By M L Satyan

Bengaluru, Aug 23, 2022: One of the issues that has been haunting the minds of every Indian is ‘black money’. In layman’s language, it is money that has been acquired through illegitimate means or money which is unaccounted for, that is, for which tax is not paid to the government. It is hidden from government authorities and is not reflected in the GDP of India, national income, etc.

Generation of Black money: It is generated by any of the following ways:

1) Illegitimate activities: Examples are Crime, Corruption, Non-compliance with tax requirements, Complex procedural regulations, Money laundering and Smuggling.
2) Tax evasion: This is where an entity wilfully does not pay taxes that are due to the government.
3) Tax avoidance: This is where an entity takes advantage of the existing loopholes in the system and avoids paying taxes.
4) Cash transactions: Cash without proper accounting is also known as black money.

Components of black money: Harshad Shah, Chartered Accountant, mentioned in his article titled Black Money in India on February 13, 2022: “The criminal component of black money include proceeds from a range of activities including 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, sexual exploitation and prostitution, cheating and financial fraud, embezzlement, drug money, bank frauds, and illegal trade in arms.”

He further wrote, “The component of such money could stem from bribery and theft by those holding public office – such as by grant of business, leakages from government social spending programmes, speed money to circumvent or fast-track procedures, avoiding paying fines like Traffic violations and paying cash to police, black marketing of price-controlled services, and altering land use regularizing unauthorized construction.”

Effects of black money in India:
• It affects the financial system of the country. The central bank is not able to control money supply in the economy causing higher inflation. This leads to a fall in the value of the currency.
• Black money affects the credibility of a country negatively.
• It is most often used for illegal activities such as drugs/narcotics dealing and terrorism, etc. which is detrimental to the heath of the country.
• The government suffers a big loss in the form of taxes because of black money.
• It creates a parallel economy in the country, which is completely underground. For example, in Mexico, there is a thriving parallel economy because of the illegal trafficking of drugs. This leads to governance problems.
• Black money can also cause real estate prices to go up, which may lead to an asset bubble.

Legislative Framework: In order to deal with black money, the government has created the following legislations:
• Prevention of Corruption Act, 1988
• Benami Transactions Prohibition Act, 1988
• Prevention of Money Laundering Act, 2002
• The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015
• Lokpal and Lokayukta Act

Bitter reality: In spite of the above legislations and the promises made by the federal government, several Indian industrialists/business persons have cheated the Indian banks, ran away and settled down comfortably in foreign countries. It is sad to note that not a single rupee has been refunded by these fraudsters.

“As per the ministry of external affairs, 31 individuals have been accused of fraud and economic offences are holed up abroad. Among the prominent names are Vijay Mallya, who owes Rs.9,000 crore to a group of banks; Nirav Modi, his wife Ami Modi, brother Neeshal Modi and uncle Mehul Choksi, named in the Rs.12,636 crore fraud at Punjab National Bank; Jatin Mehta of Winsome Diamonds, who owes Rs.7,000 crore; former Indian Premier League chief Lalit Modi, accused of siphoning off Rs.125 crore from the country’s cricket board; and Sterling Biotech Ltd directors Chetan Jayantilal Sandesara and Nitin Jayantilal Sandesara for alleged bank fraud of Rs.5,000 crore.”

“The lesser-known names include Ashish Jobanputra, promoter of Mumbai-based textile export firm ABC Cotspin Private Ltd, and his wife in a bill discounting scam of Rs.770 crore and for causing losses to banks; diamond trader Ritesh Jain for illegally taking Rs.1,500 crore out of the country; Surender Singh, Angad Singh and Harsahib Singh for cheating and criminal conspiracy; Sabhya Seth for a fraud of Rs.390 crore against Oriental Bank of Commerce; and Sanjay Bhandari for alleged tax evasion of Rs.150 crore.” (Source: Mint, August 18, 2022).

Poverty: With personal account bank deposits of more than $1,500 billion in Swiss banks, one needs to rethink if India is really a poor country? Swiss banks reveal that Indians have more money with them than the rest of the world. If black money deposit was an Olympics event, then, India would have won a gold medal hands down.

A few years ago, a study was undertaken by Kotak Wealth Management. The researchers interviewed 150 super-wealthy individuals in India’s major cities of Mumbai, Delhi, Chennai, Bengaluru, Hyderabad and Ahmedabad. Senior personnel at major global luxury brands, art gallery owners, product dealers and industry body representatives were interviewed. The study estimated that India has about 62,000 super-rich households, with a total wealth of more than 45 trillion rupees ($1 trillion). This was expected to grow to 235 trillion rupees ($5.3 trillion) in five years.

As per a recent study more than 80,000 people seem to travel from India, to Switzerland every year, of whom 25,000 travel very frequently. This travel is obviously for the sake of black money, believes an official involved in tracking illegal money. The illegal wealth has been deposited into secret bank accounts in some of the world’s best known tax havens. And to that extent the Indian economy has been stripped of its wealth.

The truth is that India has plenty of wealth but it is not properly distributed. Unequal distribution of wealth and the unaccounted money are the real causes for poverty. The ultimate culprits are the corporate groups, vision-less politicians, corrupt bureaucrats and fake religious leaders. Surprisingly, all these people “network together” to safeguard their illegal wealth.

One of solutions to poverty is a change of heart. Together with Rabindranath Tagore let us pray “This is my prayer to thee, my Lord… give me the strength never to disown the poor… and help me to build a country where the mind is without fear and the head is held high and where the people are not broken up into fragments of narrow domestic walls of disparities and discriminations.”