BEAREK BONDS 97
concentrated enough, it can have the effect of disrupting production by the creation of artificial scarcities in essential inputs, and can create problems of political and social instability by doing the same to items of consumption. Third, since illegitimate money is inhibited in its use for productive investment, it represents a certain potential loss to expanding the production base of the economy. Thus, while fairly large accumulation through operations in the parallel economy may take place, these cannot be converted into industrial capital, or at least not easily, thereby affecting adversely the long term possibilities and future trends in the economy.
The preamble to the recent ordinance on special bearer bonds has a direct reference to the third aspect of the problem noted above, and does reflect an awareness of the other two on the part of the government: "Whereas for effective economic and social planning it is necessary to canalise for productive purposes black money which has become a serious threat to the national
It is the purpose of this note to argue that the special bearer bonds scheme, as it stands, is not likely to be of much use in effectively tackling any of the three problems mentioned above. The argument is conducted first by examining the salient features. of the scheme as it stands, and then estimating the possible behaviour of potential bond holders (issue of bonds had not started while writing this, and the response of various interested parties, as reported in the newspapers, has also been somewhat mixed). The second part of the exercise has necessarily to be speculative in nature, and as such rests on more than one assumption.
Some Features of the Scheme
Under the scheme, any person holding illegitimate money can purchase the bonds. If he holds illegitimate assets other than money, he can buy bonds only after entering into illegal transactions to convert the assets into the money form. The bonds are available in units with a face value of Rs 10,000 each, and are redeemable in 1991; they will then have a redemption value of Rs 12,000. The bond is a bearer bond, and will therefore not carry on it the name of the original purchaser. In order to protect the identity of the holder of the bond, the ordinance declares that "notwithstanding anything contained in any other law for the time being in force"3 no person who has purchased or otherwise acquired the special bearer bond shall be "required \o disclose, for any purpose whatsoever, the nature and source of acquisition of