What is black money, and why is it to so difficult to quantify it?
it is a well recognised fact that there exists in India a parallel economy based entirely on black money transactions. Black money, also described as trainted money, has seeped into every walk of life. It is posing a great threat to the stability of our real economy. The most unfortunate aspect is that it has come to be accepted as a normal fact of life.
People hardly feel any qualms of conscience while dealing with it. In their jaundiced eyes, the black appears to be bright and beautiful. Our businessmen employ very ingenious methods to generate black money, since it is black money which is the backbone of their business activities. Large amounts of black money can be generated through the sale of fixed assets and scrap. Sometimes influential firms obtain quotas or import licences in excess of their actual requirements and sell them at cash premiums.
Industrial manufacturing licences are similarly obtained through influences and sold to a second party at an enhanced value.Purchase bills are over invoiced or dummy bills are prepared.Large scale smuggling of gold and various luxury items is an important source of black money. Smuggling of gold is no longer as a profitable as it used to be, but luxury items still continue to be craze of the people. Smuggling details entirely in black money, and the money thus earned is ploughed back into smuggling or similar illegal trades.
Sometimes relatives whose income is not taxable are kept on the pay rolls of a company; If any of these means are rendered ineffective by the government, other equally clever means are soon discovered and the trade dealing in tainted money grows on. The laws governing the motion of black money exhibit peculiar trends. Returns on white money investments are discouragingly poor slow. But black money multiplies at a fantastic rate. Returns on black money investments or often to the order of 200 to 300 percent. Since money thus generated is re invested in such activities as hoarding and smuggling, it fetches still higher returns. Once black money is converted into black wealth, it is very difficult to track it down.
The Wanchoo Committee set up in 1971 to investigate the problems of tax evasion gave a very comprehensive and convincing analysis of the causes of black money. High rates of taxation, a rigorous system of controls, licences and permits, ban on company donations to political parties, a general decay of public morality, and official corruption, were cited in the report as important causes responsible for it. The dagli Committee on Controls and Subsidies blamed the mechanics of numerous controls and licences without any adequate distribution machinery for the speedy generation of black money.
The Raja Chelliah Committee
The raja chelliah committee emphasised the role of tax evasion and the use of business funds by politicians and political parties. The latest study of the black money problem made by the National Institute of Public Finance and policy, was sponsored by the Union Finance Ministry. In its report submitted to the Government in March 1985, the Committee expressed the view that lack of effective implementation of income tax laws led to considerable generation of black money. It stated that in 1983/84, black incomes might have been as a high as as about 21 percent of the Gross Domestic product at factor cost.It was also discovered that the largest amount of black money had been generated during the periods of complete decontrol. The Committee held corrupt politicians and public servants largely responsible for the growing malady of black money.
Since the Government is quite conscious of the menace of black money,it has been, from time to time, taking steps to prevent its generation. In january 1976, the Government imposed a statutory obligation on the management to carry out physical verification of its assets to the satisfaction of the auditors to ensure that no black money is created through the sale of fixed assets. The management is also obliged to maintain a proper record of the scale of scrap. Licences are now issued only to actual users and they have to certifiy that they themselves consumed the raw material imported by them. Licences can be transferred only with the prior approval of Government. Payments for purchases and expenses over Rs. 2500 are not allowed in cash.
The Government has now the right of acquiring any immovable property by paying 15 percent above the value mentioned in the instrument of transfer if it is suspected that the property has been transacted below the market value. Huge amounts of money were unearthed through the Voluntary Disclosure Scheme. Thousand rupee notes were demonetised. Anti smuggling laws were made more stringent. In 1985, ban on company donations to political parties was also lifted. Thus the Government has taken various steps to plug various loopholes in their legislative measures. But the ingenuity and astuteness of the dealers in black money is just marvellous and they succeed in punching fresh loopholes.
Government thrust has so far been in the wrong direction. The economic measure that have been taken are primarily aimed at unearthing black money. Something more meaningful and effective should be done to prevent the generation of black money. The remedial measures suggested by the National Institute of Public Finance and Policy include rationalisation and reduction of excise and custom duties which encourage smuggling, and simplification of the tax structure.
This institute has also suggested removal of price controls, indexation of the income tax rates to neutralise the effect of inflation and relaxation in rent control laws These measures, if sincerely implemented, should prove quite effective. But the Government should also keep a strict vigil on the corupt politicians and officials. The widespread impression, that in India one can do anything and get away, must be removed. This can be done only if corruption is weeded out at the top.
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