'Black Economy' - What are the possible causes?

Every successive five-year plan is planned for a larger size of investment in the public sector. The projects undertaken by the public sector have to be monitored by the bureaucrats in Government departments and public sector undertakings. Tenders are invited for the various works and these tenders are awarded by the bureaucracy in consultation with the political bosses.

Thus, a symbiotic relationship develops between the contractors, bureaucracy and the politicians and by a large number of devices costs ‘are artificially escalated and black money is generated by underhand deals. Instability of the political system has given a further momentum to this process. Since the ministers are not sure of their tenure and in a majority of cases, the tenure is very short, the principle ‘Make hey while the sun shines’ is adopted by most of them.

The larger number of scandals that are unearthed by the Opposition only support the contention that huge investment in the public sector is a big potential source for black money generation. In this process, bureaucrats act as brokers for political leaders and thus the nexus between business, bureaucracy and politicians promotes the generation of black money.

Whereas the Government has an armoury of tax laws pertaining to income tax, sales tax, stamp duties, excise duty etc., their enforcement is very weak due to widespread corruption in these departments.  

The high rates of these taxes induce businessmen to avoid recording of these transactions. This evasion largely goes unchecked and thus sets in a chain reaction for the generation of black money at the wholesale, retail as well as production levels.

Since last fifity years or so ... a section of people is asking the Govt. to tackle the problem of Black Money. But the Govt. is not sincere enough.

Meanwhile, in two seperate occassions, past Govt allowed owners of black money to white wash their black money by "disclosures". But .. that was not sufficient for the owners. They partially surrendered. Actually they are the selfish people and dont care for the welbeing of country.

Another aspect : Once black always black. The owners of black money tends to create more such money and other similar people join them  makeing the system never ending.

The holders of black money seldom keep such fund with a Bank. They manage their 'own Banking system', routes these fund from place to places, people to people by means of their own ( hundi or hawala .. ?), even use these for all un-ethical purposes. 

 It is widely believed that from generation to generation some traders used to keep two accounting books, one for the I.Tax people. Previously they used to take 'help' of Chartered Accountants to guide them and in present-day senerio more than one CAs are available in their own family .. !!

Such money is the 'darling' for some political parties. They take (black) donations from the owners to run their party and election campaigns. It was proposed that the Election Commission ( and its law ) permit political parties to take donations from Cos. officially and transparently. But some major political parties did not vouch the idea - till pending for consideration. The Tatas have formed a Trust for this purpose but " no takers ".

Now we know why black money is not unearthed.

------------ Generation of black money by Public Sector : Unfounded. Some act by some individuals may not mean Public Sector .. !! Even their budget for Advertisemtnts, Gifts, Donations  are regulated and strictly controlled and requires reporting. These are even discussed in the Parliament. In a mixed economy, as of now, bulk of expenses are done by Public Sectors and used for nation building. That may not be stooped. If FCI do not procure food articles, make a buffer stock, may be the  major part of our population have to starve.

-------------------- Cotntrols and licencing system : Since abolished. After prolonged demand by State Governments, the-then FM, Dr. Monmohan Singh abolised "Licence Raj" under the leadership of Narashinga Rao, PM.  ( we remember late Mr Rao ... that was the begining of to-days "Open Economy")

...... In-effective Tax Laws :  Yes. The drive for un-earthing black money is a BIG job encompassing whole of India and even outside like Swizerland Banks etc. Only directions from top Bourocrats, Political managers in Govt etc. may do this. Explained why that is not happening.

Hi,

I feel it is the existence of the paper or metal currencies which is leading to the problem of black economy. I we sometime in future are able to do away with physical currency an replace it with digital currency the problem of black economy will be eradicated to a large extend.

The only problem with the idea is the ability technologywise although the concept of digital currency is picking up in large Nos with the introduction of credit cards, ATM cards, prepaid cards etc. Another issue we will face is the problem of conversion from physical currency to digital currency, due to lack of education and awareness in our country. Although in future I hope this problem will also will be overcomed.

At last it is easy to blame someone or the other for the problems we are facing. If we look carefully into our lives we will realize we all are in some way or the other fueling the growth of black economy in India. Every penny that we try to hide from the government is a penny addition for the Black economy.

Bye

Hard to digest,but the truth is its we who are responsibe for black money generation. How many of us had been true to their inner soul??

Even in this forum, every one is putting blame on others.Have you ever asked yourselves regarding it?How many of us had never bribed someone?Can anyone answer this??NOO..No one can claim themself tht thy never bribed anyone..coz it starts right from the birth and continues even after death.

Five-year plan, reform measures, flaws in present system all are only tip of the ice berg.. actual root cause is WE..

Lets change ourself first.then try pointing out mistakes on others..

Editorial - Letters Column - Deccan Chronicle, Chennai -
Monday, April 12, 2010 - Page 10.

Unique ID

There is no doubt that Unique ID can be the panacea for most evils of modern society, if implemented correctly. It can help the government to save crores of tax payers’ money year after year lost on account of leakages in the system. UIDAI should ensure compliance with International Data Security Standards and be vested with the responsibility of registering every citizen and resident in India and issuing Biometric Smart Card with multi modal biometrics (finger prints, iris, facial, palm vein and DNA). All transactions of all individuals and organizations must be mandated through the use of the Biometric Smart Card. This can help to plug all the loop holes in the system and ensure transparency and accountability.

http://www.dc-epaper.com/DC/DCC/2010/04/12/INDEX.SHTML?ArtId=010_030&Search=Y

A prescription to end corruption - Unique identification of every citizen will help kill the corruption malaise in developing economies http://www.4psbusinessandmarketing.com/17072008/storyd.asp?sid=2112&page...

ID Cards get smarter - http://www.business-standard.com/india/storypage.php?autono=326049

The 'BSC' of Identity - A Biometric Smart Card Device can be a fool-proof ID for citizens - http://www.thehindubusinessline.com/ew/2007/03/19/stories/2007031900110300.htm

The system of controls, permits, quotas and licenses which are associated with misdistributions of the commodities in short supply results in the generation of black money. In spite of the vigilance exercised by the Government, controls and regulations came to be used by the unscrupulous for amassing money for themselves.

Since considerable discretionary powers lay in the hands of those who administered controls~ this provided them with a scope for corruption - ’speed money’ for turning a blind eye to the violation of controls. All this gave rise to trading in permits, quotas and licenses, malpractices in distribution and in the process; it generated sizeable sums of black money.

Price and distribution controls have in the past led to the generation of black money on a significant scale. Any price control without any adequate machinery of distribution and speedy arrangement for increasing supplies is potentially a source of black money generation.

Rent control leads to “pugree system” and is, therefore, another source of black money. Similarly, the system of licenses requires large number of inspectors for completing various formalities and thus good amount of hush money has to be paid. Where controls are not implementable, they have led to harassment and black money generation.

1800 - 1500 ... If people think, they are toll free numbers ... they would be sadly mistaken.

It may be just the tip of the ice berg ... corruption figures just unearthed from a single individual ...

Rs. 1,800 crores of hard cash and 1,500 kilograms of gold said to have been ceased from the offices / residences of Ketan Desai, President, Medical Council of India.

Obviously many under-hand dealings must have been going on for quiet some time; he must be well connected with the powers that be, having got re-elected and to daringly indulge in such large scale corruption. If a public enquiry is conducted, many heads may roll.

There may be many more such corrupt officials in India. If all of them are caught, the Government may get a few lakhs crores of rupees which can be used for genuine poverty alleviation schemes.

Telgi, Raju, Koda, Ketan, and many more ... Is this not enough reason for the Government to demonetize currency in steps (immediately rs. 1,000 and Rs. 500 currency notes and the rest in due course of time) and introduce Biometric Smart Card based transactions for eliminating corruption.

Please circulate to all well meaning citizens for a public debate on "The need to kill the cancer of corruption before it kills us".

The start of the process is selling of one's vote for money, liquor, gifts, freebies and so on.  The political parties have to depend on the various players of the business or finance for funding their political success by spending huge amounts to get elected if you see the expenditure for winning a seat in a panchayat elections runs to lakhs of rupees because the voter depends on the above means for casting vote nay selling his vote. People elected like this have to extend favors to the funders for their support.  So the results in compromise of various safeguards meant for safe guarding the public money helping the growth of black money.  Efforts should be made to educate the voter the consequence of selling one's vote.

It is correct if you say that government has to curb, etc.. but spare a thought about the society and its transformation over the years. people just want to get rich, noticed and have all the comforts by hook or by crook. every single act of bribe and theft etc., even leads to black money. so addressing only the white collar black money would really not solve anything, as the change has to begin from scratch. It is really a big ask, but we cant give up, and there are no examples at all for the youngsters to look forward to. Bleak scenario, but we cant ever give up, can we...

What is the primary reason for people to hide income? Evade tax. Which category of the society generally evase tax? The rich and well to do. Why do they do it ? They feel that the government is taking away their hard earned income. That they are the handful few who are supporting the many millions who do not pay tax. I am of the opinion that if we have fewer taxes, lower tax regime, fewer bureaucratic controls, easier business environment, broader tax base it would lead to less generation of black money in the economy. Above a certain income level everyone should be asked to pay a uniform rate of tax. That way the rich will not feel they are being asked to pay more as in terms of percentage, each would be paying the same. Also easier bank finance (some bankers feel that instead of being a support to the industry they are required to tell the entrepreneur why not to do the business, some feel they will get their salary irrespective of whether they sanction a loan or not etc), lesser government controls, freedom for the market to determine its own levels (government control is required here to stop any one from trying to influence the market, control middlemen etc) are some of the steps which might lead to reduction of the black market economy.