Ways to tackle black money

R. Viswanathan | Updated on August 04, 2011 Published on August 02, 2011

All forms of corruption involve generation of black money (wealth), but black money is not necessarily generated by corruption. It is generated even in legitimate transactions, such as fees paid to a professional or in a land/house deal and various other transactions.

Government authorities and even private sector employees do demand and get black money either to do their duty or for special favours. The movements of Anna Hazare and Baba Ramdev have rightly targeted this kind of bribe-seeking environment — a climate of deteriorating morals.


But a vast majority of people generate black money by evading taxes – income, sales, VAT and similar levies. Whenever one goes to a professional — be it a physician or an accountant or a lawyer — for help and assistance, the professional is unlikely to give a receipt for the fees paid. It is a safe guess that the professional would not be disclosing his/her true income to the tax authorities and cheating Government of its legitimate revenue. The same is the case with retail and even a few wholesale merchants who do not give receipts for money paid.

In many land/house deals, the property is undervalued to evade some stamp duty and registration charges; it is rumoured that the capital city, New Delhi has a lion's share in such evasions. Black money is stashed away in foreign tax havens, gold or precious metals and land/houses. And, politicians spend a portion of their ill-gotten wealth in spending for elections.


What are the steps that can be taken to address the problem? Both State and Central governments should seriously detect and punish officials who are corrupt. The Bihar law to confiscate the properties of any Government employee whose assets are more than his/her sources of income, is worthy of emulation. This is done immediately on filing a charge-sheet on the official, instead of waiting for the tortuous legal process to be completed. The pursuit of money stashed away in tax havens abroad should be serious and time-bound. And, the problem of unending delays in courts should be tackled. One way is to increase the number of judges by the simple expedient of reappointing retired judges, of all cadres, till they attain 70 years of age, and have two shifts, working from 9 a.m. to 9 p.m. Also, the loopholes in law which allow guilty litigants to seek adjournments ad nauseam should be stopped. For house deals, the approximate real value of a house could be a multiple (say 25 times) of annual rent i.e., a yield of just 4 per cent from the house. Rents for different locations are discernible from periodical advertisements in newspapers and from estate agents.

If only the black money deals were to go through the banking channels, they can easily be traced – we saw it in spectrum scam – and the guilty booked. Most analysts have repeatedly advocated that funding of all political parties should be through cheques and the parties' accounts should be transparent. Another measure is to demonetise larger denomination rupee notes. Money in circulation had increased by more than Rs.2 lakh crores in just two years from March 2008 to March 2010 as per the Reserve Bank of India's Annual Report. Against this, the total amount of "Currency with the Public" was just Rs 2,09,562 crore 10 years back in March 2001. Of the total currency in March 2010, Rs. 500 and Rs.1,000 notes constituted 76.5 per cent (increased from 69.5 per cent in March 2008).

The large part of this high value notes is used to lubricate the well-oiled black money machine. Demonetisation would have to be preceded by increasing the use of plastic money in the form of debit and credit cards. It should be noted that the US withdrew notes above the denomination of $100 in 1969.

Published on August 02, 2011
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