There’s much concern on the issues of the Panama Papers and loan delinquencies. The sobering voice of the RBI governor and the RBI tried to restore maturity to these debates.

Happily or otherwise, the Panama Papers reconfirmed that seeking refuge from taxes is a global passion; laws and rules do not deter a person determined to bypass them.

Governor Raghuram Rajan rightly warned against a “dangerous” trend of frequently questioning the legitimacy of entrepreneurial prosperity. Persistent discussion and bids to link it to crony capitalism and black money strengthen misplaced beliefs on the illegitimacy of others’ wealth.

The governor (and the RBI) also cautioned against sweeping promoters/businessmen as a class with one brush, (particularly) when it came to loan defaults. Sharing details to pacify the media or public desire is fraught with the danger of creating serious loss of confidence and undue anxiety.

Negative traits relating to these issues have become entrenched in society. It may serve to revisit history to better understand how they can be tackled. Business at large has been completely supportive of swift dispensation of justice on a wilful defaulter or wrongdoer; this builds confidence in the system and encourages bonafide risk-taking.

This article applies to the commercial and social space; patently illegitimate behaviour or intent is a separate cup of tea and requires to be dealt with accordingly.

Financial integrity is a matter of character, not of income. In a tax-related matter of 1986, the Seventh Circuit Court of USA observed “some people believe with great fervor in preposterous things, that just happen to coincide with their self-interest”.

Need for maturity For solutions, we need greater maturity and forbearance in our ecosystem, to serve a goal larger than just punishment. What started as a matter of concern must not precipitate into a crisis due to the strangulating approach of ‘one size must fit all’. Differentiated and nuanced approaches can go a long way in correctly resolving complications.

When lenders or public investors participated in a project between the 1960s and 1990s, usual promoter outlay required was about 20 per cent of project cost. This implied that the risk was distributed largely beyond management. Nowadays, promoter stakes may have gone up, but in essence risk-bearing remains weighted outside ownership. Nevertheless, this is a procedure that has stood the test of time. Loan default does not equal personal enrichment.

Giving/taking loans are a standard practice in business. Most loans get repaid, some get delayed for a multitude of business factors, only some are refused despite a capacity to repay. In the last case there are usually strict covenants in the contract which must be enforced.

Distorting the vision It is difficult for the younger generation to visualise that India had confiscatory taxation. In addition, an overbearing state (irrespective of political dispensation) fashioned pliable subdivisions, that required frequent courtesies just to get normal things done, that is, without ulterior motives but to achieve timelines and vital outcomes. Almost every businessman remembers this. In society, many remember paying extra to procure railway tickets or phone connections; even now is it not common to be asked in many shops “Do you want a bill?”. The Government is still struggling with cash components in real estate transactions which have nothing to do with either the buyer or seller ‘wanting’ it, but because it became a by-product in a system with extortive levies.

This does not align with the vision of a progressive India.

Why do ‘black money’ transactions not capture the imagination? Is it difficult to visualise that 10,000 people paying off ₹1000 each can be economically as guilty as one with ₹1 crore ? Do people need only others to shoot arrows at?

In response to another search for information from the ultra-rich, an article in swarajyamag.com described how government itself created multiple rural and farm multi-millionaires via purchases of their land; yet the monies remained outside the tax net. Why are they not deemed ultra-rich in the same context? While a moral stance suggests tax must apply, legally it looks grey, and politically it’s a no-go. Principle-based taxation is given a go-by under such expediency but this sustains unjust divides.

Foreign accounts are not infractions in themselves, as Rajan points out. Many accounts falling in grey areas could well be by-products of FERA or Control Raj, for example, a result of innocent and non-criminal transactions like funding travel or studies abroad. Many accounts belonging to businessmen and entrepreneurs may well have been leveraged to support genuine economic activity. The law requires that such contraventions are not treated leniently; in any case, as the foreign black money Bill runs its course, this is water under the bridge.

To eliminate entrenched standards of negative (yet non-criminal) behaviour at various strata in society, we need efficient systems and procedures (yes, this is happening through digitisation and non-personal interfaces), differentiated solutions rather than across-the-board ones (which could discipline larger actors but can leave millions of small ones susceptible), and education that being part of the formal financial system is essential for nation-building.

How to motivate It will be motivating and result-oriented if leaders enlighten and encourage ethical financial behaviour rather than just pledge themselves to nabbing and penalising crooks, which is short-sighted. Happily, there are signs that big-ticket black money use/generation and transfers from India have reduced under the present government and the trend is likely to continue. This is excellent.

The short point remains that much more needs to be done; the burden of more procedures and laws — draconian or otherwise — will not help. We need to evolve stronger yet broad-based hygienic standards by relying on education and motivation, and effective ways (not amnesty) to address past evils. Bureaucratically designed solutions will not work. At the same time there can be no question on the legitimacy of prosperity; after all, the aspirational youth who responded to the Prime Minister’s call also looks forward to earning it.

This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal

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