Despite the advent of plastic money and more payments by cheque, India still is an economy that transacts mostly in cash
Picture for representational purpose
The term black money is all encompassing for income on which no taxes have been paid to the state. This income may be from legitimate sources or patently illegal activities such as smuggling, counterfeiting, corruption and narcotics. The estimates of how much black money is generated each year vary widely. But a widely cited, but still supposedly confidential study by the National Institute for Public Finance and Policy (NIPFP), commissioned by the government estimates the black economy in 2013 to be equal to about 75 per cent of the gross domestic product.
The previous NIPFP official study commissioned by the government in 1985 estimated it be equal to about 21 per cent of the GDP in 1984 or Rs364,182 crore out of a total GDP of Rs173,420 crore. In 2014, India’s GDP is estimated to be over $2.047 trillion corresponding to $7.277 trillion PPP. In 2014, the Government of India is expecting to collect taxes and duties amounting to Rs13.64 lakh crore. This only means it is not collecting additional taxes and duties amounting to about 75 per cent of this, in other words about Rs10.4 lakh crore. This is a huge sum and any government will drown in salivation thinking about all the good it can do with that money. We can then contemplate investment to GDP ratios higher than China’s. What this will do for GDP growth and the expansion of prosperity can well be imagined.
India has only 35 million taxpayers of which 89 per cent declare incomes in the 0-5 lakh slab. That means only 11 per cent declare incomes above Rs5 lakh a year, an absurd figure considering Indians now purchased over 2.2 million new passenger vehicles and SUVs last year, by all accounts a slow year. Clearly, most people who should be paying taxes are not.
In the past few years, thanks to the pyrotechnic exertions of a variety of people like Anna Hazare, Arvind Kejriwal, Baba Ramdev, Ram Jethmalani and Subramaniam Swamy, the focus of black money has shifted to money ostensibly held by Indians abroad. Some very astronomical figures are still quoted. Even some people who are at the helm now spoke of every Indian getting a sum of Rs15 lakh into their bank accounts if all the money held abroad was returned. They also promised that they would bring back this money in a hundred days of coming to power. Clearly the numbers are nowhere near the estimates made.
The Swiss National Bank has stated that deposits in the names of Indian individuals and entities last year was a little over Rs14,400 crore, and increased by about Rs 6,000 crore from the previous year. A good part of this would be money legitimately sent or held abroad, as Indians are permitted to remit abroad $125,000 per year for current and capital account activity. After assuming that much more money is lying in other slush money havens, the amounts will not square up to the outrageous estimates made.
Even though a good part of the money held abroad comes back to India in the form of FDI (more than 50 per cent of India’s FDI is from Mauritius) or by politicians at the time of elections, the fact is most of the black money remains in India where it greases the wheels of the economy by investments in construction, consumer spending on consumption and durable goods, and travel and tourism. Despite the advent of plastic money and more payments by cheque, India still is an economy that transacts mostly in cash. If most transactions are by cash, evasion and concealment are easy and possibly inevitable.
In 1985, Rajiv Gandhi’s government made the bouncing of cheques a criminal offence. The underlying purpose of this was to encourage the acceptance of cheques routinely. But our courts have turned prosecution of the bouncer a persecution of the victim, and cheque-bouncing cases have now clogged the court system. So we are back to the cash and carry system that willy-nilly encourages and facilitates tax evasion.
Politics is a full-time vocation. People who are devoted to it do not hold regular office hours jobs to make a living. Some might have private means, but most are “supported” by moneyed people keen to buy connections that can translate into political favours. The level a politician is at determines the scale of money that passes hands. If you look at them closely, very few of our top political leaders have held or hold jobs or have assets that will provide them with living incomes. But almost all of them manage to live well, come to own properties and migrate into the plush comforts of upper income lifestyles. The beauty of this is that almost all of the leading self-made political figures of our age will have hagiographies about early life under very trying conditions. Swimming across a stream to go to school is a particular favourite. Clearly a good part of the so-called “party funds” do not reach the party’s coffers.
It’s not that political parties do not get money directly and declare it too. Corporates and business houses made 87 per cent of the total donations to national parties between FY 2004-05 and 2011-12. Out of Rs435.87 crore collected by national parties between FY 2004-05 and 2011-12, corporates and business houses donated Rs378.89 crore. Out of the national parties, the Bharatiya Janata Party received the maximum donations of Rs192.47 crore from 1,334 donors from corporate/ business sector followed by the Congress receiving a total contribution of Rs172.25 crore from 418 donors from this sector.
In addition to these, the two major parties have declared additional contributions from “unknown” contributors. The Congress had the highest “unknowns” income in the three financial years (2007-08, 2008-09, 2009-10), amounting to approximately Rs1,185 crore, whereas the BJP is shown to have a similar income of around '600 crore. By now we should have a good hunch who these unknowns are.
But politicians are canny creatures. If they pursue black money within the country and start booking even a fraction of the people who don’t pay taxes, there will be uproar. Their own taps will run dry. Politics is never about courting unpopularity even if the right thing is to be done. So we now have the new crowd sport about how the nation has been defrauded by those who took away much of our recent wealth abroad. Like the Mohammeds of Ghori and Ghazni, Nadir Shah and Robert Clive did at another time.
In 1772, defending himself against charges of looting in India, Robert Clive described in vivid language the situation in which his victory had placed him: With great princes dependent on his pleasure; wealthy bankers bidding against each other for his benevolence with vaults piled with gold and jewels thrown open to him alone. “By God, Mr Chairman,” he exclaimed, “at this moment I stand astonished at my own moderation.” Given our lax standards and loose systems many of our business, bureaucratic, political and criminal leaders could very well say the same!
The writer held senior positions in government and industry, and is a policy analyst studying economic and security issues. He also specialises in the Chinese economy.
Next Story
