The Practicing Economist: Whose black money is it anyway?

The issue of black money gives rise to a great deal of emotion in a country like India. The origins of this sentimental twist with the destiny and destination of unaccounted wealth can be traced to our semi-socialist past and a general sense of economic deprivation that prevailed in India during the first five decades of independence.

It is not as if that the Black Money factor was not a key political talking-point during the first 50 years of free India. However, factually stating it was during the regime of UPA-1 that this issue came into sharp focus when the BJP Iron Man L.K. Advani unleashed the spotlight on unaccounted wealth of Indians stashed away in overseas bank accounts. Our obsession with Swiss Bank accounts or Swiss Black accounts can probably be explained by the fact that disproportionate amount of media and publicly outspoken politicians attention has been fixed on these accounts.

The impression that has been sought to be created is that the solution to India’s Black Money problem is the retrieval of these non-tax paid funds and their return to the people of India. This traditional thought process and approach to the scourge of Black Money has set the stage for a response to the following critical questions:

  • What is our goal when we talk about Black Money retrieval?
  • From which foreign bank accounts and located in how many countries will we attempt to recover this Black Wealth?
  • Will our obsession with Switzerland and Swiss bank accounts become a permanent and meaningless fixture rendering no results?
  • What about Black Money flooding the domestic economy, and yes, here we are thinking about Black Money in real estate construction, drug and human trafficking, over and under-invoicing of imports and exports etc.?
  • What about the Black Economy caused due to counterfeit currency?
  • What about the Black Money coming into India through what is called participatory notes i.e. P-Notes? (An Overseas Derivative Instrument [ODI]  through which FII investors invest in Indian stock markets) It is a widely held belief that the significant quantum of the reported FII flows is actually Black Money coming back into India through what is called round-tripping: a classic Black to White conversion scheme.
  • Add to this the yet to be studied –in-depth practice of ‘Dabba trading’ in Stock Markets. Mind all, ‘Dabba trading’ refers to a purely cash-settled stock market where transactions are not accounted for and settled in cash. The magnitude and extent of this dark side of the market is still awaiting quantification.
  • When are we going to get specific timelines with respect to the process and procedure of unaccounted money recovery?
  • Where is the blueprint on utilization of such recovered funds if any, and, if at all?
  • Has the government identified the agency or agencies that shall resort to investigation and recovery of Black Money?
  • Why has no action been taken against the HSBC Bank after their clear admission that they facilitated the opening of bank accounts in foreign locations? Doesn’t this amount to Hawala? Why is HSBC being spared and on whose behest?
  • Is the real requirement of the times to merely pursue Black Money and the means to recover it or the ambit of this inquest should be expanded to uncover the unaccounted, ill-earned wealth by and through corruption?
Mr. FM, when will you act?

Mr. FM, when will you act?

Are we at liberty to ask these somewhat different and difficult questions? Finally, it is clear that there is nothing final about the Black Money crisis that has been staring India in its face for the last 67 years. Now that the Union Finance Minister, Mr. Arun Jaitley has acquired the grace and ease of his UPA predecessors, Messers Chidambaram and the then FM and now President, Pranab Mukherjee to defend the indefensible, the FM clearly will have to strive hard to differentiate his path from that of his forbearers. As India waits with anxious anticipation, the Modi government in its first 6 months has definitely demonstrated consistency with the past with respect to its Black Money policies. This is something we in India can surely live without.


Sundeep Bedi
An article by:
Sundeep Bedi

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