Without black money, India can be $9 tn economy

by Adrija Bose Sep 5, 2011 #Arun Kumar #Black economy #GDP #Inflation #ToWhatEffectPrint EmailShare inShare923 Comments

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It may seem like an unpalatable truth to the powers that be in the country, but the fact is the unholy nexus between politicians, bureaucrats and businessmen has ensured that a black economy continues to thrive in India. “At least $70-80 billion goes out every year. The cost of India‟s black economy is 5 percent of GDP growth sacrificed every year since the mid-70s. But for this, India‟s size of the economy would have been $ 9 trillion,” says Prof. Arun Kumar, professor of economics at the Jawaharlal Nehru University (JNU) and author of the book „Black Money in India‟.

As much as Rs 32 to 35 lakh crore is generated in this parallel economy every year. Reuters

According to an article by Prof. Arun Kumar in The Hindu, India could have grown faster – by about 5 per cent– since the 1970s if it did not have a black or parallel economy. Consequently, the Indian economy could have been the second-largest in the world. Per

capita income could have been seven times larger; India would then have been a middleincome country and not one of the poorest, he argues. The professor says that over the years, India has been witnessing unprecedented growth in its black economy, now estimated to constitute an alarming 50 percent of the country‟s GDP. The government reckons that there are no reliable estimates of “black money” inside or outside the country. “As much as Rs 32 to 35 lakh crore is generated in this parallel economy every year,” Kumar says. Failed Policies Because of the existence of a substantial parallel economy, planning, monetary and fiscal policies frequently do not achieve the desired results, both at the macro- and micro- level. The black economy is largely responsible for the inequality in the country. Although black income is concentrated in 3 percent of Indian households, Kumar estimates that 97 percent of people have been affected. “The economy does not lack resources but faces resource shortage,” he adds. A large portion of investments goes into wasteful and unproductive channels, like holding gold or real estate abroad. Targets for education, health and drinking water are, therefore, not achieved. So, while a large part of the nation takes pride in sending their children to videsh, which in most cases means the city, it is not unusual for people like Hasan Ali to have huge assets including Swiss Bank accounts. The parallel economy also results in higher-than-required costs for the economy –raising the rate of inflation. If capital is over-invoiced by a project to earn more profits, the cost of setting up industry is higher. If poor-quality grain is sold in the public distribution system, people tend to buy it from the market, where the price is higher. If children need tuitions because of poor teaching, the family‟s cost of education increases. So what does that lost $9 trillion mean to India? The black economy, which has caused India to lose 5 percent of its GDP over the last 30 years, is also the opportunity cost of not having India become the world‟s second-largest economy, just after the US.

Supporters of Anna Hazare, pose with fake rupee notes signifying corruption. AFP

With the additional money, India could have provided enhanced social infrastructure with better health care services, larger educational facilities and employment opportunities. We could have had the potential to feed 90 percent of the hungry mouths in the country. It means every family could have had a home, and we probably wouldn‟t have to witness the distressing sight of a half-clothed child getting drenched in the rain. At the social level, the parallel economy has made people lose faith in society. Its persistent existence is today compelling the aam-admi to angrily ask: “What the hell is happening?” Perhaps without it, we would have a far more transparent and technologically efficient economic system. We could have edged ahead of the US and China together in terms of production vis-a-vis consumption. Instead, we now have a generation that is primarily consumption-driven, partly production-driven and wholly caught up in corruption. More importantly, we would not have had to witness the Anna Hazare movement to root out corruption if we didn‟t have a black economy.

Why do we call it Black money?
JUGULAR VEIN/JUG SURAIYA, Mar 12, 2005, 11.39pm IST

Why black? That's what I can't figure out. For Indians, at least for those of us who can afford the luxury of choice, the preferred colour of most things - skin, sugar, bread, you name it - is white. So how come we call it black money? All countries, to a greater or smaller percentage, have what is known as a parallel, or cash, economy that operates outside the legitimate loop. But India's parallel economy is unparalleled, in that by many guesstimates it is not only as big as the legit economy but in fact a couple of times bigger. And we have a unique name for it. Black money. Also known as No.2.
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Call Now!www.sapphiresystems.com SBI Salary AccountSwitch to SBI Corporate Salary Account & Enjoy a World of Benefitswww.sbicorporatesalary.com Black money is not a synonym for the cash economy. For instance, there are several transactions which have to be carried out in cash: Municipal tax, passport fees, purchase of government stamp paper, opening a bank account. Is the money that you perforce have to use in such dealings, which often involve the sarkar, black money? God forbid. Or, better still, Chidambaram forbid.
The origins and current disposition of black money are as mysterious as its name. No one that you and I know has ever had, or indeed would ever have, any truck with black money, of course. I wouldn't touch the damn thing with a double-length bargepole. And you say you wouldn't either. Honest Injuns, both. As is everyone else you and I know. So how come the darn thing is everywhere? In media reports, scams, defence deals, buying and selling property, funding elections, making Bollywood movies. It weighs heavily on the minds of ministers, and not just finance ministers but all sorts of ministers, including those without portfolio, but with suitcase. More than on their minds, it sometimes weighs even more heavily in their mattresses. What do you mean the damn thing is stuffed with bank notes? How should I know how they got there? I tell you, I ordered a coir mattress, not a cash mattress. I'm a victim of sharp practice. I'll take it up with Common Cause. I'll take it up with the appropriate ministry. What's that? I am the appropriate ministry? You don't say. How did the first black money become black? Like all money, it started life in a sarkari mint, all spruced up and spiffy. Face and knees well scrubbed, shoes shined, laces knotted neatly, it got a valedictory pat on the head from the RBI governor and was sent out to make its way in the world. So where and how, after this immaculate conception, did it suddenly become black? Nagarwala? Bofors? Sukh Ram? Who dat? There's another problem with black money. It's like a chameleon. It keeps changing colour. Suppose X, who has black money, goes and spends some of it having a meal at a 5-star eatery. All at once, X's black money becomes the eatery's white money. Better than Fair & Lovely.

This changeability of complexion suggests that, at some point, all the money in supply was or will be black, and vice versa. So is the only way to get rid of black money to get rid of all money and replace it with cheques and credit cards? The next time you flog a year's collection of old STOIs to the raddiwala ask for payment via Amex. There is a cautionary children's tale of the two Unclejis. One Uncleji was poor, and morose, and ulcerous and suffered from insomnia. He was the Uncleji who not only paid his taxes but also paid taxes on his taxes and couldn't sleep at night because he was afraid they might put a tax on that as well.
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PlanPolicyBazaar.com/2012_Investments Government Job VacanciesFind 1000's of Jobs in your City. Connect with Employers. Apply Now!Quikr.com/Government-Jobs The other Uncleji was prosperous, and jolly, and had the digestion of an army mule and slept the sleep of the just and righteous, even though his bed was lumpy thanks to all the boodle shoved inside it. Which Uncleji would be the sensible child's role model? Maybe that's why they call it black money. Because black's the colour of the ink they use on the credit side of the ledger.

The Indian society has become poorer. the real poverty has increased and not decreased over a period of fifty years. 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. In fact. . These firms are able to make clever usage of the income tax rules and hence. • The procedures of over billing or under billing and exaggeration of expenses lead to the generation of black money. Even though socialistic pattern of society has been accepted in the constitution. It has jeopardized our economy and hit the common man below the belt. inflation and black money. Black money is the chief inhibiting factor in the process of national economic development. our country is faced with poverty and numerous economic ills. Black money could be curbed only through the strict efforts of the state and this is for the benefit of the masses as well. Therefore. have been able to enjoy the highest standards of living in this subcontinent. however. they are not in correct proportions to their incomes. inflation in business. The businesses are conducted in other sectors of economy in the same manner and non-billed amounts are retained by the individuals and the firms as black money. The tax evasions by corporate and industrial houses are to the tune of billions of rupees. The nation must get out of the evil net of black money. Problems of Black Money Even after 40 years of independence. In this form. hawala transactions and illegal foreign exchange deals. Black money which runs a parallel currency in wealth which is made overnight in violation of the rules and provisions stipulated by the state and a collusion with the state officials does not go unchecked. This tax evasion leads to the generation of black money. The concept of mixed economy has been harmful to both private and public enterprises. • The black money is earned by gifts. The poor man has been becoming poorer and rich richer just because of the economic ills like inflation and black money. These deals are not scrutinized by the government simply because these are without any documentary evidences. Even if they pay taxes. India has unlicensed economy which has given birth to corruption. The value of the property is shown to be very low in the documents whereas it has a very high value in the actual transaction. The rich few. Only the honest Indians could save the nation. We should avoid unhealthy means of making money. which account for fifteen percent of the total population. poor exports and industrial recession. you will be able to avoid the rigors of economic measures including taxation.Black money is generated due to the following reasons: • The people do not pay their taxes. It has connotation for which you have to exercise care and caution by utilizing your brain for converting a portion of black money or the entire money by converting into white money on a piece meal basis. they save taxes. The sale and purchase of assets also lead to the generation of black money. This kind of money is earned setting aside all human and moral values. The black money menace started during the seventies and it is now at its peak and the masses have suffered due to rising prices. The menace of black money has also increased the rich poor divide. our country is far away from socialism and her economy is in the grip of private enterprises. have not felt the heat and continue to lead luxurious lives at the cost of their poor countrymen. The poor families are unable to afford even the square meals whereas the rich and the neo-rich are enjoying the luxuries of life. We should disclose our real incomes and must pay taxes regularly. Only the few sections of the society.

The chief among them are: • Inflation. but the government measures to check the growth and increase of unaccounted wealth has been ineffective. The inflationary pressure also threatens our economy and gives birth to black money. Black . sales. Government and commercial transactions. The political system itself breeds black money. The customary ritual of declaring war on tax evasion at conferences of income-tax commissioners is faithfully performed every year. luxury items. steel and iron. In other words. gold ornaments. Such financing of elections could be also considered. Chief among these areas follows: • • • • • • • Import licenses. Unless some strict measures are taken to counter inflation and check high cost economy. Some operations of the incometax department get wide popularity. Transaction in public sector. That has been the sad story all these years. Thus. It will be a major blow against the parallel economy. it helps a person getting everything done in time and to his best satisfaction. and cars. The government itself is responsible for the creation of black money. The public is told as usual that black money will be unearthed and evaders duly punished. The taxes on income and wealth are so high that an honest person will be left with little after he pays his due taxes. There are many causes of converting genuine profit into black money. wealth production and revenue inevitably lead to tax-evasion. The democratic system which means unlicensed freedom is largely responsible for the growth of corruption and black money. Selling of cement licenses. But the problem of black money cannot be solved in this manner. the problem of black money cannot be solved. Today the making of black money has become factor in our society because palatial houses. and in arranging cocktail parties and recreations in big hotels. Many taxes on income and wealth are so high that an honest person will be left are encouraged by the government’s taxation policy to look for loopholes in order to refrain from reporting their income. The exorbitant rates of taxation on income. the money earned as profit remains unaccounted for an unreported and is converted into white money by investing it in big houses. • General and mid-term election. Forged and face currency. The income-tax officials put themselves on news when the flat of a film star is auctioned or legal action taken against an industrial tycoon. The drive against the parallel economy will never be effective unless the nexus between politics and black money is broken. if it is made mandatory to audit the books of political parties.There are many sources of black money. Moreover. When political parties accept unaccounted money for election campaigns they not only heap generate black money but also protect the hoarders of ill-gotten wealth. The inflation rate at present is above fifty percent of what has already taken place since twenty years back. we have become high cost economy with prices averaging fifty percent above what they had been in the country and the lowering of the common man. The missing element has been the will to strike at the root of the evil. Transactions in heavy industries. Release of industrial licenses. which plays a decisive role in inflation and price responsible for inflation and black money. and showy marriages. The government has full knowledge about the quantum of black money which is pumped into our economy every year. • Tax evasion.

. should be dealt with strict application of penal provisions and devaluation of our currency. Condemnation of what is illegal goes against the grain of good administration and no government will be justified in pampering black marketers and tax evaders.money. One school of thought is of the view that the parallel economy has come to stay and it need not be disturbed because it plays a useful role. Thus. however. People hoarding black money are trying to convert it into white money and thus causing inflationary pressure and high cost economy. black money is growing unabated and it has become almost a parallel economy.

a symbiotic .works and these tenders are awarded by the bureaucracy in consultation with the political bosses.Th us.

relationship develops between the contractors. bureaucracy and the politicians and by a large number of devices costs µare artificially escalated and .

Since the ministers .black moneyis generated by underhand deals. Instability of the political system has given a further momentum to this process.

The larger . the principle µMake hey while the sun shines¶ is adopted bymost of them. the tenure is very short.are not sure of their tenure and in a majorityof cases.

numbers of scandals that are unearthed by the Opposition onlysupport the contention that huge investment in the public sector is a big potential .

bureaucrats act as brokers for political leaders andthus the nexus between business. In this process.source for black money generation. bureaucracy and .

politicians promotes the generation of black money. 6 ) Ceiling on depreciation and .

other business expenses Government has imposed restriction. guest .ente rtainment. It has also circumscribed expenses on advertisement.

The purpose of theserestrictions is to protect the shareholders and consumers from .houses. and payment of perquisites to directors.

They take themaximum advantage of these .the unscrupulous action of businessmen. But businessmen feel that these restrictions are unjustified.

they convert it into black money and use it either .provisions but do not like to part with the remaining part of byvarious clandestine devices.

for conspicuous production to satisfy the wants of the rich and elite sections of society. 7 ) .

Lack of infrastructure Rise of black money particularly in developing countries is due to shortage situation of industries and .

insufficient capacity. A relevant example would be the cement black market inIndia over 1961-82. when the country .

Estimates have put the amount of black .suffered from chronic cement shortage owing to theregime of controls that was in place then.

.85 billion.moneygenerated during this period by the cement sector alone as high as 7.

IMPACT OF BLACK MONEY .

.

The circulation of black money has adversely affected the Indian economy in several ways. Itwould be of interest to study the impact of .

black money on the Indian economic and socialsystem.1 ) It leads to the misdirection of precious national resources. .

A part of black money is kept in aform that contributes nil/Little to productive activities.2 ) .

and has thereby undermined the fabricof the fixed income salary class finds itself .It has enormously worsened the incomedistribution.

though not l the corrupt activities of . Quite a number among them.They pay taxes.ever be the lower rung of the incomeladder.

etc.getting bribes / commissions. or in professions. Many . But in general they are not able to catch up with the people in business. or many of those employed.

Many high placed official and honest employees earn much less than an averagesmall shopkeeper in big .in these categories make black activities.

big handicap in .3 ) The existence of a big-sized unreported segment of the economy is a.cities like Bombay and Delhi.

makinga correct analysis and formulation of right policies for it. For example it is not possible tocalculate accurately the vital indicators of .

etc. sectorialcompositi on of national income. Nor is it possible to monitor the developments in .progress like saving-income ratio.

No wonder the government¶s . Much of these estimates / monitoring of the economy are bound to be guesswork.theeconomy with precision.

policies cannot be firm in their perception anddeal weak data base.4 ) Black money results in transfer of funds from India to foreign .

Such transfers are made possible by violations exchange regulations through thedevice of under ± .countries through clandestinechannel s.

invoicing of exports and overinvoicing of imports thus finds itself in a paradoxical situation.¶ where capital and more particularly .

foreign exchange resources arescarce. (the country) becomes a de facto lender of aid and capital to economically advancedand wealthier nations. .

with the concealed outflow of funds.´ The situation has worsenedfurther over the years.5 ) Black money requires for its .

touts and brokers to combat the forces of law and . proliferation and expansion of a service organisationcompo sed of musclemen.protection.

.order on the onehand and on the other hand. there are income t ax advisers. or chartered accountants in the pay of black money operators.

Then there are contact men. better known as liaison officers .

.

who negotiate favors from top bureaucracy and political bosses through bribes of black money. This has developed a new black money culture in .

6 ) Last but not the least. black money has corrupted our political system in a most viciousmanner.the business world. .

A t various levels. Ministers. party functionaries openly andshamelessly go on collecting . MPs. ML A s.

funds. Ministers doleout favors of crores by accepting black money donations .The politics of black money thus has corroded the moral fiber of Indian polity.

Musc lemen and criminals are fed by political parties to capture booths and thus elections are becoming .of a few lakhs from businessmen.

therefore. being bent in favor of the big business under the pressure of black money. National policies are.more and more of a farce. it is the . Thus.

while the political leadership only acts as the mouthpiece of big business to justify the .parallel economy whichdoes the backseat driving.

abolition of controls or introduction of a dual system of prices in thename of productivity or national interests. It was due to the pernicious impact .

therefore.of black moneyon the Indian economy and polity that the concluded: ³It is.no exaggeration to say that black Wanchoo Committee .

if not checked in time. is sure to lead to its ruinatio .money is like a cancerous growth in the country¶s economywhich.

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