Reader Raj Iyer sent us this article from the Economic Times titled How govt tries to dig out black money:
The government is examining the idea of issuing special bonds to mop up black money without offering any amnesty to the subscriber. The issue has been referred to the law ministry to ensure that such a scheme is legally foolproof, for the government has assured the Supreme Court that it will not come out with any overt amnesty scheme like the VDIS (Voluntary Disclosure of Income Scheme) to mop up black money.
The new scheme under examination entails the issuance of special bonds — zero-coupon bonds that can redeemed at par. Subscribers won’t be offered any interest, which has to be forfeited as a penalty for holding black money (emphasis ours).
Raj says: Perhaps someone needs to explain the ABCs of zero-coupon bonds to these reporters. It would be ok if this story were in the daily papers (such is the state of Indian journalism), but the Economic Times?!
Agree with Raj completely. I don’t know much about the pros and cons of various schemes to “mop” up black money, but do know a thing or two about bonds. Zero-coupon bonds are merely another means of structuring the cash flows from a bond. The non-interest payment is not a “penalty” of any sort. For a primer on zero-coupon bonds, check these useful sites, the SEC and the Bond-Market Association. Both are American organizations, but that is irrelevant. Zero-coupon bonds are the same worldwide.