Any discussion on the parallel economy will be incomplete until it accounts for the nexus that drives it
A White Paper on a subject is issued by the government presumably to give a definitive view on it and inform the public of an important issue. The White Paper on black money does nothing of the sort. The Opposition had made a demand for it given the large number of scams that have been in the news. But the paper hardly deals with any of them.
The Finance Minister in his preface admits that he is presenting “… this document now in response to an assurance given to the Parliament.” The implication is that he is not giving anything definitive. He also says that he would have been happier if he “… could have included the conclusions of reports of three premier institutions that have been tasked to quantify the magnitude of black money.” It is surprising that these three institutions are only looking at the magnitude rather than the gamut of issues surrounding the black economy. Thus, even after these reports are presented, we may not have a better understanding of the problem. After all, knowing the quantum of black money in the country is not the same thing as analysing how to deal with the problem.
Quotes old data
The White Paper consists of five chapters and several appendices spread over about 100 pages. This seems like a lot. It lifts many arguments from this author's book on the subject and from these columns in the last year and a quarter. But it flatters to deceive.
The title itself is incorrect. What is estimated is the annual generation of black incomes in an economy and not how much black money there is in the economy. The various estimates mentioned are of black income and not black money. The definition of “black money” given is itself erroneous, with money confused for assets. Even an elementary economics or commerce textbook suggests that money is only one part of the portfolio of assets that an economic agent may own. Hence referring to the whole by a part is not appropriate. The definitional confusion is made worse when it is stated that “the term black money would also include income that is concealed from public authorities.”
Even then, the report does not give an estimate but simply quotes estimates from reports that were written more than 25 years ago, ignoring later literature that has also brought about greater clarity in the matter. The first chapter ends with the title, “Need for more research.” Why state the obvious? The earlier reports that this Paper relies upon had pointed to how big the problem already was. So why has the government not studied it since then?
It quotes the Global Financial Integrity (GFI) report of 2010 on how much illicit flow has taken place from India since independence. That report mentions that its figure is a gross underestimate. It is convenient to quote from the GFI report because it gives a low figure but why has the government not made the effort in the last year-and-a-half to remove deficiencies in the GFI methodology and use the data collected by its intelligence agencies and other departments to arrive at a better estimate?
One service the Paper does is to list the many agencies involved in dealing with the problem. So far so good, but why have these agencies failed in the task they should have been performing, namely, checking the growth of the black economy? What are the problems they have faced? Why does prosecution fail most of the time whether it relates to the income tax department, or the police or the Central Bureau of Investigation (CBI)? Is that the reason why the powerful have treated the law with contempt, and for the increase in the number of people resorting to illegality resulting in the growth of the black economy?
Functioning of judiciary
A large number of laws to check the black economy are mentioned but there is no analysis of why they have been ineffective in controlling the problem. A law on paper differs substantially from its practice. Much space is devoted in the Paper to international treaties and efforts at the global level. This is convenient since the black wealth held outside is small compared to what is held in the country. Further, it is far more difficult to get at the black wealth held abroad compared to tackling what is held in the country. Thus, it becomes convenient to discuss the former rather than the latter.
Most of the wealth held abroad illegally would not be in the names of the actual beneficiaries but in the names of shell companies, and most of it cannot be tracked to an Indian entity.
No wonder the data on deposits in Swiss Banks given in the Paper indicates that Indians have only between 0.13 and 0.29 per cent of the deposits. There is no analysis of this problem or of how money is transferred out of the country. We could have been enlightened if information with the intelligence agencies about tax havens and the modus operandi of taking funds out of the country or of generating incomes outside India were revealed.
Vulnerable sectors
The interface between the judiciary and the investigative agencies is an important aspect of non-implementation of the laws of the land and the contempt they have come to be held in by the public. That is the cause of the judicial delays with four crore cases pending. Even routine matters that should be decided in a few months drag on for years. This encourages perpetrators of the black economy. The functioning of the judiciary needed to be dissected.
The paper lists the real estate, bullion and jewellery sectors as vulnerable to black money generation. This again reflects a definitional confusion. Activities in these sectors constitute transfers of black savings from one individual to another, and as such circulate black incomes but do not generate them.
In the chapter “Way Forward,” strategies are listed but again no new ground is broken. As has been pointed out earlier in these columns, the Double Taxation Avoidance Agreement (DTAA) and the Tax Information Exchange Agreement (TIEA) are about declared incomes abroad and not black savings held abroad. Similarly, voluntary disclosure schemes have been discredited in the past. The Comptroller and Auditor General (CAG) of India has said the scheme turns people into habitual tax offenders.
Nexus and political questions
The paper skirts the most important question, namely, why laws do not get implemented. It avoids mentioning the nexus between politicians, officials and businessmen that drives the black economy, and how criminals have entered this nexus. Why have steps taken in the past to control the black economy not worked?
The answer to why there are so many omissions in the Paper lies in the fact that the existence and the control of the black economy are political questions. Dealing with the black economy is not a narrow technical question that can be tackled by a few more laws or a few steps here and there, or strengthening of a few provisions of the law or through computerisation. Whether it is the ruling party or the opposition, national or regional parties, all of them have been mired in the black economy. The question is one of political will. Should the Paper not have called a spade a spade rather than avoiding the difficult question all together?
But then a White Paper is a political document and not a technical one. It helps the government whitewash its image and diverts attention from the difficult questions. It is not an instrument that can generate the political will to action — a task that only movements and the political process can accomplish.
(The author is with the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University. He can be reached at arunkumar1000@hotmail.com)
Keywords: white paper on black money, parallel economy, black money issue, tax evasion, black economy
Can currency change be a better idea to dispose off black money ?
Well written article by Arun Kumar.White paper has no meaning because all political parties,their party funds,leaders personal accounts,high officials,corporate houses they all are working as team to hide black money.There no hope left for public to get the true picture in this regard.
This is with reference to the post of Sh. V.J.Nambiar about need
of Anti Money Laundering Law. I would like to inform him and all
others that almost all the points that he has pointed out are
already incorporated in the present Anti Money Laundering Law of
the country, viz. The Prevention of Money Laundering Act, 2002
(PMLA). The burden of proof that the properties attached under
PMLA by Enforcement Directorate of Govt. of India is on the
accused, including the powerful accused like Madhu Koda, Hassan
Ali Khan, Ramalinga Raju, whose properties have already been
attached under PMLA. Only problem is that the eventual
confiscation and auction of these properties purchased from ill
gotten money will have to wait till courts pronounce the accused
guilty, which unfortunately even Supreme Court has not been able
to ensure, atleast in Satyam trial.
So, even though the required law is very much there, the problem
is in our Judicial System, which is going to surely make even
strong LOKPAL useless.
Even it seem Govt.like millions of graduates passing out, used CCP(Cut Copy Paste) to come out with this all important White paper.Any ways at least we have come to know what a white paper should not have.Article clearly brings out the need to know the modus operandi of how this parallel economy works and report has been erroneous in bringing out low figures on deposits held by Indians abroad which is quite plausible given the accounts are held in the name of shell companies and mostly actual beneficiary is non-traceable.
As for as I am concerned about the Indian government's way of dealing corruption is not acceptable.Government is not able to pass a bill to deal with corruption and black money and in white paper they are elucidating that how the black money is generated. I think its better talking about fact and figure that how much black money has been stashed away from the country and how to bring back it into country not discoursing on issue. Government should take plausible step to cover fiscal and current account deficit, that are increasing day by day not increase the petrol prices under the pretext of falling the value of Rupee. it should get its black money back in country and cover the fiscal deficit and current account deficit.
The better way to stop the corruption;is to generate the revenue
report. The report should consist that, what government earn in this
financial year and where they already spent or planning to spend the
public money. Definitely this will not stop the complete corruption
but at least will regulate the corruption. We know the corrupt man
will try to manipulate this report but they can't do up to 1.76 lakh
crore;the amount of 2G spectrum scandal,no body knows where it is,who
owns this.Every one involved in it already got the bail and attending
the parliament session just after one day of his bail,to justify that
what he did,is not wrong. And this scam will not come into the
picture unless and until Subramaniam swamy file the case in the SC.
And before the Govt declares any AMNESTY scheme which it is considering already , all Govt officials , elected representatives of the people and also individuals , must be asked to declare whether they are holding money abroad . Any one who is not declaring but is later found to having foreign acounts must have the entire money confiscated , with no eligibility for any Amnesty .
WILL THE MEDIA PLEASE HIGHLIGHT THESE POINTS .
Money stashed abroad is not always just tax-evaded money. There are more dangerous implications for the country . Drug lords, gun-runners, terrorist groups, gangsters international syndicates — all stash their money in safe havens, only to withdraw it at times of need for operational purposes and use it againt the country .PRANABS WHITE PAPER ON "BLACK MONEY" IS A SATIRICAL MASTERPIECE. Its objective is only to give a spin and not with any objective of unearthing black money or acting against it . IT IS UPTO THE INDIAN CITIZENS TO FORCE THE GOVT TO ACT ON BLACK MONEY. So here are a few suggestions for the UPA Govt to implement against people who have illegally salted away cash in tax havens.:
A LAW ON ILLEGAL ENRICHMENT must be drafted by the GOVT in the next Budget session . Such a law could allow authorities to deem illegal and seize the wealth of a state officials or individuals that is not reflected in annual tax returns and is alleged to be from illegal sources. A NEW ANTI- MONEY LAUNDERING LAW should be enacted wherein the burden of proof that source of funds is legal is placed on the defendant & not on the prosecutors as with cases of corruption and other criminal cases wherin usually the accused gets away unscathed .
All officials –beauraucrats , ministers etc , serving or retired and who are facing corruption charges or deemed to hold more wealth than their income justifies ,may be required to prove the legality of theIr enormous wealth in court. If the accused is unable to provide proof of funds , it must be concluded that the money parked abroad is not only tax-evaded money but also crime-linked cash and a heavier sentence under a ANTI MONEY LAUNDERING law must be awarded . This will also seRve as a very good deterrent for corruption .
As it was rightly pointed out by the author the laws intended to curb the black money do not get implemented because of the nexus between politicians, officials, businessmen and criminals. The writing on the wall is clear that the nexus must be blown to smithereens if we were to succeed in our efforts to unearth black money.
Why Mr. Pranab Mukherji spent and wasted lot of time of Parliament,people as well as himself ? He couldn't have come up with the so called WHITE paper.
This is vintage Pranab Mukherjee. You make a promise and deliver
something that is merely a rehash of dated material on the subject
which is neither accurate nor actionable. It is clear that the
Congress has no intention of controlling the black money, ever. The
tragedy is that the other political parties, having tasted money,
aren't complaining. The bureaucracy itself benefits from them even as
it enables its political masters to amass money and therefore is
unwilling to give up complicated rules and discretionary powers. The
hope therefore is for public movements like Anna Hazare's to make an
impact. It did, for a while, until the political system outflanked and
out-manoeuvred it. If the general public is serious about black money
and its deleterious impact on their lives, they should rise up and
tear down everything that stands in their way of cleaning the system.
It will take a lot more than a few face book-fuelled picnics
masquerading as protests.
It saddens me that everything - the system, politicians and
bureaucracy is rotten to the core. We missed an opportunity in 1947,
after independence, when we could have put a foolproof system in
place. The population was just 30 crores - & people were not so
corrupt, Fresh with independence from England, we could have
formulated policies that could have ensured the well being of
everyone.
65 years later, we are in the middle of an economic crisis. We have
the problems of black money, the nexus between politicians, cops and
criminals, & government after government made of vile, corrupt
politicians. To make things worse, the entire system has gone so bad
that even honest people become corrupt to keep up with the runaway
inflation.
Anna Hazare tried to bring about a change in the system - and suddenly
politicians from every party came together to scuttle the movement.So
the movement fizzled out & we are where we began. Only a revolution or
a miracle of sorts can save India.
White paper on what? The white paper that was released by the Finance Minister was total white which lacks information on corrupt persons.People want a white paper on corrupt persosn with their names and assets acquired by them illegally. The Fiance Minister should release a white paper on SCANDALS AND PERSONS INVOLVED IN THEM.
The difference between 'black money' and 'money generated from crime' needs to be first understood, which the author could have explained.
'Black Money' is the term explains the money which has escaped payment of applicable Income Tax. It is the baby of the Central Board of Direct Taxes, the author of this White Paper. 'Money generated from Crime' is that money which is generated from crimes like Narcotics Trafficking, Frauds, Forgery, Embezzlement of
funds (both Private and Public) and of course corruption by public servants (both Politicians and bureaucrats).
But the author is correct that there is little political will. The author is also hit the bulls eye in saying that "The functioning of the judiciary needed to be dissected". After all the CBI had managed to put in jails - Netas (Raja, Kalmadi, Kani) , Babus (Behura, Verma) and Lalas (Ramalinga Raju and Corporate topguns of Telcom companies), but even Supreme Court couldn't ensure quick trial & all accused are back in homes.
It is futile to waste our energy on estimating quantum of black money in circulation or such money held in deposits in banks abroad. Are we in a position to curb generation of further black money? Answer, unfortunately. Is no. There are a few sectors of our economy wherein the black money transactions can rarely be avoided even by those who wish ton do so. Secondly, a major source of black money generated in our country is expenditure of the government departments like the Irrigation, Public Works and even the Ministry of railways. With very little punitive action and the ‘happy’ collusion between government officials, and the contractors, it is very easy to siphon of government funds. Is the Income Tax department is ready and administratively capable of unearthing the black money generated by corrupt officials of government departments? The white paper will be of little practical utility if we cannot contain in substantial measure deal ongoing creation of black money in our economy.
The article is well written, and has asked specific questions. I liked the way the white paper was tackled point by point and the deficiencies have been pointed out. Our ministers can take a note or two from it. But as the article suggest and I agree the political class does not have a will or motivation to reduce black money, leave alone punishing the guilty people.
Reading Arun Kumar's article on black money,one has to come to the conclusion that the so-called white paper on black money is 'a white wash paper' and why the real amount of black money may not be known to the public in the foreseeable future.For,as the author says,"the existence and the control of the black economy are political questions".If the government is not willing to forego twenty thousand crore of taxation money in the Vodafone case even after a Supreme Court judgment and want to scrutinise how foreign institutional investors are funnelling their money into India through GARR and others ,why not unearth black money and bring them to India.Again as Arun Kumar says ,the question is one of political will and where will the' political will 'be coming from when all the political parties,irrespective of regional or national,ruling or opposition,'have been mired in the black money'.Movements are the answer.
All the full details of the Black Money in our economy and the money stashed in offshore bank accounts will be never completely revealed as it is our politicians who indulge in these activities the most. A lot of murky details about industrialists and politicians would come out that parliament would never allow.
Quote: "The paper lists the real estate, bullion and jewellery sectors as vulnerable to black money generation. This again reflects a definitional confusion. Activities in these sectors constitute transfers of black savings from one individual to another, and as such circulate black incomes but do not generate them." Very true. The true generators of black money are from illegal activities, incl. but mostly limited to that of liquor, drugs, trafficking and tax evasion (not necessarily in that order). Importantly, delicensing (dismantling the license raj) should have removed political corruption but an absence of structured electoral financing has given room for more corruption.So, in this limited sense, this paper, white or whatever it is, is merely a band-aid of sorts, rather than handing a scalpel to the surgeon to uproot this cyst bloating on society.
Back to square one! Govt. seems quite sure," in India there is one born
every second" so who will question their way. But its a pity that we,
the common people now realize that apple doesn't fall far away from the
tree. We don't expect from them more than what they do. Most viable and
most effective solution could have been first, to fix all the leakages
to ensure black money is not generated any more. Once that target is
achieved efforts should have been to retrieve the outsourced black
money. But why they don't do this simple thing? The answer is a spade
can't call another spade a spade. Furthermore the sense of complacency
has been institutionalized. The busk does not stop anywhere. The power
of agencies overlap, govt. of the day becomes ex-officio chairperson of
investigating agencies and then the obvious goof up. Why doesn't the
inner conscience of our honest PM compels him to ensure enforcement of
laws with consultations and CBMs.
The Article is more of like, a teacher correcting homework of a under performing student. With this kind of attitude in the system there would be no gainers. The underlying nexus in the system would reach a level where it would be defeated by mass upheaval in social consciousness which may defeat the very purpose of entire system. Beware future generations are watching!!
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