Black Money in

India
 Table of Contents:

1. Black Money

2. Black Money in India

3. Sources of Black Money

4. Causes of Generation of Black Money

5. Ways used to Convert Black Money to White Money

6. Impacts of Black Money

7. Government’s Effort Against Black Money

8. Conclusion
 Black Money

Black money simply it means income earned illegally, usually in

cash, and not reported to the government so as to avoid paying
taxes on it.

Its has a wider terminology attached to it which accommodates

various activities and transactions as the means for black money
i.e. hoarding, black marketing, gambling, Smuggling, human
trafficking, under valuation of assets, false income statement to
name a few.

Black Money in India

If black money deposit was an Olympics event, India would have

won a gold medal hands down. The second best Russia has 4
times lesser deposit. U.S. is not even there in the counting in top
five! India has more money in Swiss banks than all the other
countries combined.

Recently, due to international pressure, the Swiss government

agreed to disclose the names of the account holders only if the
respective governments formally asked for it. Swiss Banking
Association report, details bank deposits in the territory of
Switzerland by nationals of following countries:
TOP FIVE

INDIA $1,456 BILLION

RUSSIA $470 BILLION
U.K. $390 BILLION
UKRAINE $100 BILLION
CHINA $96 BILLION

India with $1,456 billion or $1.4 trillion has

more money in Swiss banks than rest of the world combined.
Public loot since 1947:

It is one of the biggest loots witnessed by mankind - the loot of

the Aam Aadmi (common man) since 1947, by his brethren
occupying public office. It has been orchestrated by politicians,
bureaucrats and some businessmen.

DISHONEST INDUSTRIALISTS, scandalous politicians and corrupt

IAS, IRS, IPS officers, film actors, illegal trade and protected
wildlife operators have deposited in foreign banks in their illegal
personal accounts a sum of about $1456 billion, which have been
misappropriated by them. This amount is about 13 times larger
than the country's foreign debt. With this amount 45 crore poor
people can get Rs 1,00,000 each.
This huge amount has been appropriated from the people of India
by exploiting and betraying them. Once this huge amount of
black money and property comes back to India, the entire foreign
debt can be repaid in 24 hours. After paying the entire foreign
debt, we will have surplus amount, almost 12 times larger than
the foreign debt. If this surplus amount is invested in earning
interest, the amount of interest will be more than the annual
budget of the Central government. So even if all the taxes are
abolished, then also the Central government will be able to
maintain the country very comfortably.

Some 80,000 people travel to Switzerland every year, of whom

25,000 travel very frequently. 'Obviously, these people won't be
tourists. They must be travelling there for some other reason,
believes an official involved in tracking illegal money. And,
clearly, he isn't referring to the commerce ministry bureaucrats
who've been flitting in and out of Geneva ever since the World
Trade Organisation (WTO) negotiations went into a tailspin!

We would need $500 billion to develop India's Infrastructure to

developed world standards in five years time from kasmhmir to
kanyakumari, and gujarat to north-east states. This enormous
undertaking would create millions of job and probably lift around
250 million from poverty by direct and indirect forms of
employment.
We will probably need another $750 billion in five years time so
that we can develop a social security kind of system so that every
Indian has a right to study till junior high school, access to basic
health services and eradicating hunger. Some significant amount
of this fund would also be needed to create a transparent,
corruption-free and super-efficient judiciary and bureaucratic
system.

and then if we invest the final $250 billion dollars in ten years
time to develop green technologies and sustainable development
so that we become a carbon-free economy...then we would be
free from the world oil politics which would be a major boost for
Indian prosperity as a major proportion of our foreign exchange is
spent on meeting our energy needs.

It is estimated that almost 10 Lakh Crores of Rupees are

circulating in the economy as black money. For want of enough
money and under the excuse of dearth of money, our
Government is obtaining loans from foreign countries at heavy
interest rates by mortgaging our freedom. The total foreign debt
is about 7 Lakh Crores of Rupees and annual interest payment is
about 115000 crores of Rupees which is 43% of total tax revenue
of the Central Government. This amount is so much high that
Government is not able to make payment from internal resources
and just to make the payment of the interest, the Government is
seeking the further loan from IMF, World Bank etc. by further
mortgaging our sovereignty and our freedom. When this is the
situation, why not to utilise our own black money circulating in
the country.

What is even more depressing in that this ill-gotten wealth of

ours has been stashed away abroad into secret bank accounts
located in some of the world’s best known tax havens. And to
that extent the Indian economy has been stripped of its wealth.
Ordinary Indians may not be exactly aware of how such secret
accounts operate and what are the rules and regulations that go
on to govern such tax havens. However, one may well be aware
of ’Swiss bank accounts,’ the shorthand for murky dealings,
secrecy and of course pilferage from developing countries into
rich developed ones.

In fact, some finance experts and economists believe tax havens

to be a conspiracy of the western world against the poor
countries. By allowing the proliferation of tax havens in the
twentieth century, the western world explicitly encourages the
movement of scarce capital from the developing countries to the
rich.

The unaccounted money also feeds India's rampant corruption

machine, including election campaigns. A study by the Mumbai-
based Center for Monitoring Indian Economics (CMIE) found that
each parliamentary poll generates between $10.19 billion and
$11.33 billion of black money.
The Tax Justice Network (TJN) published a research finding
demonstrating that $11.5 trillion of personal wealth was held
offshore by rich individuals across the globe. The findings
estimated that a large proportion of this wealth was managed
from some 70 tax havens.

Further, augmenting these studies of TJN, Raymond Baker -- in

his widely celebrated book titled ’Capitalism’s Achilles Heel: Dirty
Money and How to Renew the Free Market System’ -- estimates
that at least $5 trillion have been shifted out of poorer countries
to the West since the mid-1970. It is further estimated by experts
that one per cent of the world’s population holds more than 57
per cent of total global wealth, routing it invariably through these
tax havens.
 Source of Black Money

1. Evasion of taxation in various forms

a. Personal income
b. corporate tax

2. High level corruption

Corruption not only increased, but became a way of life in
the civil and public services with the common man meekly
accepting the inevitable and adjusting to live with it.

3. Real estate transaction

The way our real estate transactions where lots of money
transactions involved and only few amount is in white, right
from registrations of the document & market value
underestimations the difference of real value and registered
value running in to crores of rupees.

4. Excise duty evasion

5. Customs duty evasion(import)

6. Evasion of sales tax

7. Smuggling

8. from exports
Export transactions with under invoicing & malpractices.

9. From public expenditure

10. educational institutions
Educational institutions minting money through
management quota seats, capitation fees and unexplained
donations without any proper receipts.

11. from private corporate investors

12. Film industry

Film world where crores of rupees involved with more black
money

13. Professional income

professions like doctors, engineers, lawyers, travel &
tourism, hospitality sectors where no actual transactions
recorded.

14. Selling of licenses and permits

15. Others like gambling, bribes, financial transaction, HAWALA,

prizing, coaching classes etc.,
 Causes for Generation of black Money

There are several factors responsible for the emergence - of black

money. It would be relevant to discuss those factors so that a
correct understanding about the genesis, growth and expansion
of black money can be made. The principal factors are:

(i) Beginning of the evil: The beginning of this evil can be

traced to the Second World War. During this period supplies of
industrial goods from the traditional suppliers of the West were
cut off. This resulted in severe shortages in many vital lines. The
British Government indulged in large inflationary finance for war
efforts. This led to price escalation. Taxes too were raised sharply
on higher incomes and excess profits. In these circumstances
many indulged in black marketing. And at the same time, they
evaded taxes. Huge profits were made in respect of goods that
were in short supply. This created a psychology of making money
out of shortages and not out of production / expansion of sales.
These circumstances and the psychology formed the backdrop of
what followed subsequently.

(ii) Controls and licensing system: The system of controls,

permits, quotas and licenses which are associated with
misdistributions of the commodities in short supply results in the
generation of black money. The Wanchoo Committee explaining
this factor as a source of black money observed, “In spite of the
vigilance exercised by the Government, controls and regulations
came to be used by the unscrupulous for amassing money for
themselves. Since considerable discretionary powers lay in the
hands of those who administered controls~ this provided them
with a scope for corruption - ’speed money’ for turning a blind
eye to the violation of controls. All this gave rise to trading in
permits, quotas and licenses, malpractices in distribution and in
the process; it generated sizeable sums of black money.”

Price and distribution controls have in the past led to the

generation of black money on a significant scale. Any price
control without any adequate machinery of distribution and
speedy arrangement for increasing supplies is potentially a source
of black money generation.

Rent control leads to “pugree system” and is, therefore,

another source of black money. Similarly, the system of licenses
requires large number of inspectors for completing various
formalities and thus good amount of hush money has to be paid.
Where controls are not implementable, they have led to
harassment and black money generation.

(iii) Tax structure: High tax rates and defective tax structure
have also been responsible for the existence of black money to a
large extent. Take for instance direct taxation. Till recently the
tax on income and on wealth was very high to invite evasion. The
marginal rate of income tax was as high as 75 per cent. And
when it was combined with the tax on wealth, it was still higher.
For example, for a person with net wealth ofRs.12 lakh, the
combined tax rate came to 95 per cent. And for a person with a
net wealth exceeding Rs.18 lakhs, the marginal tax rate exceeded
cent percent. This was the situation in respect of personal
taxation until a decade ago. The corporate tax rate too was very
high. In these circumstances the temptation / gain from tax
evasion was substantial.

Even in the case of indirect taxes the situation is no better. In

fact worse, as the revenue from these taxes constitutes a big
proportion of all the tax revenues. For example, in the case of
government, revenue from customs and central excise duties has
been as much as 80 per cent of the total revenue. Hence even a
small fraction of the evaded tax runs into crores of black money.
According to the National Institute of Public Finance Policy the
excise evasion is rampant in such sectors as copper, cotton
fabrics and plastics. It is also suggested by the Institute that the
tax-evasion through the underestimation of production and sales
is most pronounced in manufacturing, trade, hotels and
restaurants.

(iv) Donation to political parties: Ever since the Government

decided to ban donations to political parties in 1968, it prompted
businessmen to fund political parties, especially the ruling party,
with the help of black money. Ostensibly, this decision was taken
to reduce the influence of big business on the electoral process,
but in practice what happened was precisely the opposite.
Businessmen everywhere have by now learnt that they should
pay a certain charge out of the black money to the coffers of
political parties and then be sure that the political leaders will
only bark but not bite. Big business, in the process, has been able
to tame the political leadership. This is evidenced by the
relaxation of various controls, permitting business houses to
enter areas reserved for the public sector, putting a large number
of banned items on the Open General License list etc.

The political instability witnessed in the country in -various states

has resulted in widespread horse-trading of the MLAs at the state
levels and MPs at the Central level. In this process of buying
political support, black money plays a crucial role. Consequently
the determination of the ruling political party to curb black money
has become very weak. As a consequence, businessmen feel they
have an unfettered license to spin black money, pay a small part
to the political parties as donations and then enjoy the rest the
way they like.Unless the link between black money and political
power is broken, there is no hope of controlling the generation of
black money or its link with crime.

(v) Ineffective enforcement of tax laws : Whereas the

Government has an armoury of tax laws pertaining to income tax,
sales tax, stamp duties, excise duty etc., their enforcement is
very weak due to widespread corruption in these departments.
The high rates of these taxes induce businessmen to avoid
recording of these transactions. This evasion largely goes
unchecked and thus sets in a chain reaction for the generation of
black money at the wholesale, retail as well as production levels.

(vi) Generation of black money in the public sector: Every

successive five-year plan is planned for a larger size of
investment in the public sector. The projects undertaken by the
public sector have to be monitored by the bureaucrats in
Government departments and public sector undertakings.
Tenders are invited for the various works and these tenders are
awarded by the bureaucracy in consultation with the political
bosses.

Thus, a symbiotic relationship develops between the contractors,

bureaucracy and the politicians and by a large number of devices
costs ‘are artificially escalated and black money is generated by
underhand deals. Instability of the political system has given a
further momentum to this process. Since the ministers are not
sure of their tenure and in a majority of cases, the tenure is very
short, the principle ‘Make hey while the sun shines’ is adopted by
most of them. The larger number of scandals that are unearthed
by the Opposition only support the contention that huge
investment in the public sector is a big potential source for black
money generation. In this process, bureaucrats act as brokers for
political leaders and thus the nexus between business,
bureaucracy and politicians promotes the generation of black
money.

(Vii) Ceiling on depreciation and other business expenses:

Government has imposed restriction It has also circumscribed
expenses on advertisement, entertainment, guest houses,
payment of perquisites to directors. The purpose of these
restrictions is to protect the shareholders and consumers from
the unscrupulous action of businessmen. But businessmen feel
that these restrictions are unjustified. They take the maximum
advantage of these provisions but do not like to part with the
remaining part of by various clandestine devices; they convert it
into black money and use it either for conspicuous production to
satisfy the wants of the rich and elite sections of society.

Ways used to Convert Black Money to White

The following are the ways used in India to convert Black Money
to White Money

1. Donation to Charity (Anonymously): Simply donating

anonymously the black money to some charitable institution
and it would convert into white money. Even though there is
some tax exemptions for charitable donation, the black
money holders cannot donate with their name, because they
have to show the account for that amount. It is one of a
method of transferring Black Money to White Money. But
very few follow this method, because there is no advantage
for the donator.

2. Altering the Source of Income: Get to a Jewellery. Give

him the amount you want to convert into white as cash. he
would give you a Cheque back for the same amount less
some percentage. He would give you a purchase bill to show
that you have sold Jewellery to him. On the amount of the
cheque when you file your returns you will have to pay
 capital gain tax, the money is white now. SOURCE OF
INCOME IS SALE OF JEWELLERY.

3. Using the money for Fraudulent Transactions: if you

want to get a medical/engineering seat you have to pay
something for which no receipt is given. The something
amount you pay cannot be shown officially because the
giver and taker both will face government problem. In this
way, you can’t convert the Black money to white money
instead you can use your black money. It is again Black
money for the recipient.

4. Investing in Movies: Now, the Black money is invested in

Bollywood to make the money white. But not directly.

5. HAWALA: It is one of the Famous method used to convert

Black Money to White Money. Money is transferred via a
network of hawala brokers, or hawaladars. A customer
approaches a hawala broker in one city and gives a sum of
money to be transferred to a recipient in another city. The
hawala broker calls another hawala broker in the recipient's
city, gives disposition instructions of the funds (usually
minus a small commission), and promises to settle the debt
at a later date.

6. Through Real Estate: The BM holder buys land worth 20

lakhs. But he shows the government that he bought that
 land for 1 crore. With a loss of 20 lakhs, remaining 80 is
converted into white! (with a land worth 20 in the BM
Holder’s hand)

Impacts of Black Money in India

1. Affecting the GDP Growth:

As India's GDP is now estimated at Rs 17,70,000 crore (as
per the Centre for Monitoring Indian Economy), the
unaccounted black money circulating in the system works
out to a whopping Rs 3,54,000 crores, In the most
comprehensive study to date, Acharya and Associates.
Quoting various studies done in the past, the Indira Gandhi
Institute of Development Research (IGIDR) estimates that
India's black economy is around 18-21 per cent of the GDP,
mentioned in their study titled `India Development Report’.

If the growth of the black income has been the same as the
white economy so that black income forms roughly 20% of
GDP, tapping even 10% of this income through better tax
compliance will fetch the government two per cent of GDP

2. Greater Burden to Honesty Tax Payers:

While amnesty schemes generally add to current revenue,
they can also have implications in terms of future revenue
 generation, future tax base and taxpayer behaviour in the
presence of amnesties. “Expectation of a future amnesty
scheme leads to continued tax evasion. These schemes are
perceived as being unfair to honest taxpayers who bear
relatively greater tax burden. By allowing tax evaders to
evaluate their assetsat prices prevailing several years ago,
such scheme help the beneficiaries effectively pay much
lower tax than applicable”

It is also possible that black investment made from black

money is more productive than white investment, leading to
a relatively larger multiplier effect. Several studies justify
this assumption based on low returns in the white sector
due to government controls on bank deposit rates and the
practice of administering interest rates. Even if returns from
black investment go unrecorded in national accounts, they
may trickle down to improve the overall level of living in the
country.

3. Inflation:
Due to huge accumulation of unaccounted money in the
hands of tax evaders, smugglers, builders and corrupt
politicians and government servants etc… the black money
is playing a vital role in cause of inflation in India.

4. Impact on Society:
Even after 62 years of independence, our country is faced
with poverty and numerous economic ills. Even though
socialistic pattern of society has been accepted in the
constitution, our country is far away from socialism and her
economy is in the grip of private enterprises. In fact, India
has unlicensed economy which has given birth to corruption,
inflation and black money. The concept of mixed economy
has been harmful to both private and public enterprises. It
has jeopardized our economy and hit the common man
below the belt. The poor man has been becoming poorer
and rich richer just because of the economic ills like inflation
and black money.

Black money is harming our national economy and we have

achieved an economic growth rate of five percent per
annum whereas the economy should have grown at the rate
of eight percent in order to make up for the rising
population pressures and infrastructural development
requirements. Black money is the chief inhibiting factor in
the process of national economic development.

The menace of black money has also increased the rich poor
divide. The poor families are unable to afford even the
square meals whereas the rich and the neo-rich are
enjoying the luxuries of life. The Indian society has become
poorer. Only the few sections of the society, which account
for fifteen percent of the total population, have been able to
 enjoy the highest standards of living in this subcontinent.
Therefore, the real poverty has increased and not decreased
over a period of fifty years. The black money menace
started during the seventies and it is now at its peak and
the masses have suffered due to rising prices, inflation in
business, poor exports and industrial recession. The rich
few, however, have not felt the heat and continue to lead
luxurious lives at the cost of their poor countrymen.

Government's effort against Black Money

FIU (Financial Intelligence Unit) to Track Black Money:

The Indian government set up the Financial Intelligence Unit -

India (FIU-IND) in 2004 for receiving, processing, analysing and
disseminating information relating to suspect financial
transactions. All banks and finance companies are bound every
month to inform FIU-IND about all cash transactions of over Rs.1
million and its equivalent in foreign currencies; all cash
transactions below Rs.1 million and its equivalent in foreign
currencies; all cash transactions in forged or counterfeit currency
notes and all suspicious transactions

Government’s Effort on Chasing Black Money

 1. The government has, in an unprecedented move, posted
two senior Indian Revenue Service (IRS) officers to
Singapore and Mauritius, intensifying its efforts to crack
down on money laundering amid growing concerns of links
between tax evasion and terror funding.

2. The Central Board of Direct Taxes (CBDT) has appointed

additional commissioners GT Venkateswara Rao and
M Sampath as first secretaries at the country’s missions in
Singapore and Port Louis for three years.

3. CBDT is not alone in posting officers abroad. The Central

Board of Excise & Customs (CBEC) has officials permanently
posted in Washington and Singapore for the same purpose.
The Enforcement Directorate, too, has an official posted in
Dubai to check on transactions that can have Indian
connections.

Committees Formed by Government against Black Money:

1. Income tax investigation committee – 1947

2. Taxation enquiry committee – 1953
3. Nicholas Kadler to Study Indian tax structure and tax
evasion – 1956
4. direct tax administration enquiry committee – 1958
5. committee on prevention of corruption – 1964
6. monopoly enquiry committee – 1965
 7. committee on departmental officers – 1968
8. direct taxation enquiry committee - tax evasion and black
money – 1969
9. study team on leakage of foreign exchange – 1969
10. indirect txaes enquiry committee – 1970
11. direct taxation law committee – 1977
12. national institute of public finance and policy – 1985

Conclusion:

Whatever rules and regulations that our government put in to

action to eradicate the Black Money, our peoples will find a loop
hole to do the same mistake again. So, the total eradication is in
hands of the Citizens of India.

If this situation persists the “Rich with get richer and the poor will
become poorer”. We, the Citizens of India should help our
Country to Develop by killing the evil Black Money, that itself will
lead to reduction of the unlawful activities like corruption, tax
evasion etc. and lead our country to the mark of a Developed
Nation.

…Jai Hind…