Black Money in

India

Table of Contents:
1. Black Money
2. Black Money in India
3. Sources of Black Money
4. Causes of Generation of Black Money
5. Ways used to Convert Black Money to White Money
6. Impacts of Black Money
7. Governments Effort Against Black Money
8. Conclusion

Black Money
Black money simply it means income earned illegally, usually in cash, and not
reported to the government so as to avoid paying taxes on it.
Its has a wider terminology attached to it which accommodates various activities
and transactions as the means for black money i.e. hoarding, black marketing,
gambling, Smuggling, human trafficking, under valuation of assets, false income
statement to name a few.

Black Money in India

If black money deposit was an Olympics event, India would have won a gold
medal hands down. The second best Russia has 4 times lesser deposit. U.S. is not
even there in the counting in top five! India has more money in Swiss banks than
all the other countries combined.
Recently, due to international pressure, the Swiss government agreed to disclose
the names of the account holders only if the respective governments formally
asked for it. Swiss Banking Association report, details bank deposits in the
territory of Switzerland by nationals of following countries
TOP FIVE
INDIA

$1,456 BILLION

RUSSIA

$470 BILLION

U.K.

$390 BILLION

UKRAINE

$100 BILLION

CHINA

$96 BILLION

India

with

$1,456

billion

or

$1.4

trillion

has

more money in Swiss banks than rest of the world combined. Public loot since
1947:
It is one of the biggest loots witnessed by mankind - the loot of the Aam Aadmi
(common man) since 1947, by his brethren occupying public office. It has been
orchestrated by politicians, bureaucrats and some businessmen.
DISHONEST INDUSTRIALISTS, scandalous politicians and corrupt IAS, IRS,
IPS officers, film actors, illegal trade and protected wildlife operators have
deposited in foreign banks in their illegal personal accounts a sum of about $1456
billion, which have been misappropriated by them. This amount is about 13 times
larger than the country's foreign debt. With this amount 45 crore poor people can
get Rs 1,00,000 each.
This huge amount has been appropriated from the people of India by exploiting
and betraying them. Once this huge amount of black money and property comes
back to India, the entire foreign debt can be repaid in 24 hours. After paying the
entire foreign debt, we will have surplus amount, almost 12 times larger than the
foreign debt. If this surplus amount is invested in earning interest, the amount of
interest will be more than the annual budget of the Central government. So even if
all the taxes are abolished, then also the Central government will be able to
maintain the country very comfortably.
Some 80,000 people travel to Switzerland every year, of whom 25,000 travel very
frequently. 'Obviously, these people won't be tourists. They must be travelling
there for some other reason, believes an official involved in tracking illegal money.
And, clearly, he isn't referring to the commerce ministry bureaucrats who've been

flitting in and out of Geneva ever since the World Trade Organisation (WTO)
negotiations went into a tailspin!
We would need $500 billion to develop India's Infrastructure to developed world
standards in five years time from kasmhmir to kanyakumari, and gujarat to northeast states. This enormous undertaking would create millions of job and probably
lift around 250 million from poverty by direct and indirect forms of employment.
We will probably need another $750 billion in five years time so that we can
develop a social security kind of system so that every Indian has a right to study
till junior high school, access to basic health services and eradicating hunger.
Some significant amount of this fund would also be needed to create a transparent,
corruption-free and super-efficient judiciary and bureaucratic system.
and then if we invest the final $250 billion dollars in ten years time to develop
green technologies and sustainable development so that we become a carbon-free
economy...then we would be free from the world oil politics which would be a
major boost for Indian prosperity as a major proportion of our foreign exchange is
spent on meeting our energy needs.
It is estimated that almost 10 Lakh Crores of Rupees are circulating in the
economy as black money. For want of enough money and under the excuse of
dearth of money, our Government is obtaining loans from foreign countries at
heavy interest rates by mortgaging our freedom. The total foreign debt is about 7
Lakh Crores of Rupees and annual interest payment is about 115000 crores of
Rupees which is 43% of total tax revenue of the Central Government. This amount
is so much high that Government is not able to make payment from internal
resources and just to make the payment of the interest, the Government is seeking
the further loan from IMF, World Bank etc. by further mortgaging our sovereignty

and our freedom. When this is the situation, why not to utilise our own black
money circulating in the country.
What is even more depressing in that this ill-gotten wealth of ours has been
stashed away abroad into secret bank accounts located in some of the worlds best
known tax havens. And to that extent the Indian economy has been stripped of its
wealth. Ordinary Indians may not be exactly aware of how such secret accounts
operate and what are the rules and regulations that go on to govern such tax
havens. However, one may well be aware of Swiss bank accounts, the shorthand
for murky dealings, secrecy and of course pilferage from developing countries into
rich developed ones.
In fact, some finance experts and economists believe tax havens to be a conspiracy
of the western world against the poor countries. By allowing the proliferation of
tax havens in the twentieth century, the western world explicitly encourages the
movement of scarce capital from the developing countries to the rich.

Source of Black Money

1.

Evasion of taxation in various forms

a. Personal income
b. corporate tax

2.

High level corruption

Corruption not only increased, but became a way of life in the civil and
public services with the common man meekly accepting the inevitable and
adjusting to live with it.

3.

Real estate transaction

The way our real estate transactions where lots of money transactions
involved and only few amount is in white, right from registrations of the
document & market value underestimations the difference of real value and
registered value running in to crores of rupees.

4.

Excise duty evasion

5.

Customs duty evasion(import)

6.

Evasion of sales tax

7.

Smuggling

8.

from exports
Export transactions with under invoicing & malpractices.

9.

From public expenditure

10. educational institutions

Educational institutions minting money through management quota seats,
capitation fees and unexplained donations without any proper receipts.

11. from private corporate investors

12. Film industry
Film world where crores of rupees involved with more black money

13. Professional income

professions like doctors, engineers, lawyers, travel & tourism, hospitality
sectors where no actual transactions recorded.
14. Selling of licenses and permits
15. Others like gambling, bribes, financial transaction, HAWALA, prizing,
coaching classes etc.,

Causes for Generation of black Money

There are several factors responsible for the emergence - of black money. It would
be relevant to discuss those factors so that a correct understanding about the
genesis, growth and expansion of black money can be made. The principal factors
are:
(i) Beginning of the evil: The beginning of this evil can be traced to the Second
World War. During this period supplies of industrial goods from the traditional
suppliers of the West were cut off. This resulted in severe shortages in many vital
lines. The British Government indulged in large inflationary finance for war
efforts. This led to price escalation. Taxes too were raised sharply on higher
incomes and excess profits. In these circumstances many indulged in black
marketing. And at the same time, they evaded taxes. Huge profits were made in
respect of goods that were in short supply. This created a psychology of making
money out of shortages and not out of production / expansion of sales. These
circumstances and the psychology formed the backdrop of what followed
subsequently.
(ii) Controls and licensing system: The system of controls, permits, quotas and
licenses which are associated with misdistributions of the commodities in short
supply results in the generation of black money. The Wanchoo Committee
explaining this factor as a source of black money observed, In spite of the
vigilance exercised by the Government, controls and regulations came to be used
by the unscrupulous for amassing money for themselves. Since considerable
discretionary powers lay in the hands of those who administered controls~ this
provided them with a scope for corruption - speed money for turning a blind eye
to the violation of controls. All this gave rise to trading in permits, quotas and
licenses, malpractices in distribution and in the process; it generated sizeable sums
of black money.

Price and distribution controls have in the past led to the generation of black
money on a significant scale. Any price control without any adequate machinery
of distribution and speedy arrangement for increasing supplies is potentially a
source of black money generation.
Rent control leads to pugree system and is, therefore, another source of black
money. Similarly, the system of licenses requires large number of inspectors for
completing various formalities and thus good amount of hush money has to be
paid. Where controls are not implementable, they have led to harassment and
black money generation.
(iii) Tax structure: High tax rates and defective tax structure have also been
responsible for the existence of black money to a large extent. Take for instance
direct taxation. Till recently the tax on income and on wealth was very high to
invite evasion. The marginal rate of income tax was as high as 75 per cent. And
when it was combined with the tax on wealth, it was still higher. For example, for
a person with net wealth ofRs.12 lakh, the combined tax rate came to 95 per cent.
And for a person with a net wealth exceeding Rs.18 lakhs, the marginal tax rate
exceeded cent percent. This was the situation in respect of personal taxation until a
decade ago. The corporate tax rate too was very high. In these circumstances the
temptation / gain from tax evasion was substantial.
Even in the case of indirect taxes the situation is no better. In fact worse, as the
revenue from these taxes constitutes a big proportion of all the tax revenues. For
example, in the case of government, revenue from customs and central excise
duties has been as much as 80 per cent of the total revenue. Hence even a small
fraction of the evaded tax runs into crores of black money. According to the
National Institute of Public Finance Policy the excise evasion is rampant in such
sectors as copper, cotton fabrics and plastics. It is also suggested by the Institute

that the tax-evasion through the underestimation of production and sales is most
pronounced in manufacturing, trade, hotels and restaurants.
(iv) Donation to political parties: Ever since the Government decided to ban
donations to political parties in 1968, it prompted businessmen to fund political
parties, especially the ruling party, with the help of black money. Ostensibly, this
decision was taken to reduce the influence of big business on the electoral process,
but in practice what happened was precisely the opposite. Businessmen
everywhere have by now learnt that they should pay a certain charge out of the
black money to the coffers of political parties and then be sure that the political
leaders will only bark but not bite. Big business, in the process, has been able to
tame the political leadership. This is evidenced by the relaxation of various
controls, permitting business houses to enter areas reserved for the public sector,
putting a large number of banned items on the Open General License list etc.
The political instability witnessed in the country in -various states has resulted in
widespread horse-trading of the MLAs at the state levels and MPs at the Central
level. In this process of buying political support, black money plays a crucial role.
Consequently the determination of the ruling political party to curb black money
has become very weak. As a consequence, businessmen feel they have an
unfettered license to spin black money, pay a small part to the political parties as
donations and then enjoy the rest the way they like.Unless the link between black
money and political power is broken, there is no hope of controlling the generation
of black money or its link with crime.
(v) Ineffective enforcement of tax laws : Whereas the Government has an
armoury of tax laws pertaining to income tax, sales tax, stamp duties, excise duty
etc., their enforcement is very weak due to widespread corruption in these
departments. The high rates of these taxes induce businessmen to avoid recording
of these transactions. This evasion largely goes unchecked and thus sets in a chain

reaction for the generation of black money at the wholesale, retail as well as
production levels.
(vi) Generation of black money in the public sector: Every successive five-year
plan is planned for a larger size of investment in the public sector. The projects
undertaken by the public sector have to be monitored by the bureaucrats in
Government departments and public sector undertakings. Tenders are invited for
the various works and these tenders are awarded by the bureaucracy in
consultation with the political bosses.
Thus, a symbiotic relationship develops between the contractors, bureaucracy and
the politicians and by a large number of devices costs are artificially escalated and
black money is generated by underhand deals. Instability of the political system
has given a further momentum to this process. Since the ministers are not sure of
their tenure and in a majority of cases, the tenure is very short, the principle Make
hey while the sun shines is adopted by most of them. The larger number of
scandals that are unearthed by the Opposition only support the contention that
huge investment in the public sector is a big potential source for black money
generation. In this process, bureaucrats act as brokers for political leaders and thus
the nexus between business, bureaucracy and politicians promotes the generation
of black money.
(Vii) Ceiling on depreciation and other business expenses: Government has
imposed restriction It has also circumscribed expenses on advertisement,
entertainment, guest houses, payment of perquisites to directors. The purpose of
these restrictions is to protect the shareholders and consumers from the
unscrupulous action of businessmen. But businessmen feel that these restrictions
are unjustified. They take the maximum advantage of these provisions but do not
like to part with the remaining part of by various clandestine devices; they convert

it into black money and use it either for conspicuous production to satisfy the
wants of the rich and elite sections of society.

Ways used to Convert Black Money to White

The following are the ways used in India to convert Black Money to White Money
1. Donation to Charity (Anonymously): Simply donating anonymously the
black money to some charitable institution and it would convert into white
money. Even though there is some tax exemptions for charitable donation,
the black money holders cannot donate with their name, because they have
to show the account for that amount. It is one of a method of transferring
Black Money to White Money. But very few follow this method, because
there is no advantage for the donator.
2. Altering the Source of Income: Get to a Jewellery. Give him the amount
you want to convert into white as cash. he would give you a Cheque back
for the same amount less some percentage. He would give you a purchase
bill to show that you have sold Jewellery to him. On the amount of the
cheque when you file your returns you will have to pay capital gain tax, the
money is white now. SOURCE OF INCOME IS SALE OF JEWELLERY.
3. Using the money for Fraudulent Transactions: if you want to get a
medical/engineering seat you have to pay something for which no receipt is
given. The something amount you pay cannot be shown officially because
the giver and taker both will face government problem. In this way, you

cant convert the Black money to white money instead you can use your
black money. It is again Black money for the recipient.
4. Investing in Movies: Now, the Black money is invested in Bollywood to
make the money white. But not directly.
5. HAWALA: It is one of the Famous method used to convert Black Money
to White Money. Money is transferred via a network of hawala brokers, or
hawaladars. A customer approaches a hawala broker in one city and gives a
sum of money to be transferred to a recipient in another city. The hawala
broker calls another hawala broker in the recipient's city, gives disposition
instructions of the funds (usually minus a small commission), and promises
to settle the debt at a later date.
6. Through Real Estate: The BM holder buys land worth 20 lakhs. But he
shows the government that he bought that land for 1 crore. With a loss of 20
lakhs, remaining 80 is converted into white! (with a land worth 20 in the
BM Holders hand)

Impacts of Black Money in India

1. Affecting the GDP Growth:
As India's GDP is now estimated at Rs 17,70,000 crore (as per the Centre
for Monitoring Indian Economy), the unaccounted black money circulating
in the system works out to a whopping Rs 3,54,000 crores, In the most
comprehensive study to date, Acharya and Associates. Quoting various
studies done in the past, the Indira Gandhi Institute of Development
Research (IGIDR) estimates that India's black economy is around 18-21 per

cent of the GDP, mentioned in their study titled `India Development

Report.
If the growth of the black income has been the same as the white economy
so that black income forms roughly 20% of GDP, tapping even 10% of this
income through better tax compliance will fetch the government two per
cent of GDP

2. Greater Burden to Honesty Tax Payers:

While amnesty schemes generally add to current revenue, they can also
have implications in terms of future revenue generation, future tax base and
taxpayer behaviour in the presence of amnesties. Expectation of a future
amnesty scheme leads to continued tax evasion. These schemes are
perceived as being unfair to honest taxpayers who bear relatively greater
tax burden. By allowing tax evaders to evaluate their assetsat prices
prevailing several years ago, such scheme help the beneficiaries effectively
pay much lower tax than applicable
It is also possible that black investment made from black money is more
productive than white investment, leading to a relatively larger multiplier
effect. Several studies justify this assumption based on low returns in the
white sector due to government controls on bank deposit rates and the
practice of administering interest rates. Even if returns from black
investment go unrecorded in national accounts, they may trickle down to
improve the overall level of living in the country.

3. Inflation:
Due to huge accumulation of unaccounted money in the hands of tax
evaders, smugglers, builders and corrupt politicians and government
servants etc the black money is playing a vital role in cause of inflation
in India.
4. Impact on Society:
Even after 62 years of independence, our country is faced with poverty and
numerous economic ills. Even though socialistic pattern of society has been
accepted in the constitution, our country is far away from socialism and her
economy is in the grip of private enterprises. In fact, India has unlicensed
economy which has given birth to corruption, inflation and black money.
The concept of mixed economy has been harmful to both private and public
enterprises. It has jeopardized our economy and hit the common man below
the belt. The poor man has been becoming poorer and rich richer just
because of the economic ills like inflation and black money.
Black money is harming our national economy and we have achieved an
economic growth rate of five percent per annum whereas the economy
should have grown at the rate of eight percent in order to make up for the
rising population pressures and infrastructural development requirements.
Black money is the chief inhibiting factor in the process of national
economic development.

Government's effort against Black Money

FIU (Financial Intelligence Unit) to Track Black Money:
The Indian government set up the Financial Intelligence Unit - India (FIU-IND) in
2004 for receiving, processing, analysing and disseminating information relating
to suspect financial transactions. All banks and finance companies are bound every
month to inform FIU-IND about all cash transactions of over Rs.1 million and its
equivalent in foreign currencies; all cash transactions below Rs.1 million and its
equivalent in foreign currencies; all cash transactions in forged or counterfeit
currency notes and all suspicious transactions

Governments Effort on Chasing Black Money

1. The government has, in an unprecedented move, posted two senior Indian
Revenue Service (IRS) officers to Singapore and Mauritius, intensifying its
efforts to crack down on money laundering amid growing concerns of links
between tax evasion and terror funding.
2. The Central Board of Direct Taxes (CBDT) has appointed additional

commissioners GT Venkateswara Rao and M Sampath as first secretaries at

the countrys missions in Singapore and Port Louis for three years.
3. CBDT is not alone in posting officers abroad. The Central Board of Excise
& Customs (CBEC) has officials permanently posted in Washington and
Singapore for the same purpose. The Enforcement Directorate, too, has an
official posted in Dubai to check on transactions that can have Indian
connections.

Committees Formed by Government against Black Money:

1.

Income tax investigation committee 1947

2.

Taxation enquiry committee 1953

3.

Nicholas Kadler to Study Indian tax structure and tax evasion 1956

4.

direct tax administration enquiry committee 1958

5.

committee on prevention of corruption 1964

6.

monopoly enquiry committee 1965

7.

committee on departmental officers 1968

8.

direct taxation enquiry committee - tax evasion and black money 1969

9.

study team on leakage of foreign exchange 1969

10. indirect txaes enquiry committee 1970

11. direct taxation law committee 1977
12. national institute of public finance and policy 1985

Conclusion:
Whatever rules and regulations that our government put in to action to eradicate
the Black Money, our peoples will find a loop hole to do the same mistake again.
So, the total eradication is in hands of the Citizens of India.
If this situation persists the Rich with get richer and the poor will become
poorer. We, the Citizens of India should help our Country to Develop by killing
the evil Black Money, that itself will lead to reduction of the unlawful activities
like corruption, tax evasion etc. and lead our country to the mark of a Developed
Nation.
Jai Hind