Ramdev and India's Black Money

Ramdev and India’s Black Money   –   Part-II

Some Ministers and political leaders indirectly have been attacking to the activities of Ramdev on his movement on black money and trying to prove that BJP is provocating to him to do so and claim that Baba Ramdev is also a source of black money. On the other hand, the movement of Anna Hazare on the issue of Lokpal Bill , according to Gandhian style,  had been nullifying by the government although evolution of Lokpal Bill covered 42 years. I think, both are the two sides of the same coin. Their movement is against the national corruption whatever the political shape is classified by so many people or leaders.

Now, let us come to the central point of black money.PTI(2010) said that India’s black money stood about 1.4 trillion dollar but Global Financial Integrity’s (GFI) estimated average illicit outflows of $22.7 billion per

annum (over the period 2002-06). Prof. Vaidyanathan of IIM, Bangalore , pointed out that the amount of India’s black money $1.4 trillion is equivalent to Rs 70lakh crore,ie, more than India’s national income of around Rs 50 lakh crore. If we follow  World Bank Residual Model , we found that a total of $213.2 billion was shifted out of India over 61 years between the first full year of India’s independence (1948) and 2008, or about 17.7% of

India’s GDP at end-2008. If we apply rates of return on these assets based on the short-term US treasury bill rate, we estimate that the total gross transfers of illicit assets by Indian residents amount to $462 billion at the end of 2008. India’s present external debt is 230.6 billion dollar (as of end 2008) ie,another half left over for poverty alleviation and economic development. On an average per annum basis, illicit flows from the country over the period 1948-2008 amounted to about 1.5% of India’s GDP or 22.8 % of its exports. Over this period, illicit flows grew at a compound nominal rate of 11.5% per annum while in real terms they grew by 6.4% per annum.In Fig-1,the illicit flows showed clearly.

                           

                          Fig-1, Cumulative Illicit Financial Flows as a percent of GDP(1948-2008)

Source- EPW(19-4-2011)

If we follow the earlier estimate of the Gupta and Gupta (1982), we see that the size of India’s underground economy should be at least 50% of GDP or about $640 billion based on a GDP of $1.28 trillion in 2008. This means roughly 72.2% of the illicit assets comprising the underground economy is held abroad while illicit

assets held domestically account for only 27.8% of the underground economy .This is shown in Fig-2.

                             Fig-2 , Composition of India’s Underground economy at 50% of GDP

                            

                             Source- EPW(19-4-2011)

According to his measure, the post-reform period is characterised by a much larger underground economy (averaging 42.8% of official GDP compared to just 27.4% in the pre-reform period).Thus,we can infer that globalization in Indian economy induced the increment in black money or loss of capital asset. Generally, one would expect a high correlation between the state of overall governance and the size of the underground

economy – countries with strong governance (such as Norway) typically have a small underground economy whereas those with poor governance (such as Nigeria) have a large underground economy.

                Some of the spiraling effects of the black money are [i] emerging parallel economy,[ii] widening the income inequality,[iii] soaring inflation rate,[iv] speed up economic drain , [v] growth of terrorism since Paris-based Financial Action Task Force (FATF) has recently noted that anti-money laundering (AML)/combating the financing of terrorism (CFT) is necessary for national security.

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  We can split the principle causes of evolving black money in the following manners,[a] corruption in different ministerial levels and government officials , [b] hoarding of black money on the sides of political parties,[c] investment assets in gold , silver etc,[d] stock market scandals,under-world mafia’s activities,corruption in public distribution system,export incentives,rebates,gambling,lottery,real estates business etc,[e],evasion of excise duties,non payment of taxes,[f] bribing from major contracts,[g] capitation fees,donations,[h] no records of income from industries,business,tourism,travels etc,[i]  complex tax structure,[j] corrupted political leaders and bureaucrates,etc.

       The previous policies taken by the earlier governments were not encouraging and promising since in 1977,Wanchoo Committee just amended the taxation laws , in 1977, Direct Tax Committee introduced rules for direct taxes,in 1981,the “special bearer bond” (Rs 10,000/-) was induced by the order of the President and in 1985, Raja Chelliah Committee reformed the tax structure of the Indian Economy.Now,the Central Board of Direct Taxes began operation against black money. In brief, these are the above initiatives on the part of the government.

         Some experts opined that government should ban the notes of Rs500,Rs 1000 and even Rs 100,and public are allowed to transact by cheque over 20,000/-.All earnings would be mark under the domain of tax and illegal income might be subject to FIR.Any bribe, donation, capitation fee  should be supervised by  the  investigating authority who must verify the source of income , deposit accounts of the earner.Any non resident bank deposit is subject to the approval of Central Bank.

        We know that the corruption charged against Rajib Gandhi and Narasimha Rao had been accused and the investigation were not completed which means the government is not transparent even on the part of the law. Thus why, the new amendment of law is necessary to fight against the illicit money. These can be arranged in the following manner.

Tax slabs have to be kept simple, easy and user friendly,[ii] Government expenditures need to be audited frequently, [iii] political parties and the chairpersons have to be closely watched and to ensure accountability, [iv]Transactions should be carried through electronic media only,[v] Invoice or a bill for all purchases and services is essential. Details of ID and pan card numbers to be entered in all transactions, [vi] Concessions and rebates to corporate companies are to be rigorously checked to avert privilege misusing,[vii] Transparent public distribution system, [viii] elected candidate is penalized for any corruption activity or any immoral practice should be added to the constitution, [ix] we should be honest, not providing any room for bribery, corruption and illegal activities before pointing out at others,[x] a verifying authority is needed for NRI and their transactions.

               All the citizens of India expect equality, justice and right from an honest government who could not deny that the above problem is alerting our sovereignty, solidarity, stability and sustainability of inclusive growth process.