Curbing Black Money: Rhetoric, Demonetisation and Alternatives


Demonetisation was declared to curb corruption, black money and the fake currency used for terrorism. The move proved not only an utter failure in achieving its goals but also stunted the economic growth of the country. This article tries to suggest better alternatives to this ill-conceived and politically motivated move.

Black money is the income illegally obtained or not declared for tax purposes. This money is used to run a parallel economy which is dangerous to the economy of the country. The root cause of the generation of black money in the country is the corruption at the higher positions of the bureaucracy. The hoaders of black money are rarely punished by the law owing to their nexus with the powerful bureaucrats and the politicians. We are seeing that politicians, corporate businessmen and bureaucrats at the high positions of the country are immune to any penal actions under laws on corruption and black money.

The real estate sector is one of the major generators of black money. The nexus of builders with powerful bureaucrats and politicians give rise to unauthorised colonies and these colonies are authorised by one party or the other in power resulting in huge amount of black money. Some Indian corporate companies make black money by over-invoicing their imports from some countries such as Singapore, UAE, and Hong Kong and under-invoicing their exports. Such corporate companies fund political parties and bribe the corrupt higher officials of the government for safe acquittal from criminal charges. Many times the bribes, funds and donations are routed through Hawala- channels for funding anti-social, anti-national, religious or political activities. There is no proper estimate of volume of black money available. But, according to a recent estimate, the volume of black money may be 23 to 26 percent of official GDP in India. Black money is held in the form of gold or jewellery, stocks, real estate and foreign currency. It is a well known fact that cash is only a small component of the black economy.

Rhetoric of fighting against corruption and black m

The present ruling party, with the help of some ambitious would be politicians rallied under Anna Hazare for an anti-corruption campaign. Their main demand was to pass a law for Lokpal in centre and Lokayuktas in states to curb corruption and black money at very high levels of government including the PM. BJP was the party at the fore front in chest thumping against corruption and black money. These parties virtually pressurised the then government to pass the Lokpal and Lokayukt Law on a priority basis. Taking advantage of the situation, BJP played with the escalated sentiments of the public to present itself as the only party that can give a non-corrupt government and would mop out all black money from India and abroad. The PM candidate of BJP even promised to give 15 lakhs to each Indian out of this black money during his campaign for 2014 general elections. After getting power, the BJP chief accepted that it was a idiomatic expression (Jumala in Hindi) and this need not be taken seriously. This irresponsible narrative itself shows the political hypocrisy of the ruling party. This also shows that the government has failed in real fight against corruption and black money.

While the BJP has been in power for last more than three years, the PM and other politicians of BJP continuing with the rhetoric against corruption and black money but no steps were taken to appoint Lokpal and Lokayukts in spite of repeated reprimands from the Supreme Court. The party feels pride in mentioning the appointment of a SIT ( Special Investigating Team) on black money in the first cabinet meeting. The SIT was appointed on the directions of the Supreme Court. How many of the recommendations of this SIT had been followed by the government is an issue of research. We have seen very recently the acquittal of all accused from the 2G scam case. This exposed the sincerity of the apex investigating agency of the country in investigating a prime case of corruption. This was the same scam that was capitalised by the BJP to malign the then government with charges of corruption and win election. All political parties show their commitment against corruption and black money but no party has shown willingness to come under the ambit of Right to Information (RTI). The politicians do not want any transparency in their party functioning and funding.

There are different claims on recovery of black money from the different organs of the government The government claimed that 1 lakh 25 thousand crore of black money was brought into the open in the last 2.5 years. The Revenue Secretary told in July 2016, that Rs. 43,000 crore of Black Money recovered in 2 Years. The Finance Minister claimed that Rs 65,250 crore declared under the Income Disclosure Scheme of 2016. (of which 45% will be as actual taxes). The chairman of Central Board of Direct Taxes estimated a tax collection of Rs 30,000 crore from the IDS declarations scheme of 2016. Deputy Chairman of the Supreme Court-appointed SIT on black money claimed that Rs 70,000 crore of black money has been unearthed so far. This includes more than Rs 16,000 crore detected after probe launched into global leaks about Indians stashing funds abroad. Even if we accept that the government has brought 1 lakh 25 thousand crore of black money into the open in the last 2.5 years, this figure is less than the figure of 1,30, 800 crore of black money brought to open by the so called scam tainted congress led government in two financial years 2012-13 and 2013-14. (source: answer to a question on black money by the government in Loksabha)

Demonetisation

Demonetisation was presented as the biggest strike on corruption and black money. The notes of Rs. 500 and Rs. 1000 were declared illegal. The argument was that high denomination notes are known culprits of generation of black money. Ironically, new Rs. 2000 notes were declared as legal currency. The main argument against the move is that it targeted an unknown volume of black money in the form of cash.

RBI annual report (in Aug 2017) proved the demonetisation as an utter failure in achieving the proposed goals. The economy also slowed down. The common man suffered, agriculture production ruined, lakhs of workers lost jobs and more than 100 people lost their lives while standing in the queues in front of banks and ATMs. This report is silent on the issue of the recovery of black money. But, the government spent crores of rupees on advertisements justifying demonetization. Please read articles Demonetisation: An Utter Failure and Impact of Demonetisation on Indian Economy by the same author for more details.

Alternatives

The above discussion on creation of black money and the failure of the demonetisation in its goals compel us to think of other methods to deal with the menace of black money. On the basis of the facts mentioned above and the political system working in the country, demonetisation was not the proper move to curb black money but the following alternatives could have been tried before declaring this move.

1. Appointment of Lokpal and Lokayuktas

Lokpal in the centre and Lokayuktas in the states will work as anti-corruption authorities at the high levels of bureaucracy and in politicians. These institutions are a must to break the nexuses among politicians, bureaucrats, businessmen and others. This will facilitate the active involvement of common man against corruption at top places of government.

2. Bringing Political Parties Under RTI Law

If the political parties are brought under the ambit of RTI, they will have to function in a much more transparent way in comparison to what they are doing now. This would mean keeping proper records of the funds and the financiers.

3. No Cash Donation to Political Parties

Political parties need to declare a donation only if it is greater than Rs 2000 at present. The names of the donors are kept secret. The electoral bonds, introduced by the present government, are also an eyewash. There should be no cash payment. The payments must be through digital transaction or cheque so that details of the donors are known. Almost 55 per cent of the donation of the national political parties came from unknown donors those making cash payment.

4. Bringing Real Estate Under GST and Rationalising the Stamp Duty Rates

The finance minister admitted that the one sector in India where maximum amount of tax evasion and cash generation took place and which was still outside the GST is real estate. But, there is no decision on this issue even in the latest GST Council meeting. With bringing real estate under GST, a chain of proper documentation from the builder to supplier and to the contractors would be established. This will make the transactions more transparent and the cash demand from the customers will also go down. If the stamp duty rates across the states are rationalised and brought down to realistic rates, purchaser will be encouraged to declare the real value of the estate. There should be a continuous watch on real estate dealings through digitisation. This would stop creating much of the black money.

The above suggested alternatives require a strong political will on the part of the political parties in general and the ruling party in particular. The peoples' active participation in monitoring government's working will surely change the present situation.


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