What is the common thread running through the financial instrument, Participatory Note (PN), and the metal, gold? Well, they may appear to be as divergent from each other as cricket is from hockey but both are favourites of people in the country thriving on black money.

PN has been in the news for the wrong reasons. It is a derivative investment product whose underlying securities are shares of Indian companies listed in the Indian bourses.

When the Indian Government decided to throw open the sluice gates of the Indian stock markets to foreign institutional investors (FIIs) in 1991, vested interests in India saw an opportunity to join the party. The opaque instrument that PN admittedly is came in handy.

Investors in PN do not come under the SEBI gaze. The matter is strictly between the FII and the foreign investor who wants to hide behind the FII.

Many an expert has voiced his apprehension about how PN lends itself easily to abuse. It is believed that through what is known as round-tripping, Indian black money salted away abroad through over-invoicing of imports and under-invoicing of exports and other dubious techniques can find its way back into India duly laundered through the services of FIIs and their inscrutable PNs.

Yet, the Government has always chickened out in the last minute, willing to hit but afraid to hurt. The Finance Bill, 2012 gave the taxman the ammunition to gun after the anonymous faces making profits through PNs abroad, but the Finance Minister has assured the FIIs and their PN clientele that their dovecots would not be fluttered.

Obviously, the Government does not want to rock the boats of round-trippers. The point, however, is why PNs, when the Government has recently allowed foreign individuals also to invest directly in the Indian bourses. This knocks the wind out of the sails of the pro PN lobby. Clearly the anonymity conferred by PN is too good to be given up.

Pressure from gold lobby

The next capitulation to the black moneybags is in the offing — there are indications that the pressure mounted on the Government by the gold lobby, largely a subset of the black money lobby, is going to yield results, and the hike in import duty from 2 per cent to 4 per cent ad valorem is going to be rolled back.

That would be a pity because the country needs to do everything in its power to arrest the mounting gold import bill, which is second only to the oil bill.

It is common knowledge that bulk of the black money generated through kickbacks and other dubious devices finds sanctuary in gold just as the black money generated by industrialists finds sanctuary eventually in PNs, helping in not only laundering the black money but also in rigging the share market, more particularly the shares of one's own companies. The ostensible reason for opposition to the hike in gold import duty is it hurts the common man who, in these inflationary times, willy-nilly seeks its sanctuary, given its relentless appreciation on the back of scarcity.

Real-estate transactions

Given that immovable properties are also the favoured parking slot of black money owners, it is entirely possible that pressure may be brought upon the government to roll back the potentially effective bulwark against black money in real-estate transactions —1 per cent TDS on property price in excess of Rs 50 lakh in the specified urban areas and in excess of Rs 20 lakh at other places.

Crocodile tears may be shed by vested interests once again. The move may be assailed as anti-common man who should not be imposed with onerous burdens such as TDS.

The truth, however, is the move, dovetail as it does the TDS requirement with registration by the registrar of properties, is bound to foil tax evasion and reduce the pernicious role of black money.

One wishes that the government does not succumb to the powerful lobby. In any case, buyers of properties should not mind this small social service, as it were. In any case, this will, by and large, be a one-off effort, given that repeat purchases are done by a minuscule section of society.

One hopes that as a concession to the common man, who is not likely to have the administrative resources at his disposal, the duty should be allowed to be discharged with minimum fuss. He should not be made to run from pillar to post. All bank branches should be mandated to accept the TDS from real-estate transactions.

(The author is a New Delhi-based chartered accountant.)

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