|Our 1978 cover on black money |
Black money has been the curse on India's economy since Independence. Forty years of socialist raj led to a tightly controlled economy with personal tax rates of up to 97.5 per cent. Frequently industry generated black money to pay off politicians for the licences to conduct business. Restrictive laws like land ceiling, control over essential commodities and draconian foreign exchange regulations drove much of India's wealth underground.
Since liberalisation in 1991, things have changed dramatically. Licences and permits have been done away with and the maximum tax rate of 33 per cent is quite comparable with other developed and liberalised economies. FERA has been replaced by FEMA. Similarly, the 37-i provision relating to the acquisition of undervalued properties by the tax authorities has been done away with. The environment for business is healthier than ever, salaries higher and, theoretically, individuals should be more amenable to paying their taxes. But there will always be Indians who can't break old habits and who will try to find ways to dodge even the most relaxed of tax regimes.
Less than 15 years after the opening up of the market, the black economy is flourishing again. It is most visible in the property market, but much of it is hidden abroad in the form of gold, real estate and benami instruments. More than 46 per cent of FII investment in India is through an instrument called the "participatory note" whose origin does not need to be specified. Close to Rs 78,000 crore have come into the stockmarket through these instruments which are creatively referred to as "domestically alienated funds."
India's total income tax assessee pool is a 3.5 crore taxpayers. Of these, only 85,000 people have a declared annual income of more than Rs 10 lakh. Common sense would tell you this is hardly believable for a country now regarded as a market for Louis Vuitton, Bvlgari and Cartier. No wonder the government is taking a special interest in the generation and expenditure of black money.
Our cover story this week investigates the scale and scope of black money in India. Executive Editor Shankkar Aiyar, who researched and reported on the story, says that the black money now tends to circulate around high-earning professionals. Aiyar says, "Real estate deals reflect the black economy. In Delhi, buyers now pay almost 60 per cent in cash for big ticket properties." A game of hide-and-seek is now on between the Finance Ministry and tax evaders. Raids have been conducted in 14 cities to track transactions over Rs 7,00,000 crore, which is 25 per cent of the GDP. Authorities believe that tracing those who buy high-end consumer goods will lead them to the major tax evaders. Black money, like gambling, prostitution and corruption, will never go away. Strict enforcement can lead to a better tax collection and a more accountable economy.