Black Economy of India

Abstract

Black money refers to a certain sector of economy where some private cash transactions go unreported to the Government and on which taxes are not paid. It involves illegal economic activities like buying and selling of drugs. The size of black economy is estimated between five and 48 percent of GDP. In a petition filed recently with the Supreme Court by some prominent citizens of India, the Government has been asked to bring back the unaccounted for wealth hoarded and concealed by Indians in Swiss Banks and other offshore tax havens. There are many sources of black money viz. overstated cost, under invoiced revenue, kick back from major defence / civilian contracts, hawala funds, etc. Well established doctors, lawyers and other self-employed professionals are the biggest tax evaders. Such unaccounted for money is moved across states and national borders through Hawala route. Black money launderers constantly contrive new routes of fund movement and make money white. A recent development in this regard is that of investing hidden funds in paintings and art collections, massive profits earned through trading in stock markets etc. Major portion of the ill-gotten wealth of the country has been taken away abroad and kept in the bank accounts in some of the world's best known tax havens. Various committees and commissions have been set up by the Government to suggest ways and means to curb black money. Many recommendations have been made by them with no effect. The left parties hold the view that there is no political will to tackle the issue. There are too many enforcement agencies like Enforcement Directorate, CBI, Intelligence Bureau, Income Tax Dept. etc. There are no clear guidelines about their role and jurisdiction, nor there is proper coordination . Many suggestions have been made for curbing black money. Some of them are renegotiation of existing tax treaties with an accent on exchange of information, prescribing procedures for confiscation ofbenami properties etc. Meanwhile, Government has identified 20 countries with whom it would enter into agreement in the form of information exchange and general assistance for the return of black money. Government has sought comprehensive review of the tax treaties with 25 countries. The Finance Ministry has also ordered for renegotiation of 77 double tax avoidance pacts. A ny measure initiated by the Government and RBI to check inflation may not be effective so long as huge amount of black money exists in the economy. Therefore, the only solution lies in checking the generation of black money.