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Photographer: Sanjit Das/Bloomberg Photographer: Sanjit Das/Bloomberg

After saying India had enough illicit funds overseas to buy everyone a new car, Prime Minister Narendra Modi has so far only recovered enough to get them a scoop of ice cream.

25 billion rupees ($385 million) from a three-month window that ended last month before penalties increase on funds stashed abroad to avoid tax, known locally as black money. That amounts to 20 rupees for every Indian, still far short of the 2 million rupees per person that Modi said was possible while campaigning last year.

What’s more, tax experts say that Modi isn’t likely to bring in much more under the legislation designed to recover as much as $1 trillion estimated to have been sent abroad over the past five decades. India has long struggled to bring in enough revenue, leaving it with one of the widest budget deficits among the largest emerging markets.

“This is just more groping in the dark," said Anil Harish, a partner at law firm DM Harish & Co. in Mumbai, who has some clients under investigation for concealing funds overseas. “What they have to do is create a friendlier environment for those people who actually want to bring back their money, while doing a better job of broadening their existing tax net to prohibit people from illegally sending their funds overseas in the first place."

Free Money

Clamping down on black money has long been a hot topic in India. Modi and members of his ruling Bharatiya Janata Party have accused the Gandhi family dynasty, which has ruled India for most of its history, of holding black money in Swiss bank accounts. The Gandhis deny the allegations.

“If we bring back those rupees then each and every poor man in India will get 1.5 million to 2 million rupees for free,” Modi said at a rally in January 2014, before he won India’s largest lower-house majority in 30 years. A year later, Amit Shah, president of Modi’s ruling party, said the remark shouldn’t be taken literally.

The amount raised from July to September is equivalent to 0.2 percent of India’s total revenue last year. The total amount recovered was about four times less than another tax amnesty program in 1997.

One reason Modi’s approach hasn’t brought in even more revenue was because he approached the problem politically with harsher penalties for hiding assets overseas, said Sudhir Kapadia, National Tax Leader at Ernst & Young in Mumbai. Instead, his priority should be on getting Indian agencies to better enforce existing laws, Kapadia said.

Prison Time

Key elements of the new law include:

* A tax and penalty of 120 percent on undisclosed foreign income or assets, up from 35 percent for companies and 30 percent for individuals

* Repeat offenders can face as much as 10 years in prison and a fine of up to 10 million rupees

Revenue Secretary Hasmukh Adhia said last month that 41.5 billion rupees in undisclosed assets had been declared so far. Those who came forward are liable to pay 60 percent of the value, according to the law.

Beyond the law, Modi’s efforts to obtain financial information on overseas bank accounts might have more success, according to Alok Agrawal, Senior Director, Deloitte Haskins & Sells.

"The law improves the government’s ability to track undisclosed income better than in the past," he said. "Given that modest declarations have been made, it’s possible the government may be able to collect more than that over a period of time."

‘Serious Deterrent’

Rakesh Nangia, managing partner at Nangia & Co. in New Delhi, agrees.

“I don’t see much impact of the declarations on this year’s tax collections," said Nangia, who has advised clients on disclosing assets. “But I definitely believe the new Black Money Act will be a serious deterrent for generation of black money in future."

Fundamentally the issue comes down to politics, said Arun Kumar, author of “The Black Economy in India." Political parties use black money to fund constant state and national election campaigns, he said, while vows to crack down on its use still appeal to voters.

“Efforts have been made since 1948 to check black money, but it has only continued to grow,” said Kumar, referring to India’s first full year as an independent country. “The problem really is political and unless there’s political will, this can never be resolved."

(Updates with analyst comment in 12th paragraph.)