From Vajpayee to Modi: Who has been the biggest Swiss money buster?

Indians' money in Swiss banks have been declining over the years with a few remarkable exceptions

The Modi government has recently come under severe attack not just from political opponents, but also from some of its own party leaders, such as Subramanium Swamy, for the 50 per cent spurt in Indian deposits in held Swiss Banks in 2017 over the previous calendar year, to Rs 67 billion. The Rs 67 billion figure is based on data from the Swiss National Bank (SNB). The Modi government insists that Locational Banking Statistics by Bank of International Settlements (BIS) is a better representative of 'black money' than the SNB data. Finance Minister Piyush Goyal defended the government on Tuesday saying, “The cited figures that show an increase of 50 per cent in Swiss banks’ total liabilities towards India also include non-deposit liabilities as well as business of Swiss branches located in India....Data from BIS shows non-bank loans and deposits (which really constitute the individual and corporate deposits used as Black money haven in the past and exclude interbank transactions) have fallen by 34.5 per cent in 2017 ($524 million) compared to 2016 ($800 million).”

With Swiss banks such as UBS -– the biggest of them all -- offering just about 0.01 per cent interest on savings accounts for private clients, and 1-1.5 per cent on investment fund accounts, there is little logic in the assertion that Indians are stashing money in Swiss banks to earn higher returns. The factor that prompts most Indians (and citizens of other nations) to stash money in Switzerland is the country's banking confidentiality and bank client privacy rules, as set forth in Article 47 of the Swiss Banking Act, 1934 and Article 43 of the Stock Exchange Act, 1995. Under these Swiss laws, bank officials who reveal information about their clients’ risk imprisonment or fines. For the purpose of this analysis, SNB data was used. The amount of money in Swiss banks from SNB data was originally in Swiss Francs and has been converted to rupees at the exchange rates prevailing during the respective years mentioned in this analysis.

Swiss banks: Declining Indian deposits over decades

A look at Indian and global deposits held in Swiss banks over the past couple of decades reveals interesting trends about how the flow of money to these banks changes with a switch in regimes. Information from Swiss National Bank (SNB) shows that the amount of money deposited by Indians in Swiss banks between 2014 (when Modi came to power) and 2017 has declined by 44 per cent. In 2014, Indians held Rs 120 billion, at the exchange rates prevailing then, in various Swiss banks. This included money in the form of bank deposits, securities and through fiduciaries (representatives). Within a year of the Modi government’s coming to power, there seems to have been a massive exodus of Indian money from Switzerland. In 2015, the amount of deposits held by Indians fell to Rs 80 billion -– a decline by more than one-third within a year. In 2016, the money put away further slipped to Rs 46 billion. Since that massive exodus, these Swiss deposits have inched up to Rs 67 billion again in 2017, a steep climb from the previous year.

According to Tuesday's government release based on BIS figures, under the Modi government, money in Swiss accounts came down by a staggering 80 per cent, from $2.6 billion to $524 million between 2013 and 2017.

Coming back to SNB data, under Congress-led UPA, there was a steep fall in money held in Swiss banks of over 50 per cent during the first tenure, but that was followed by a marginal three per cent rise during the second tenure from 2009 to 2014. Overall, Indian citizens have been amassing less money in Swiss accounts than they were a couple of decades ago. During the first full tenure of the BJP-led National Democratic Alliance (NDA) government under the Prime Ministership of Atal Bihari Vajpayee (1999-2004), the amount of money held by Indians in the European nation fell by nine per cent. In 1999, when the Vajpayee government came to power, Indians held CHF (Swiss Francs) 3.4 billion (or around Rs 99 billion at the prevailing exchange rates) in Switzerland. In the last year of his government, Indians held around CHF 3.12 billion (or Rs 108 billion at exchange rates prevailing then). Even as the amount of money held by Indians in Swiss banks fell marginally, a depreciating rupee meant that value of such deposits in rupee terms actually increased. This was because the rupee had depreciated by almost a fifth against the Swiss Franc during this period.

 

United Progressive Alliance: A curious trend in Swiss deposits

The scenario was quite different during the two consecutive tenures of the Congress-led United Progressive Alliance (UPA) governments under Manmohan Singh. During the first tenure, from 2004 to 2009, there was a steep fall in wealth held in Swiss banks by Indians (See Chart 1). But Manmohan Singh’s first tenure was characterised by a rather peculiar phenomenon. Indian money in Swiss banks touched an all-time high of CHF 6.5 billion (or Rs 235 billion at prevailing exchange rates) in 2006, midway through his first tenure. BJP leaders have in the past attributed this spike to the Liberalised Remittance Scheme (LRS) introduced in 2004 by the UPA government. Then finance minister P Chidamabram had allowed Indians to freely remit up to $250,000 without seeking any specific approvals. But a closer look at other information suggests that some other factors may have been at play. This sharp spike in Indian money in Swiss banks between 2003 and 2006, which came ahead of another decline, coincided with a boom in bank loans in India. Lending by banks rose by more than a third each in 2004-05 and 2005-06, but quite interestingly, started recording less moderate growth from 2006-07 onwards, the same period when Indians money in Swiss banks reached an all-time high.

But during the UPA government's second tenure (2009 to 2014), for the first time ever since Vajpayee’s time, there was an increase in the amount of money stashed by Indians in Swiss banks in all forms, during a government’s full tenure. During this period, wealth parked in Swiss banks by Indians rose three per cent. 

India vs China vs Russia: Who loves Swiss banks more?

Juxtaposing Indian deposits with those held by citizens of all other countries gives a better perspective of how India stands vis-a-vis the world, when it comes to using the Swiss banking system and its privacy assurances. The increase in Swiss bank deposits under the UPA-2 regime -– especially the steep rise in bank deposits midway through their tenure -- came even as global customer deposits in Swiss banks increased by just two per cent during the same period (See Chart 2). The decline under the Modi government has meant that Indians Swiss bank deposits have declined at a much faster rate than similar global deposits during the same period. Looking at just customer deposits (the largest component among all forms of money stashed) reveals that such monetary extrication by citizens of all nations of the world, including India, declined by around 12 per cent between 2014 to 2017. The decline in Indian deposits was 66 per cent. In 2017, foreign depositors held $1.5 trillion (or Rs 101 trillion) in various Swiss banks in all forms. Indians accounted for less than 0.1 per cent of these deposits of all nationalities combined.

Globally, the trend in India’s deposits in Swiss banks, from Vajpayee's tenure till Modi’s, has fluctuated widely and fades in comparison to other nations like China. In 1999, when Vajpayee became India’s Prime Minister, the Chinese under the Presidentship of Jiang Zemin had just a fraction of the money held by Indians in Swiss banks. The Russian analogy is even more intriguing. The Russians, under the Presidentship of Boris Yeltsin during Vajpayee’s time, held $4.4 billion in Swiss banks. Indians held $3.5 billion. Now it seems the tide has turned. The Chinese hold more money in Swiss banks than Russians and Indians. While the amount of Indian money has declined substantially from the 1999 levels, the Chinese as of 2017 held $15 billion as deposits in Swiss banks -– a rise of more than 2,000 per cent. Russians hold $14 billion while Indians hold a tad above $1 billion as of date.

Under Modi: Massive spike in private transfers abroad

There may be other indications that more Indians are moving away from Swiss banks to other avenues, or entering Swiss banks through other avenues. In particular, a lot more money seems to be flowing out of India through remittances and private transfers under the Modi government than under previous regimes since Vajpayee’s time. According to Reserve Bank of India (RBI) information, more than $6 billion left the country in the form of ‘private transfers’ in 2017-18, a surge of more than a third over 2016-17.  These outward flows of money have been the highest-ever recorded in any year in India of late. Ever since Modi came to power in 2014, almost $17 billion has flowed out of the country in the form of private transfers, according to RBI. This was almost the same as the amount that went out of the country in the form of such private transfers cumulatively during two consecutive tenures of Manmohan Singh.

So even as allegations fly thick and fast in the battle of perceptions on fighting illegitimate money in India, it looks as if stopping Indians from parking their money in Switzerland in a bid to evade taxes will continue to be a work-in-progress for a long time to come. That’s because the joint declaration on Automatic Exchange of Information (AEOI) signed by India and Switzerland in November 2016 is quite limited in its scope. Under the declaration, Switzerland will only share with the Indian government, the bank account information of Indians who have opened accounts on or after September 2018. The first such information exchange is expected to reach Indian authorities in September 2019. India has tax information sharing agreements with UAE, Mauritius, Hong Kong and some other nations, but it is unclear whether these nations are obliged to provide information on Indians who stash money in Swiss banks through their jurisdictions. 

Note: All rupee figures for the different periods mentioned in the story have been converted from Swiss Francs at then prevailing exchange rates