What about the black money under our very nose?

BJP leader L.K. Advani, in the run-up to the 2009 general elections, quoted a figure of Rs 25 lakh crore as being stashed away abroad by wily and corrupt Indians, chiefly in salubrious Switzerland. Baba Ramdev, on the other hand, says the figure is a mind-boggling Rs 400 lakh crore.

The truth is, it is indeed impossible, in the very nature of things, to even make a guesstimate of the Indian money secreted in foreign bank accounts. Be that as it may, in the shrill cacophony over Indian black money abroad, we have relegated the black money under our very nose to second place — Indian black money craves greater attention both for its sheer size and the audacity of its owners in cocking a snook at the taxman and other investigative agencies.

No wild guesses

Unlike with black money stashed away abroad, the guesstimate of the Indian black money does not invite wild swings — some say it is two-thirds of India’s reported GDP while others say it is equal to the size of reported GDP. In either case, that is a huge amount and its foreign counterpart would pale beside it.

Come to think of it, the foreign black money cannot be very large, given the low foreign trade content in our GDP all these years. The private sector does indulge in over-invoicing of imports, chiefly of machinery, and generates black money in the process — with the difference between the inflated price and the true price credited in shady bank accounts beyond governmental and public gaze. Per contra, it also indulges in under-invoicing of exports to the same effect but through inverted mathematics — true price less deflated price credited in shady bank accounts.

These two processes, intuitively, could not have yielded a very large sum bandied about in public with gay abandon. Of course, the official imports — chiefly arms and ammunitions — are quite high. The allegations of giant payoffs in the Bofors gun imports of eighties is a standing if unproven testimony to the general perception that the party in power makes illicit money, through the time tested over-invoicing route, at taxpayers’ expense.

Cat’s colour doesn’t matter

Chinese leader Deng Xiaoping said famously that the colour of the cat did not matter so long as it caught mice. Similarly, we should be neutral to where our black money is stashed away. Ironically, both the activists and the media seem to be blissfully smug about the black money in the country even while showing real or synthetic anger over the black money abroad.

We seem to be missing the wood for the trees by being overly exercised about the money abroad even while being complacent about the low-hanging fruits — black money in India within government’s reach if only it bestirs.

Foreign money bristles with problems, what with recalcitrant and defiant countries thumbing their noses at the Indian government on one pretext or the other. Furthermore, the Indian investigative agencies have displayed a singular lack of ability in establishing the payoff trails, which the Americans could do and compel Switzerland and its UBS to come clean with the names of Americans who had stashed away their black money in Swiss banks.

Indian black money can be smoked out much more easily. The Indian real-estate sector is the main repository of black money. The tax authorities can nip the problem in the bud to a large extent if they are armed with the power to make preemptive purchase that they once enjoyed.

The scheme, discontinued in 2001, consisted in sellers beyond the specified consideration threshold being mandated to notify the department of the impending sale and the department issuing a cheque for the stated consideration and buying the property, thus frustrating attempts at receipt of the black component.

This is just an example. Traders thumbing their nose at the taxman would shake in their boots if the presumptive taxation scheme, which requires them to pay a soft 8 per cent tax on their turnover if it did not exceed Rs 60 lakh is enforced imaginatively with interlocking devices and hawkish surveillance.

Reform starts at home

The idea of this article is not to urge the government and activists to go soft on the black money stashed away abroad. Instead, it is to impress upon them to gun the black money right under our nose. There must be a relentless crackdown on the forest and mining mafia as indeed on all other mafias strutting about the nation with impunity. In fact, such a crackdown can have a sobering effect on the black money stashed away abroad, given the fact that the Indian black money is the fountain head of black money abroad through the process of hawala.

(The author is a New Delhi-based chartered accountant)

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