It is everywhere, is unaccounted for and is so monstrously big that one can only guess at the magnitude of the corruption and the effects it has had on India. The corpus of illicit money, known as “black money” in India, is estimated to be almost half of its GDP. ?
Black money refers to earnings not declared for tax purposes or income from crime or illicit dealings or amounts circulating in an underground or parallel economy unmonitored by the authorities. This is simply a tale of bonanza for a few, and bane for the country of 1.2 billion people, mostly poor.?
“Everybody in India is concerned about the extent of corruption and the unchecked generation of black money in India. The problem is increasingly getting acute and has started to hurt the lives of everyone,” says H.P. Agarwal, a tax expert with a Delhi-based consultant firm, SS Kothari Mehta (SSKM).?
“The unfortunate aspect of black money in India is that it hurts even the poorest. If India manages to claw back a small fraction of the black money (estimated to be anything between $460 billion and $1.4 trillion) that is hoarded abroad, imagine what it could do to help India’s burgeoning external debt problems, or eradicate poverty or illiteracy,” Agarwal says. That may be easier said that done, he adds.?
Not only is the Manmohan Singh-led United Progressive Alliance (UPA) government under persistent attack from the opposition, it is also getting nudged by the judiciary. That partly explains why the country has suddenly decided to walk that extra mile to confront this “menace” head on.?
While presenting his budget for 2011-2012 this week, Finance Minister Pranab Mukherjee announced a five-fold strategy to tackle the generation and circulation of black money. He said “the generation of black money is an area of serious concern.”?
This “strategy”, he added, consists of “joining a global crusade against black money, creating an appropriate legislative framework, setting up institutions for dealing with illicit funds, developing systems for implementation and imparting skills to manpower for effective action.”?
Indeed, the all-pervasive Indian black economy has been growing unabated over the past six decades since the country won political freedom in 1947. It has been drained of $462 billion of illegal cash between 1948 and 2008, according to a study entitled The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008 conducted by the Global Financial Integrity (GFI), a crusader against illicit capital.?
GFI Lead Economist Dev Kar says India’s underground economy is closely tied with illicit financial outflows and that almost three quarters of the illegal assets estimated to account for 50 percent of GDP, end up outside the country.?
According to the Bharatiya Janata Party, the main opposition party, India may have illicit cash hoarding of more than $1.4 trillion, with about a third of it stashed abroad.?
Other estimates suggest the black economy has grown from about 3 percent in the mid-1950s to 20 percent, and 40 percent by 1995, to perhaps over 50 percent now.?
The Organisation for Economic Co-operation and Development (OECD), has classified 37 territories, known as tax havens, whose economies subsist chiefly on the inflow of illicit funds from across the world.?
These territories have nominal or no taxes, no effective exchange of information with other countries, hardly any substantial economic activity, and above all, laws which allow absolute secrecy of financial transactions, OECD adds.?
Although it is hard to say where the illicit funds ends up for certain, experts say Switzerland, Luxembourg, Cayman Islands and Mauritius have emerged as the most favorite destinations for parking and laundering such moneys. ?
While India has become more aggressive in pushing the tax havens to share information regarding entities that are hoarding black money, the country has no laws to fight their secrecy.?
“Moreover, until now India has focused primarily on unearthing black money in India, but has never taken active steps to get them back from the tax havens,” says Agarwal of SSKM.?
“Although India needs to take a plethora of measures – including amnesty schemes, reforms, revamping legal structure, et al. – to stem the outflow of illicit money from the country, illicit financial flows cannot be curtailed without the collaborative effort of both developing and developed countries,” says Kar of GFI.
China Daily Asia Weekly on March 04, 2011, page 03
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