The government has used the extended session of parliament to pass a new bill in the Lok Sabha as part of its efforts to persuade the nation that it is serious about tackling the problem of “black money”.

Assuming it is soon enacted – which it will be, since it has been deemed to be a “money bill” and so the Rajya Sabha can do nothing about it but discuss it and return it to the Lower House – we will soon have a law on the books to punish Indians who have undeclared accounts or other assets abroad. Any undeclared amount above Rs.5 lakhs will incur a 120% penalty and result in a stiff jail term for the offender. But before the righteous pop the champagne corks to celebrate the prospect of the cells of Tihar Jail overflowing with well-heeled elites, a few sobering demurrals are in order.

None of us disagrees, obviously, that black money is a serious problem. The Congress Party has made it very clear that we would support any serious effort by the Government to bring back black money to this country. But this Bill has four fatal flaws. Though my party did support the bill, we did not do so blindly. It has some real limitations we would have liked to have seen improved.

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The first is that this Bill rests on the premise that foreign assets and foreign accounts are the principal problem in black money. They are not. Of course, no one has any real idea of the scale of the problem. The Ministry of Finance says that there is no official estimate of black money abroad, and they are right. A number of figures were advanced during the Lok Sabha debate, with the highest, from a more objective source than Baba Ramdev – the US-based agency Global Financial Integrity – placing the sum of illicit transfers out of India at about Rs. 28 lakh crore. But that figure still doesn’t amount to the 15 lakhs per Indian that the BJP promised to put into every citizen’s account; it actually works out to under Rs. 25,000 per Indian in black money outside the country. So, first of all, the scale of the problem is much smaller than the public has been led to assume.

The fact is that domestic black money is a much bigger figure (some say it may be almost as much as the entire official economy) and is a much larger problem. Yet, domestic tax evasion remains a civilian offence whereas this Bill criminalizes foreign assets. Let’s face it: this Bill is a pure political diversion by the BJP to distract the people from the Government’s failure to actually tackle black money generation within India.

In fact, even black money generated abroad is brought back to India as FDI through so-called round-tripping, especially via investment havens like Mauritius (from which$4.9 billion dollars came into India during the last financial year). In other words, there’s much more black money here than abroad, including black money that was once abroad.

So, if this Bill is indeed as ambitious as the Minister says, the ambition seems to consist of scratching the tip of the iceberg. The second fatal flaw is that there is no mechanism to actually retrieve information on the defaulters, which requires agreements with foreign governments. There are governments with which we have concluded agreements within the UPA era. Are there any new governments that have come on board to give us information?

How many governments are willing to cooperate with us in this effort?

We know that foreign countries are just not waiting to hand over information to us about Indians holding black money in their countries. The fact is that their domestic laws and International Treaty obligations will prevail. For example, the Swiss Government will not reveal information on Swiss Bank deposits, and cannot reveal them under their own laws, until we provide the names of individuals we are investigating, the names of the banks where they have their money, and evidence of criminality in the acquisition of this money. The Swiss government has said that they will not support any “fishing expedition” by the Indian government looking for Indian names in their banks. The government of India has announced harsh punitive measures in today’s Bill, but how will punitive measures alone promote compliance when the Government has no way of knowing who has assets  abroad, or of getting information that will inculpate people?

***This is why I joked in Parliament that the Finance Minister, who once used to enjoy good South Indian food, has given us a medu vada Bill – a Bill with a big hole in the middle of it*** [emphasis added]. That big hole is the lack of means of obtaining information about those whom the government actually wants to prosecute. You can announce threats of jail and hefty fines, but you cannot fine or jail “persons unknown”.

The third flaw is, paradoxically enough, that this Bill gives unbridled powers to the tax authorities, assessing officers, Enforcement Directorate, CBDT and others, while overlooking the great failures of tax administration in our country. The Bill essentially recreates the Inspector Raj of the pre-liberalization days. It does so by giving the taxman judicial powers, powers to scrutinize files for 16 years, levy penalties, make people criminally liable, and more.

This is all the more ironic since this is a government that has disempowered most of its Ministers and bypassed most bureaucrats except the ones who are in the PMO. The only people who are gaining power now in this government are the taxmen. If these powers are exercised and abused, the Government will drive people away from India: there is already a surge of inquiries about becoming NRIs. There are no safeguards for protecting the innocent. Those who provide inadequate information in good faith will still be punished. The bigger worry is that this kind of tax tyranny will drive away businesses as well. It does not square with the government’s vaunted determination to improve India’s ease of doing business. Worse, the Bill completely overlooks the very poor quality of tax administration in this country. There are real questions about the integrity of our tax process. There are also capacity issues, including a large number of vacancies in the Enforcement Directorate.

One concrete example of the system’s limitations is that the Government missed its deadline of 31st March, 2015 for prosecuting black money holders abroad under the existing Income Tax Act, 1961. Out of 427 actionable cases in the HSBC list, the Special Investigation Team has prosecuted only 200 of them. If the Government does not have the capacity even to go after the names which it already has, what is it going to do with the ones it doesn’t know about under this new Bill?

The fourth and final flaw is a fundamental one — this Bill is not part of an overall strategy. An overall strategy should focus on controlling the generation of black money, which will need a comprehensive approach that includes serious tax reforms and rationalization; reforming real estate practices (and there are a whole series of things which need to be done there); improving the quality of education so that black money does not come into the education system; tackling black money in politics, which we never talk about in Parliament, though every MP knows that politics is awash in black money; and taking action against hawala networks. No such larger comprehensive strategy has been articulated by the Government. Instead, it has offered a Bill that, like modern dating, offers short-term gratification without long-term commitment. This Bill is an attempt to look tough and to seem to be taking decisive action, but it is not anchored or integrated into such a sensible strategy.

We need a comprehensive approach to black money. This isn’t it.