QUANTUM OF BLACK MONEY

Black money is that money generated either by income that has not been taxed or through criminal means like drugs, arms running, ransom to kidnappers, bribes taken by politicians, bureaucrats and so on. One should not paint all black (slush) money with one brush (Times view dated June 8, 2011). There are two types of black money generated and stored abroad, one is the money sent out in the past because of ridiculously high tax rates and realistically low travel limits for foreign currency (as low as $500) and so on. The second part of the black money abroad - possibly the larger part - has been generated by blatant criminal activities like political bribery, proceeds from smuggling drug money etc.

The first part can be tackled by a onetime amnesty scheme which recognises the legacy problem and encourages people to just pay taxes at correct rates and legitimize the money. Otherwise if this entire money comes back, it would harm the economy by hardening the rupee rate affecting exports, igniting inflation and so on. On the other hand, the treatment of the money generated by corrupt politicians, bureaucrats or by criminals has to be in a different manner. We need to sign disclosure pacts with foreign governments to detect this black money and take every action permitted legally against those criminals. The battle against black money has to be naturally a continuous one. The scope for the usage of black money during elections has to be nipped in the bud by either the State funding the elections or the political donations taken through bank cheques and drafts. Every source of black money enjoyed and earned by the politicians or the babus exercising their discretionary powers in terms of granting licenses etc., at the Government level is also to be guarded against by limiting the powers of these players as much as possible.

Look at the irony of the world economy with 1% of the population holding more than 57% of total global wealth. It is also reported that as many as 40 countries are notoriously marketing themselves aggressively as tax havens. The estimation of actual quantum of black money is as nebulous as writing on the water. Several studies have been undertaken to quantify such black money from time to time. Way back in 1955 a noted economist Nicholas Kaldor estimated the quantum of black money as 4-5% of the country's gross domestic product (GDP) [roughly Rs.600 crore]. In 1969, the panel headed by Justice Wanchoo estimated the size of black money at Rs. 7,000 crore. Similarly, the National Institute of Public Finance and Policy under the chairmanship of Dr. Raja Chelliah in 1980-81 showed that the black economy accounted for 20% of GDP that is about Rs. 15 lakh crore now. Arun Kumar, professor of economics at Jawaharlal Nehru University estimates its size to be 50% of GDP [Rs. 39 lakh crores] in 2005-2006. The Global Financial Integrity Group says in its report (The Drivers and Dynamics of Illicit Financial Flows from India: 1984-2008) that India lost $ 213 billion in illicit flows and the present value of those flows are around $462 billion. The said report also indicates that this estimate is understated because of practical difficulties in capturing the extent of problem.