmers was keeping it from introducing such a measure.
A Tax Administration Reform Commission, in fact, recommended in December 2014 that the government tax large farmers with income exceeding Rs 50 lakh.
Responding to a query in Lok Sabha soon after the commission's report was submitted, Finance Minister Arun Jaitley, however, clarified that the central government had no plans to tax agricultural income.
India's political class is unlikely to deprive itself of one of the safest avenues for recycling ill-gotten wealth.
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One of them, the chief minister of Himachal Pradesh, Virbhadra Singh, found sleuths of the Central Bureau of Investigation at his doorstep on Saturday as he was leaving for the venue of his daughter's wedding.
The CBI is the latest agency to probe allegations that Singh had amassed illegal wealth between 2009-'12, the years when he served as the Union Minister of Steel in the Congress-led United Progressive Alliance government.
The search by CBI created headlines but the coverage focused on the political slugfest, with Congress leaders accusing the Bharatiya Janata Party-led central government of being "inhumane, cruel and resentful".
Lost in the din were the details of the case against Singh, which the political establishment would rather not debate, since it could throw light on the real reasons why India's rich want to remain part-time agriculturists.
A bumper harvest
Singh owns apple orchards in Shimla. Until 2009, the orchards yielded annual profits of Rs 10 lakhs-Rs 20 lakhs. But in 2012, Singh filed revised income tax returns showing earnings of Rs 6.5 crore from the orchards over a period of three years – Rs 2.21 crore in 2009-'10, Rs 2.8 crore in 2010-'11, and Rs 1.55 crore in 2011-'12.
What pushed up the earnings from the orchards so dramatically?
When asked for an explanation, the manager of the orchards, Anand Chauhan, told the income tax department: "The production of apple is wholly dependent upon weather conditions and the mercy of God."
The investigation by the income tax department found the apples were shipped on scooters, oil tankers and motorcycles to a non-functional mandi where they were sold to unknown firms with non-existent addresses, according to a report in the Times of India.
In effect, the investigators allege the bumper harvest of apples was a fabrication, and that unaccounted income from other sources was passed off as agricultural income by Singh.
Agriculture and black money
As far back as the 1980s, economist OP Chopra, while preparing estimates of unaccounted income in India, noted the widespread use of agriculture for converting illegal funds into legitimate cash. Agricultural income as a form of money laundering featured in discussions within the Indira Gandhi government.
Things have changed little since then. To launder money from black to white, all you need to do is buy a piece of farmland, and attribute the cash piling into your bank accounts to income earned from selling farm produce. Since agricultural income remains tax-free in most Indian states, you need not maintain detailed records of the transactions or submit bills to the taxmen. While tax authorities can initiate investigations into the source of the earnings, such cases remain the exception. That explains why an army of politicians, bureaucrats and other well-heeled people continue to try their hand at growing bumper harvests of potatoes or whatever else is supported by the climatic conditions in the places where they own land.
Agricultural incomes have featured in disproportionate asset cases against several politicians, ranging from Bihar strongman Lalu Prasad Yadav, to Dalit leader Mayawati, even the Tamil Nadu Chief Minister J Jayalalithaa.
More recently, in July 2015, the Lokayukta of Karnataka initiated a probe against a retired chief engineer from Karnataka, N Laxman Rao Peshve, who claimed to have earned Rs 47 lakh from cultivating five acres of land. "The officials visited these lands and found that they were barren lands and no crop was grown there in the last 10-15 years," reported the Deccan Herald.
The government response
In 2012, the Finance Ministry published a white paper on black money in India. One of the recommendations made related to agricultural income. "State governments may consider levy of agricultural income tax with facility for computerised processing and selection verification," it said. "This will on the one hand enhance revenues of state governments, and on the other hand prevent laundering of black money in the garb of agricultural income."
Experts maintain that the government could impose taxes on agricultural income above a certain level, if concern for small and marginal farmers was keeping it from introducing such a measure.
A Tax Administration Reform Commission, in fact, recommended in December 2014 that the government tax large farmers with income exceeding Rs 50 lakh.
Responding to a query in Lok Sabha soon after the commission's report was submitted, Finance Minister Arun Jaitley, however, clarified that the central government had no plans to tax agricultural income.
India's political class is unlikely to deprive itself of one of the safest avenues for recycling ill-gotten wealth.