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Indian Economic Policy

Notes in tax rates at higher income levels. Mr. H.R. Machiraju estimated the results of all the various
schemes and methods used to unearth black incomes. Up to 1968 a total concealed income of
the order of ` 519 crores was declared on which ` 131 crores were paid as tax, this further
highlights the failure of the Government to unearth black incomes. The Direct Taxes Inquiry
Committee, therefore, categorically opposed the introduction of any further voluntary disclosure
schemes since they “placed a premium on fraud and are unfair to the honest tax payers.” The
DTEC mentioned : “They were more or less schemes for converting black money into white
on payment of what turned out to be in most cases, a small amount of conscience money
(emphasis added). Disclosure made in the name of minors, ladies and benamidars has, on the
other hand, contributed to perpetuating evasion, and rendering investigation in many a case of
suspected tax evasion difficult or even futile. The fact that in the last of the three schemes,
namely block scheme, as many as 77 thousand and odd out of a total of 1,64,226 disclosures
were from persons not previously assessed to tax would bear ample testimony to this misuse of
the scheme. We were informed by the Central Board of Direct Taxes that there were several
instances of the same set of persons taking advantage of all the three schemes which would
belie the theory that such schemes help to rehabilitate the repentant tax evader who is desirous
of mending his ways.”
Ignoring the recommendations of the Direct Taxes Enquiry Committee, the Government again
introduced a Voluntary Disclosure Scheme of Income and Wealth in 1975. The fear psychosis
generated by the emergency had a profound effect. As a consequence, a sum of ` 746 crores was
realised as tax. This certainly terrified the black money operators and most of them were on the
run. But this atmosphere was shortlived. Neither the Janata Government after 1977 nor the
Congress Government after resuming power in 1980 took up the task of unearthing black incomes
seriously.
(iv) Special Bearer Bond Scheme : Special Bearer Bonds Scheme (1981) was intended for canalising
unaccounted money for productive purposes. The Special Bearer Bonds. 1981 of the face value
of ` 10,000 each were issued at par with a maturity period of 10 years. The holders of these
bonds were to be entitled to receive ` 12,000 on maturity. In other words, they carry an interest
of 2 per cent per annum. Complete immunity was granted to the original subscriber or possessor
of the bonds from being questioned about the possession of bonds or about the sources of
money from which the same were acquired. As per data provided in the budget (1982-83),
Special Bearer Bonds were subscribed to the tune of ` 964 crores.
V.L. Mehta, in a very sharp comment condemned the SBB Scheme in the following words.
“Such efforts, as the Bearer Bonds Scheme to tackle the problem, are only half-hearted measures.
By controlling inflation for the time being, the Bearer Bonds Scheme, might to a certain extent,
alleviate the situation, but it has, at the same time providedan opportunity for parallel economy
to function more brazenly and also more effectively. (Emphasis added). There is thus a great
danger of black incomes being generated on a larger scale than hitherto, adding considerably to
the volume of large black incomes that is already there.” It is strange, he further laments,
“possession of currency has to be accounted for but not the possession of the Bearer Bonds.”
(v) Voluntary Disclosure Scheme (1997)
Finance Minister Mr. P. Chidambaram while presenting 1997-98 budget announced a Voluntary
Disclosure Scheme (VDS). The Finance Minister in this connection observed. The scheme is
very simple. Irrespective of the year or nature of the source of funds, the amount disclosed
either as cash, securities or assets, whether held in India or abroad would be charged to tax at
30 per cent for individuals and 35 per cent for corporations. Total immunity would be granted
for any action under the scheme under the Income Tax, Wealth Tax Acts and FERA.
28.1.6 Evolution of a Policy Package to Control Parallel Economy

Broadly speaking, there are two schools of thought on the question of arresting and eliminating the
generation, growth and expansion of black money. There are economists who believe that within the
framework of the mixed economy as obtaining in India, black money can be eliminated and its size

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