Black money trail

No one exactly knows the quantum of black money. Those who know a little can’t divulge the names of its holders. That neither the present government nor its predecessor could make the information public is a case in point. No government could bring the black money to ground, though they had claimed to put in their ‘best’ efforts. As many as 40 committees and commissions have probed into the matter since Independence, while the money outflow has been growing by the day. As per the National Institute of Public Finance and Policy’s recent report, the black money in the system is equal to 75% of the Indian GDP. The oft-quoted Global Financial Integrity says that there were illegal outflows to the extent of $468 billion during 1948-2008. L K Advani’s figure in 2011 of Rs 28 lakh (or $466 billion) was close to it. So was the CBI’s estimate of $ 500 billion figure. Prof Arun Kumar says it is much bigger than this, and could be $1.2 trillion for the period from 1947 to 2012. But this, the amount stashed in foreign banks, is only a fraction – believed to be only a tenth – of the total black money generated.

Two sources
The UPA government’s white paper of May 2112 made two broad classifications of its sources: criminal and legally permissible activities. The former category includes proceeds from a range of activities like racketeering, trafficking in counterfeit and contraband goods, smuggling, production and trade of narcotics, forgery, illegal mining, illegal felling of forests, illicit liquor trade, robbery, kidnapping, human trafficking, cheating and financial fraud, drug money, bank frauds, illegal trade in arms and bribery and theft by those holding public office and so on and so forth. The latter category includes non-disclosure of incomes with the intention to evade taxes or cover up some noncompliance of legal provisions.

Modus operandi
The white paper vividly explains different means of generating the black money. The important among them are: out of books transactions, parallel books of accounts, manipulation of accounts, under-reporting of production, hawala trade, shell companies and a host of similar other things.

The vulnerable sections of the economy where black money is generated are real estate, bullion and jewellery market, financial markets, public procurement, non-profit organizations, external trade, international transactions involving tax havens, higher education, mining and the informal service sector. The round tripping of black money happens through hawala, mispricing, foreign direct investment through beneficial tax jurisdictions, raising of capital by Indian companies through global depository receipts, and participatory notes. There are about 80 tax heavens – countries with lax tax laws helping the black money generators. The state and the central governments are responsible for checking the black money. The agencies entrusted with the job are various tax departments, Central Board of Direct Taxes and the Central Board of Excise and Customs, Enforcement Directorate, Financial Intelligence Unit, Economic Offences Wing of the State Police, Central Bureau of Investigation, Serious Frauds Investigation Office and Narcotics Control Bureau, Central Economic Intelligence Bureau, National Investigation Agency, and the High Level Committee. So, everything about the black money supposedly enigmatic is in black and white. But its generation and illegal movement outside and into India is not being arrested. The solutions suggested or those so far applied have virtually been ineffective.

For instance, the argument of high tax rates being responsible for black money generation is not tenable. The block money, in 1971, when the peak income tax rate was 98, was just 7% of the GDP. Now it has reached to 75% level when the peak tax rates is just 30%.

Similarly, the simplification of procedures solution, too, can be no excuse, as the black money holders maintain a highly complex unofficial accounts. It is very clear that the beneficiaries of black money, those who ascend to power through its support will have no will to unearth the black money; rather the unholy alliance of the trio – politician, businessman and bureaucrat – perfectly works towards the generation and sustenance of black money. So, the black money will not come into open as long as there is no change in this power structure. Unfortunately, the change is not round the corner.