Legitimacy of the wealth

by Saloni Shukla

Reserve Bank of India Governor Raghuram Rajan has again intervened in the debate over the Panama Papers, saying it was important that societies worked towards legitimizing wealth.

Pix : Indian Express

He has said that creating opportunities to sustain legitimacy of wealth was a cause of concern not only for emerging economies but industrial nations as well.

Global level

"Improving opportunities across the board is extremely important to sustain legitimacy of wealth," Rajan said, while speaking at Confederation of Indian Industry - Singapore Symposium 2016. "If whole hoards of people don't feel they have the opportunity, then the focus is going to be on those who have it. And that is something that we need to worry about at the global level."

The Panama Papers are a leak of over 11 million files from the database of Panamanian law firm Mossack Fonseca that helped clients across the world set up offshore companies. The papers reveal details of over 500 Indians with links to such offshore firms.

Crony capitalism

"One of the important sources of concern which you have seen with some of these Panama reports and so on is building in to this notion of the illegitimacy of wealth," Rajan added. "Earlier, the crisis built up the idea that the bankers were illegitimate, that crony capitalism was illegitimate all of which makes sense."

Rajan also expressed concern about the notion whether passive wealth holdings were being considered illegitimate. "Increasingly this talk about whether entrepreneurial wealth is illegitimate, whether self-made people should have what they have and whether that is something that's fair game," Rajan opined. "I think this is dangerous. And, the fact that there are occasions when people are found to be hiding their wealth as in the Panama allegations, essentially contributes to this process of de-legitimization."

Commenting on the investigations in the Panama leak case, Rajan said, enquiries would be conducted to determine whether any wrongdoing was involved while adding that there could be genuine reasons for Indians named in the Mossack Fonseca leaks to have offshore accounts.

"It is important to note that there are legitimate reasons also to have accounts outside, the LRS (Liberalised Remittance Scheme) allows you to take money out," Rajan said, after unveiling the monetary policy last week. "We have to see what is legitimate and what is not legitimate."

Remittance scheme

Under the remittance scheme, all resident individuals are allowed to freely remit up to US$250,000 per financial year for any permissible current or capital account transaction or a combination of both.

RBI is part of the multi-agency inquiry ordered by the government into the holdings of Indians named in the Panama Papers. The group also comprises officials from the Central Board of Direct Taxes (CBDT), its foreign tax and tax research division and the Financial Intelligence Unit (FIU), which will monitor the flow of information in these cases.

- Economic Times