BackCases like Panama Papers may widen rich-poor divide: Raghuram Rajan
RBI governor Raghuram Rajan says such feelings had started to surface in India and parts of the industrial economies as well
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Mumbai: Instances of the rich and elite allegedly stashing away cash in tax havens may encourage dissatisfaction among the less well-off, Reserve Bank of India (RBI) governor Raghuram Rajan said on Thursday.
“If you have a whole section of people who feel that they do not have the opportunity, then the focus will be on those who have it (wealth) and the legitimacy of the wealth there," Rajan said at Singapore Symposium 2016, organized by the Confederation of Indian Industry (CII) in partnership with The Institute of South Asian Studies (ISAS), National University of Singapore (NUS).
“This is dangerous... the fact that there are occasions where people are found to be hiding their wealth as in the Panama allegations, essentially it contributes to the process of delegitimisation," he added.
The central bank chief said such feelings had started to surface in India and parts of the industrial economies as well, adding that this was something that should worry everyone at a global level.
The comments are Rajan’s latest on the inequality of wealth and crony capitalism in India.
In a speech in October last year, Rajan had pointed out the dangers of the rich becoming richer in a country like India. The movement of income towards high-income people had in fact reduced demand, he said.
“After all, poor people consume every rupee that they receive. But for rich people, once you have bought your yacht and private jet, there isn’t more you can spend on," he added.
On Thursday, the RBI governor said provision of ample opportunities to all sections of society would lead to better management of wealth.
“When we think of finance, it has to be with purpose. Finance cannot create entrepreneurs but it can help them. Finance can help the householder manage risks. And with that in mind we have to figure out the appropriate markets and the appropriate institutions," he said.
Rajan’s comments on Thursday followed the recent leak of 11 million confidential documents from Mossack Fonseca, a law firm based in Panama known for its factory-like production of offshore companies for its worldwide clientele of the well-heeled to set up offshore entities in tax havens around the world.
According to a news report in The Indian Express on 4 April, about 500 Indians have been named in these documents along with prominent figures from across the world.
The RBI, under the liberalized remittance scheme (LRS), allows each Indian national, including minors, to remit up to $250,000 each financial year for purposes including investments in various assets around the world.
Whether the individuals named in the Panama Papers had invested their funds legitimately or not remains to be investigated. The central government on Monday constituted a special multi-agency group including Central Board of Direct Taxes, the Financial Intelligence Unit and RBI to investigate the matter.
In his speech, Rajan said it would be important to ensure that India’s banking system is vibrant enough to support the needs of its population.
“Diversified banks would help in this. But it would also be important to strengthen existing banks in the system and the clean-up is a part of that," he said.
In the monetary policy announcement on Tuesday, RBI floated the idea of issuing diversified banking licences to wholesale banks and long-term finance banks. The central bank has also set a March 2017 deadline for all existing banks to clean up their balance sheets of all stressed assets.
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