TACKLING THE MENACE OF BLACK MONEY

 In simple terms black economy is referred as unaccounted economy or under ground/ unreported /parallel  economy.Its operation is based on unauthorised money or assets that are utilised for parallel or illegitimate activities like crime, smuggling,drug trafficking, terrorist activities, money laundering, real estate,corruption etc.While tax evasion refers to non payment of tax due to the Government, tax avoidance refers to taking advantage of existing loopholes in the system to avoid payment of taxes- both generate black money.Money laundering on the other hand is the process by which unaccounted (black) money is converted into legitimate (white) money and vice-versa. In practice money laundering people separate the money earned (illegally) from its source,mix it with white money and route it back into the source. Round tripping is another method whereby people route black money to  tax havens like Mauritius Switzerland, Singapore, Bahamas Cayman Islands etc (to avoid tax payment) and then invest money into India in the form of inward foreign investment in different types.Parallel economy is existing in both developed economies and developing countries.Studies have indicated that unfortunately the menace of black money is more severe in developing countries like Thailand, Nigeria accounting to the extent of 60% of their GDP as against merely 10% or below in developed countries of USA, Japan and Australia.In India various committees and researchers attempted to study the nature and dimensions of black economy.According to Wanchoo Committee black money accounted to rupees700 crores,in 1961-62 which rose to 1000 crores in1965-66, and rupees 1700 crores in ,1969-70.Rangnekar on the other hand estimated rupees 2833 crores for 1968-69 and rupees 3080crores for 1969-70.Chopra's estimated rupees  916 crores in 1961-62 which increased to 8098 crores accounting for 10.5% of GDP in 1976-77.National Institute of Public Finance and Policy (NIPFP) estimated 100000 crores or 20% of GDP and in 1996 more than four lakh crores . Recent estimates showed that black money accounted for 28% of India's GDP.However IMF's estimated black money in India to the tune of  31% of GDP as against 21% estimated by World Bank. The  causes attributed to generation of black money in India were higher rates of taxes, controls and licensing system (control, permits,quotas and licenses,) ineffective enforcement of tax laws, dubious funding of political parties especially during elections fi .inflation, purchase of real estate and luxurious housing.transfer of funds through clandestine channels for illegal activities ranging from smuggling,drug trafficking.terrorist activities arms trade illegal trade in commodities like ivory banned species trade, printing and distribution of fake currency etc.Above all India is the second largest consumer of gold ( stock estimated about 23000-24000 tonnes) and gold smuggling has been a perennial problem in the country. 

Generally fiscal, monetary, administrative or legal measures are taken to check the menace of black money across the world.While in developed countries like USA, Canada and Europe black money is generated through illegal activities like drugs trade or illegal migration, in developing countries main sources are corruption syphoning of public resources, non reporting of income, illicit manufacturing of counterfeit goods, trade in arms, ammunition and explosives ,smuggling, financial frauds, trade in crypto currency,human organs, generation of unaccounted money in entertainment industry and media,illicit narcotic trade, printing and circulation of fake currencies etc.Good framework of laws legislations and  administrative and enforcement mechanism exist in our  country to tackle blackmoney. Unfortunately they are not effectively implemented.The legal measures adopted to tackle black economy in India comprise of- Prevention of corruption Act 1989,Benami Transaction Prohibition Act 1988),Prevention of Money Laundering Act 2002,Undisclosed Foreign income and Assets (Imposition of Tax) bill 2015 and Lokpal /Lokayuta Act. Main institutions dealing with black economy and black money crimes and allegations are- Enforcement Directorate (ED),Central Board of Direct Taxes (CBDT),Financial Intelligent Unit, Central Board of Exise and Customs,Directorate of Revenue Intelligence (DRI),Central Economic Intelligence Bureau, National Investigation Agency (NIA),Central Bureau of Investigation (CBI) and Police authorities.

Apart from demonetisation other measures adopted to regulate black money did yield some results. For instance the Voluntary Disclosure Scheme VDS 1951 resulted in total disclosures of rupees 71 crores and tax collection of 11crores.The VDS scheme prevailed till December 31 1997.Special Bearer Bond scheme introduced in1981 was intended to channelise unaccounted money into productive channels by issuing  bonds with face value of  rupees 10000 each  with a maturity period of ten years.  After the introduction of economic reforms and dismantling of license Raj in 1997-98  budget widely discussed voluntary disclosure scheme yielded tax revenue of rupees 10500 crores. In July 1991 Union Finance Minister announced National Housing Bank Scheme to possessors of unaccounted money an opportunity to deposit.with a maximum limit of rupees 10000.Since 1946 three major demonetisation drive was attempted in the country to eradicate black money. Demonetisation is the stripping down the legal tender status of  or value of the currency concerned. While demonetisation of high value currencies implemented in 1946 accounted for rupees 1235.93 crores,in January 16 ,1978 high denomination currencies of 500,1000 and 10000 worth rupees 146 crores were demonetised but rupees 125 crores returned back to the system. On 8th November 2016 Government of India announced demonetisation of all rupees 500 and 1000 Mahatma Gandhi series notes replacing it  with new 500 and 2000 notes.The action was aimed at tackling black money, increasing tax returns filed and tax collection, cracking down money laundering and hawala transactions.However Digital transactions reportedly increased by 50 -55u %.On the contrary Reserve Bank of India data showed that 99.3% of the demonetised currencies having value of 15.30 lakh crores were deposited in the banking system. More recently on May 19 2023 rupees 6.73 lakh crore rupees 2000 notes 

 (37.3% of total notes in circulation) were withdrawn by the RBI  as a part of clean note policy,and September 30th is set as the deadline to return it back to the system. According to RBI Governor upto June 8th nearly half of the entire 2000 notes returned back and 85% of them are deposited in bank accounts. Available data suggest that demonetisation measures could not make much headway in  controlling black money or parallel economy .But increased pace of digital transactions and appropriate revision in the already introduced Central Bank Digital Currency with required incentives can make drastic change. 

In short tackling black  money or parallel economy which is spread across the globe pose a serious challenge especially after globalisation when mobility of factors money and goods became free. Money can travel from one part of the globe to other parts within seconds .Attempts undertaken  to introduce uniform tax for multi national companies by 135 countries under the initiative of OECD/G20 Base Erosion and Profit Shifting Strategy (BEPS) is yet to bear fruit.Even though liberalisation and reforms gave freedom from controls and license Raj to Indian firms  in due course the mighty and powerful groups through corruption and crony capitalism did acquire substantial share of emerging business/ investment opportunities leaving only residue to relatively weak  micro small and medium enterprises which are generating relatively more jobs .   In such a scenario  measures suggested by experts like- electoral reforms including state funding of elections, confiscation of undeclared assets including the money kept abroad, monitoring of  persons who regularly travel to tax havens  and also engage in frequent transactions,and providing exemplary punishment  through Fast track courts  for illicit money generated  both domestically and  also kept abroad assumes importance.  In any case strict control of illegal money power in elections even by adopting state funding of elections assumes utmost urgency and significance,  because the unholy nexus between political parties and illicit generators of black money starts from that point and further engulfs corruption in high places including judiciary .It is very much obvious that If political parties are not adhering strictly to suggested electoral  reform measures, our democracy will remain a mockery and black economy will continue to thrive.