After illegal cash, the Narendra Modi government in India is targeting properties bought through illicit funds — a move that experts claim could prove as challenging as demonetising the currency.

Prime Minister Modi said the authorities will soon start implementing a new law against benami property or real estate that an individual buys under a fictitious name or someone else’s name, instead of using his own name. Benami is a Hindi word for ‘without name.’

The law, an amended version of an earlier law passed by Parliament in August, metes out up to seven years’ jail for those guilty of buying property in another person’s name and not being able to explain the source of their money.

‘This is just the beginning. We have to win this battle and the question of feeling exhausted or stopping simply does not arise,’ said Modi last Sunday in his regular radio programme Mann Ki Baat (matter of the heart).

‘We are going to take action against the properties that are purchased in the name of others,’ he added.

Modi came to power on the promise of fighting corruption and curbing India’s black money economy, which is estimated to equal or exceed the size of the nation’s economy.

Under the new law, those unable to explain the sources of funds for purchases are liable to face jail term

Over the past two years, the government has been striving to go after firms and Indians who send money abroad illegally to avoid taxes.

The government’s boldest step came last month when it demonetised 500- and 1,000-rupee notes, the two highest denomination notes in India, to target those who had stashed away unaccounted wealth in cash.

However, the unpopular move has thrown the country into a tailspin, with cash in short supply and Modi coming under fire from critics who note that only 6pc of the unaccounted wealth in India is held in cash.

Most is estimated to be parked in real estate and gold, with no real data on the sizes of these holdings.

While the tax authorities are gearing up to identify such properties, experts say it would be tough to find out who owned such unnamed property in a country where land records are kept in numerous files in municipal or local bodies.

‘Implementation and execution is going to be an issue,’ said Ashutosh Mishra, a governance expert.

‘We haven’t moved ahead with the digitisation of land records. How are you going to match everything?’ the expert questioned.

In India, buying real estate is shrouded in illegal practices.

Sellers may demand a large chunk of the money — from 20 to 60pc — in cash to evade income tax.

As a result, some are forced to pay cash under the table to buy real estate. The cash crunch has caused real estate sales to decline, and observers expect the new benami law to lead to a fall in property prices.

‘We expect the government to further tighten property transaction disclosure norms to clamp down on benami deals,’ said Amit Oberoi of Colliers International, a real estate services company.

Arun Kumar, an economics professor and author of ‘The Black Economy In India,’ said the government needs to introduce a wealth tax and a mechanism to figure out who owns benami property.

‘There is a lot of benami property and most of it is with 5pc of the population,’ Kumar noted.

‘The difficult part is to find out who is the true owner of the property,’ said Kumar.

He expressed doubt over the effectiveness of the new law.

‘They are only trying to scare the population, so that maybe some people get scared and declare,’ he remarked.

‘Businessmen and people holding black money are hardened individuals. They know how to work around the system,’ he said.

The Straits Times/ANN

Published in Dawn, Business & Finance weekly, January 2nd, 2017, 2016