The much talked-about idea of an amnesty scheme has been dropped. The finance ministry has ruled out having such a scheme to bring back the black money stashed away in tax havens.
The ministry's argument was that it would not be able to grant amnesty to people generating money through criminal activities.
It said the scheme was not even considered as an option, even though the government faced allegations over its failure to check illicit flow of funds from the country.
The worry of the government is that black money is also generated through criminal activities and, if a general pardon is granted, it might send wrong signals.
Providing amnesty to the people having this segment of black money will undermine the role India plays in many global forums against money generated through criminal activities or used for them.
"There was never a discussion on an amnesty scheme. Black money is generated through two ways. One is black money being generated and taxes evaded on that, which makes it illicit money.
"But there is also black money, which is generated as proceeds of crime," revenue secretary Sunil Mitra told Business Standard, when asked whether the scheme was considered during the Budget-making process.
The government had announced a voluntary disclosure of income scheme in 1997, which resulted in substantial revenue gain for the tax department that year.
"When you do VDIS, you also grant amnesty. As a member of the Financial Action Task Force, we have a responsibility.
"You can't give amnesty to the people who are collecting black money as proceeds of crime. So, you have to investigate their source of money. Once you start investigating that, the whole amnesty aspect is lost," Mitra said.
In January, the Supreme Court had criticised the government on its handling of the black money issue and its reluctance to disclose the names of Indians who had parked their illegal money in LGT Bank of European nation Liechtenstein, bordering Switzerland.
Economists and experts have always opposed amnesty schemes as they fuel expectations that one can generate black money in anticipation of another opportunity to get amnesty.
The argument is that tax compliance is a function of tax rates, probability of detection and penalty rate.
At a press conference earlier, Finance Minister Pranab Mukherjee had said that an amnesty scheme was always a double-edged sword.
Such a scheme could be favoured because of bringing black money into the mainstream of the economy, but was also criticised for its negative impact on the honest taxpayer, he had said.
The interim recommendations of a BJP task force in 2009 had estimated the amount of black money to be between $500 billion and $1,400 billion, while a current study by Global Financial Integrity estimated the value of illicit money outflow at present to be $462 billion.
The government, however, said all these estimates were based on various unverifiable assumptions and approximations, and so far there were no reliable estimates of black money both inside and outside the country.
The government has adopted a five-pronged strategy to unearth black money.
It includes creating an appropriate legislative framework, joining global crusade against black money, setting up institutions for dealing with illicit funds, developing system for implementation, and imparting skills to the manpower for effective action.
It has entered into pacts with three economic think tanks -- the National Institute of Public Finance and Policy, the National Council of Applied Economic Research and the National Institute of Financial Management -- to arrive at an official figure of black money.
