Fact check: Indian black money in Swiss banks has reduced but most of it has nothing to do with Modi

On the first day of the rollout of the Goods and Services Tax on Saturday, Prime Minister Narendra Modi addressed a gathering of chartered accountants. While heaping praises on them, Modi asked the accountants to advise their clients against collecting or stashing away black money.

Citing his government’s efforts in cracking down on unaccounted for wealth, Modi said that money deposited by Indians in Switzerland’s bank accounts had nearly halved by the end of 2016, compared to the previous year.

“New laws have been made and the old ones have been made stronger. New agreements have been signed with countries and previous ones have been renewed. The proof of the government’s efforts to curb black money abroad lies in the latest Swiss bank’s records which show that money deposited by Indians have reached its lowest ever.”

— Prime Minister Narendra Modi on July 1, 2017

Data released by Switzerland’s central bank, the Swiss National Bank, shows that money deposited by Indians in the country’s banks dropped to a low of Rs 4,482 crore in 2016 from to Rs 8,135 crore in 2015. However, this decline is neither new.

The central bank of Switzerland provides yearly information about the money held in the country’s bank accounts since 1987 and data for each continent as well as country is available on its website.

The data shows 2016 was the third straight year that money held by Indians in Swiss bank accounts declined. The data is only up till June of that year, so recent measures such as the scrapping of high-value notes or demonetisation on November 8 and the Income Tax department’s efforts to get information on black money stashed abroad cannot be credited as contributing factors.

More plausibly, an international effort to increase transparency in financial dealings, initiated before the Modi government came to power, appears to have had an impact.

International efforts

The decline in Indian black money stashed in Swiss bank accounts was first noticed in 2014, after more than 50 countries signed a declaration prepared by the Organisation for Economic Co-operation and Development in May that year. The declaration called for the automatic exchange of tax information as a measure to curb offshore tax evasion. The OECD defines automatic exchange of information as “systematic and periodic transmission of ‘bulk’ taxpayer information” by the source country to the residence country of the account holder.

“The advantage of automatic exchange is that India would receive the information on its residents automatically without having to make a specific request and without having first identified instances of non-compliance,” Monica Bhatia, head of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, had told Scroll.in. “This is expected have a significant deterrent effect on taxpayers who seek to hide money abroad and will help enforcement efforts of the tax administration.”

The actual sharing of information is yet to begin. While some of the signatories have committed to start sharing this information for dealings from 2017, others will start reporting in 2018. But it is likely that the deterrence effect has kicked in.

Incomplete picture

While the Modi government has managed to get Switzerland to ratify a pact on sharing financial data from its banks, the agreement only comes into effect in 2018 and the first tranche of information is expected to arrive in September 2019. India is not the sole beneficiary of this move. The Alpine nation has signed the same pact with 40 other nations. The pact was an extension of Switzerland’s commitment to automatic exchange of information under the OECD global forum.

Moreover, the data from Swiss banks does not reveal the true picture of the black money stashed abroad as there is a fear that Indians may have found other avenues in countries such as Singapore and Hong Kong to park illegally obtained wealth.

The statistics released by the Switzerland National Bank only reflect the amount directly owed to entities or people in India and there are suspicions that those wanting to shift their wealth may have routed money to Swiss banks through other countries and entities.