The Black Money -A Monster in India’s Economy!

Chapter II

1.The Black Money (BM) is not a new acronym for any one world over as it keeps making headlines in different Avatars (forms) and it has deep roots in many countries. It has indeed a potential not only to derail the economies but also to destroy the prevailing social fabric in countries and bring enough miseries & sufferings in the form of organized crimes, terror and as a result the hunger to the humans in various ways. It is the single most contributor to the inequality and it’s unprecedented rise every year is a reason of worry to the economists & the leaderships world over. The black money has impacted many countries in the past, however, it has re-emerged recently at the centre in the news and an epi-centre of the world scene as Mr. Narendra Modi, the Prime Minister of India who raised this important issue about the menace of black money at recently concluded G-20 submit, in order to garner support from all . India Transforming the nations to contain the spread and eradicate the ill effects of Black Money. He did succeed in this aim to a large extent as the heads of the states conceded to his ideas to bring required changes in the international treaties & bilateral trade regulations those were in support of the hording of black money outside the boundaries of respective countries under the ambit of it’s non disclosure of the information about an individual or the corporate accounts in certain banks. In fact it is an absolutely befitting step taken by the Prime Minister of India at the right forum and he is correct in saying that if the flow of the black money is not stopped across nations, it has potential to destabilize the peace of the world order and impact humanity in worst form as a whole as this money finds use in funding syndicate crimes, terror on the name of religious fanaticism, narcotics, drug trade and wildlife & human trafficking. India is one such country that has been hit by this monster due to its spread uni-equally abroad and internally in all walks of life. Hence, we need to relook at the growing size of this monster very minutely by taking in to consideration, the every source of its generation and spread.

2. If we analyze the generation mechanism of Black Money based on the simple set of basic principles of the economy in the country, it is very convenient to argue that internal black money is more dangerous monster than the black money stashed outside as ESBM (Externally Stocked Black Money) finally finds a route back to the ISBM (Internally Stocked Black Money) travelling via tax haven countries and hawala rackets running for fuelling this parallel economy of near about of equal size of GDP. India is one such country which has a largest size of Black Economy, may be of the order of $ 400 to $ 500 billion . Hence, before analyzing this complex dynamics of these two types of Black Money, let’s first look at how this could start. 3. The trend started as all the dynasties & kings those invaded India took back with them the invaluable treasure and it kept on happening over the centuries. Finally, the British rule in India was no exception to this, even raised the bar to a highest level. As a result under the impact of this trend, initially a few rich Indians & some famous family businessmen have been in the habit of keeping unaccounted money abroad right from the British rule as it was a symbol of affluence on the pretext of storing some safe money abroad meant to be used for the bad days sometime later. It was indeed an unknown fear with them as this money was not made through legitimate ways even in their mind, so, they wanted to keep it at some secure & unknown place that could not be disclosed to anyone except the hoarder. It was definitely done due to their insecurity for doing a wrong. Slowly, it got built in to the culture and the habits through the newly found convenient & lethal combination of the nexus between corrupt politicians, business houses & the bureaucrats (government employees) in power to keep ill gotten money received in the form of bribery & kickbacks in various government deals & paying no income tax on it, in the safe deposits of banks abroad in countries where the non-disclosure treaties very conveniently were put in place to protect their accounts.

3. Once upon a time between 1990 to 2000, it had been debated in media that the volume of Black Money stashed away by the Indians in safe deposits in various banks mainly in Swiss Banks had been of the order of $ 125 - $ 150 Bn. However, it has decreased to about $ 03 Billion in the end of 2013- 14 as it has been brought back through the tax haven countries and Hawala Transactions between 2004 to 2014 and spent in India in the form of purchase of benami properties, gold, hoarding cash and buying of stocks. Most of this money (ESBM) has been used in real estate business which was already funded through Internally Stocked Black Money (ISMB) and this has spiralled & inflated the rates of properties in entire length & breadth of the country during this period. There was hardly any deal in this trade before this government under Mr. N Modi came to power which was done in white paying applicable taxes to the state or central government and without a component of Black Money. The ISMB has been created either by allocation of lands to the real estate players by the state or central government acquiring it at cheaper rates from the farmers and then allocating it to the municipal bodies & private players with tax exemptions on the pretext of building national critical infrastructure and than they i.e. the builders making money many times by sailing built commercial & residential properties or developed plots to the public. The loot was shared by all in this nexus.These clauses of tax exemptions in such projects were purposely created on behalf of the government machinery by the bureaucrats appointed to control & run them so that a syndicate of politicians, bureaucrats and real state players could make use of these provisions to their advantage. Hence, it is a lethal Triad which is main source of ISMB. Though there are so many others potential creators of Black Money including one most potential is the donations received by the political parties through unanimous resources. It is stated that a large sum of donations to the political parties especially the one in power use to come from the PSU’s (Public Sector Undertakings) in the form 10 India Transforming of unanimous resources as black Money as they were allocated extra funds by the GOI resources to complete this cycle. The PSU’s were headed by the corrupt bureaucrats those were especially selected for the purpose & ready to undergo this exercise willingly. The allotment of large volume of lands by the government towards the development of SEZs in 2006 itself to various business houses has resulted in a loss of taxes of the order of $ 15 Billion so far to the government and most of the land has still not been used for the purpose as it was made available. So, the other losses accrued to this account will be very high and it certainly adds some percentage to the existing volume of ISMB if not by the same amount. Though looses will be on higher side as some of them (the allotters) have re-appropriated this land or other lands allocated to them over a period in to some commercial & residential purposes in my opinion. This ISMB is also generated through another most simple & lucrative route that is brining inflated government tenders with the help of a nexus of politicians, bureaucrats and business houses(MNC’s) about various GOI procurements including defence equipments & weapons, in building national critical infrastructure and hiring various types of services for the government towards implementation of welfare schemes and this Triad makes lot of undercuts through commissions and take away large share of money which is not accounted for as the provision for the state requirement were inflated many times, hence, it contributed towards ISMB. It is estimated on a very conservative side that the ISMB so created in last 68 years of independence has grown in to unassumable estimate to the order of $ 250 to $ 350 Bn. The financial experts therefore say that India has an equal size of GDP which runs in to a parallel economy with this monster of Black Money. It is also a fact that if corruption was not there in India and the black money was contained in less than 10% of the GDP always in the past, the India GDP could have been at least $05 trillion as of now. An another source of BM generation is that large volume of very precious & costly rare minerals mined illegally in India and then exported during the period of last 10 years before the present GOI at very low rates as shown in the books by the private parties to the interested international parties / global businesses and they sold it at higher rates in international maeket or made use of such rare raw material in some other refined product. The huge black money so created finding the route back in country either through Hawala or tax haven destinations, hence, again going in to the real estate market for purchase of benami properties inside, buying of unaccounted gold & huge investments in stock market through promissory notes. Such money is also used in inflating share prices, hence, in manipulating stocks. This rare minerals exported outside are considered to be in the range of $ 60 to $ 100 Billion, hence, adding to ESMB first but finally to the ISMB. The money not reaching to the end customer at last mile in GOI sponsored welfare schemes & manipulated in between by the syndicate or Triad of Big Corrupts (nexus of politicians, bureaucrats & the businesses) is another very potential source of Black Money generation in the country economy.

4. I feel the initiatives taken by the present government under the dynamic leadership of Mr.Narendra Modi, the PM of the country at recently concluded G 20 submit that all the countries should help each other internationally in every possible way in order to bring back the Black Money in respective countries so that the culprits involved could be brought to the justice swiftly. This will also curtail the growing size of this bad money in future. There is a need to reorient bi-lateral laws & international treaties on the subject, so that there is no more clause which stops trailing this money so that it could be brought back to the main stream of development rather than it goes in to the funding of various crimes, drug trade or in sponsoring terror The Black Money- A Monster in India’s Economy! 13 or for the enjoyment of few filthy rich who made this money the wrong way. Some of the mechanism proposed to bring back both the forms of Black Money i.e. ESBM & ISBM in to main stream of nation building are the following: (i) The valuation of all the real states Projects either completed or in progress needs to be audited through independent accredited auditors so that any violations observed could be brought to the book and if steps required to be initiated could be taken through setting up the Fast Track Courts (FTC). The needed auditors and FTCs are to be created by the government proportional to the need immediately without delay. All the benami properties need to be declared by date otherwise it could be attached to the state. An accountability of Benami properties inside as well as outside the country shall address about 40 % part of Black Money of India. (ii) The entire Bad Debt of the nationalized or private banks given as loan to the businesses to be recovered by not only auctioning the properties but by ascertaining the accountability of the individuals or BODs again through conduct of audits & cases are to be progressed at FTCs & at various tribunals at a fast pace running in 02 shifts on day to 14 India Transforming day basis. The stop of large currency notes in circulation could be an another befitting mechanism to bring cash part of Black Money in to accountability as it shall get the white money in to banks by paying the applicable taxes. It needs to be promulgated by the GOI and then catching the economic defaulters and penalise them at fast speed with out any compromise. Above two recommendations needs to be accorded a national priority? (iii) The government should draft new laws making them simple & swift those are business friendly, transparent and leaves no scope for anyone to make use of it evading any type of taxes and that will certainly be the next step to be taken up by the GOI at the earliest in order to curb an increase in Black Money hence forth. (iv) All the companies or businesses those have been allocated large chunk of lands with an exemption of income tax for the development of National Critical Infrastructure such as SEZs should be audited & investigated if any lapses found and necessary steps to be initiated without delay to recover the losses caused to the government treasury by evasion of applicable taxes. (v) A very strict & stringent law needs to be brought at the earliest to curb the manufacturing of spurious drugs, adulterated food items, eatables and manufacturing of duplicates and again the culprits on this account to be brought to the justice through FTCs as this segment also generate a lot of black money. (vi) All the government tenders should be executed through e-tendering process and strict compliances to ensure 100% transparency & accountability to be built in the system. The DBT (Direct Benefit Transfer) should be applied in transfer of any subsidises or MENREGA transfer. (vii) The monitoring of all the government sponsored schemes should be carried out by a trained force of auditors especially created with a needed focus and end user should be able to use online methods or social media to get 100 % benefit, rebates or subsidies directly in their accounts. It will ensure a stop to the leakages which is of the order up to 85% in some of such schemes as this amount and also adds to the Black Money kitty. 16 India Transforming (viii) Make it compulsory for all the politicians, political parties, businessmen, government & private employees not only to file their respective income taxes but the tangible & intangible property returns every year leaving no scope of benami properties. (ix) All the corrupt politicians & bureaucrats (government employees) & the businesses needs to be investigated to find out that how they have created such large properties, stocked valuables & large deposits of funds in their bank accounts in their career through independent auditors and any defaulters to be brought to the book through FTCs. (x) The GOI should come up with a scheme to recover Black Money by way of volunteer disclosure and in that that all the income tax evaders should be allowed to declare their assets by a certain date with some percentage of penalties. This will generate the confidence among evaders to come to the main stream of nation building. If they don’t do it then on investigation & such un-accounted assets to be taken over by the GOI.

5. All the above recommendations as made above will not cost more than $ 02 Billion a year for the next 05 years to the GOI and it will bring back the country on the path of recovery that has been hit badly by the spread of Black Money. Under the impact it generated inflation which is keeping the poor & the middle income group of our country that represents about 97 % of the population away from the ongoing pursuit of the government to bring them in to the main stream of nation building. I am sure that the GOI will pay attention to these core issues at the earliest as the Prime Minister is steering his council of ministers candidly towards an aim collectively & firmly to make India a great country for retaining its past glory of “Sone Ki Chidya” once upon a time with its rich heritage, culture, ethics, social structure & the precious values.

6. The CAG (Comptroller and Auditor General) has now brought out that 47 files related to allotment of land to SEZs have gone missing from the commerce ministry and were not made available to the audit team despite repeated requests. This CAG report will now be tabled in Parliament & discussed by the PAC (Public Account Committee). This is an important issue and also the de-notification of land might have been done by the businesses or promoters / developers for a different use of this land rather for the purpose the land was initially allocated to them. So, GOI needs to accord top priority to this issue to bring the culprits / defaulters 18 India Transforming to the task if any.CAG brought out that no details of these SEZs were available such as whether complete application was made by the developers, or all the conditions required for approval were met, or the board carried out due diligence on the developers. Further to add to this topic is that Switzerland’s gold exports to India have risen and fast catching $ 16 Billion mark in 2014 as per the data compiled by the Switzerland’s cross-border trade monitoring agency. This surge in gold shipments has made India the largest destination for the gold exports from Switzerland. So, there are concerns that gold trade could be a possible route for laundering of unaccounted wealth and probably the GOI might be looking at this possibility under its scan against Black Money.

7. It is a heartening to learn that SIT on BM has roped in Central Economic Intelligence Bureau (CEIB) for its important role to be played in unearthing of BM as it has on its disposal all the resources required to proceed & investigate as ED is already over burdened in investigating the money laundering and foreign exchange violation cases and also facing a manpower shortage as well. Hence, GOI appointed CEIB as main coordinating agency / body for SIT on Black Money (BM). CEIB has been entrusted to look in to all the cases being investigated by different agencies under the preview of SIT on BM and bring investigations on the table for scrutiny.

The clarity in thoughts towards bigger purposes in life makes you decisive to undertake risks and carry out tasks worth doing ?