Can India deal with black money?

Fri, 19 Aug Pre-Open

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Recently, yoga guru Baba Ramdev almost did an Anna Hazare. Although his campaign was not as successful in pressurizing the government, his reasons for the protest were equally important. It may be noted that Baba Ramdev expressed strong dissent against the prevalence of black money lying in tax havens abroad. He too went on an indefinite fast like Anna Hazare for bringing back the black money lying in Swiss lockers abroad.

Just sample this to get an idea how the black money bug has been hurting the growth prospects of our economy. Newspaper reports estimate the total value of illicit money being flown out of India at approximately US$ 462 bn. Now, it may be noted that the size of the Indian economy itself is approximately US$ 1.5 tn (nominal exchange rates). This effectively means that black money to the extent of 1/3rd of the size of our economy is stashed abroad! It may not be wrong to say that this figure of US$ 462 bn may be even higher than the GDP (gross domestic product) of few other countries. We believe India would be a different country altogether if this black money is brought back to the homeland.

But the question is - How?

Steps can be taken regarding the exchange of banking information between two subject countries. This would bring in a lot of transparency in the way money flows in and out of the country. Ratifying and becoming a signatory to the UN convention against corruption is another alternative. India has finally become a signatory to this convention bill. But it was only after the government came under severe pressure due to the recent scandals. Strictly scrutinizing bank accounts of citizens having operations in the tax haven countries could be another solution to prevent the black money bug. The list is possibly endless and has the potential to culminate into a draft bill.

However, it is anybody's guess as to when these suggestions will see light of the day and the black money stashed abroad would come into India. This money effectively belongs to the corrupt politicians (part of the government) who run the country.

Having said that it is not just the black money stashed abroad but also the one being created everyday that is part of the evil. Real estate transactions that facilitate large sums of unbanked money exchange must be the first to be brought under the income tax scanner. Also income from business and other sources need to be taxed appropriately so as to avert black money transactions. While we agree that the changes will be time consuming, even a deliberate effort will be meaningful.