India is one of the world’s largest generators of black money, and this is aided and supported by a weak institutional mechanism and incentives framework, which actually encourages it. The generation of black money in India is both a planned by-design activity and an unplanned ‘we-are-like-this-only’ socio cultural aspect of how we conduct our day-to-day lives, especially in everyday transactions.
Given complex social and economic dimensions to black money, it is not susceptible to easy solutions. Which parts of the Indian ecosystem are conducive for the generation of black money and what immediate steps can the government take to curb it?
First, almost every public works department of most governments in India manufactures illegal money – while awarding contracts for roads, buildings’ construction and other such projects.
This is because the system is very forgiving till ‘quid pro quo’ can be proved as per Sections 8, 9 and 10 of Prevention of Corruption Act 1988. Unless the bribe is taken in full view of a camera where voice samples and video images can be independently authenticated as being genuine and not doctored, it is almost impossible to prove this, thereby encouraging mass retail corruption in government.
India’s forensic abilities are limited and extraordinary investigative abilities are needed to link the money trail to questionable transactions (and not noting in files) and further link them to ‘quid pro quo’ as defined under the Act where it involves public servants.
Second, almost every Indian businessman’s favourite national pastime is over-invoicing and under-invoicing. Most Indian buyers and sellers try to reduce or hide their profits to pay less taxes than due (under-invoicing), or else they over-invoice imports.
Third, India’s real estate sector is the ‘mecca’ of black money generation and habitation. It is estimated that of India’s $2 trillion economy about 10-15% comprises real estate transactions of which about 40% is estimated to be in cash transactions!
It is impossible for an average Indian to sell property while accepting money purely by cheque, even if they are willing to sell their assets at a discount. This generates large sums of black money, which the promised real estate regulator is required urgently to curb.
In addition to addressing the above issues, what else can the government do to curb black money? The usual response of many governments is to announce a ‘one time’ amnesty scheme. These are short-term responses, for no one believes that anything is ‘one time’ in India. Further, while it may generate revenue for the government, it militates against the honest taxpayer.
Opaque instruments such as P-notes, introduced for and by vested interests with deep roots in subverting the system, should be forced to disclose the names of those whose wealth they contain. Likewise shell accounts or donations to trusts, anything that encourages ‘round tripping’ must be investigated.
An amendment to the existing Prevention of Money Laundering Act, to have every Indian citizen disclose all bank accounts and immoveable assets in India and abroad, would be a first step to build an inventory which can provide baseline data upon which changes can be tracked using an electronic tracking system.
Lastly, a request for disclosing names of purported offenders to the public is expected to be placed before Supreme Court by the SIT today. This great clamour and pressure to make all the names public is unwarranted because it will be in clear violation of the confidentiality norm in various bilateral investment and tax treaties, which can lead to a huge reputational risk for India, globally, if that happens.
Clear thinking suggests that one should make a distinction between crime proceeds and black money. The two are fundamentally different and here one is referring to the latter, not the former. Black money is money on which there is legitimate tax due in India but remaining unpaid. Instead of embarrassing a handful, the focus should be on getting to the roots of black money generation and preventing or reducing that significantly.
India should emerge as a torchbearer on the global stage through its concrete actions at home and abroad to curb black money, which will make it a global role model to emulate and not a pariah to shun.
(Source: Extracts from an article in Times of India, dated 03-12-2014)
