Black Money: A Bane for Indian Economy

Black Money: A Bane for Indian Economy

In simple term in   India context  by  black money we mean funds or  income on which tax is evaded through misrepresented transactions which are carried in cash in order to  avoid banking channels.The government defines black money as assets that haven’t been reported to authorities at the time of their generation or disclosed at any point during their possession.

The total amount of black money deposited in foreign banks by Indians is still  unknown. there are contradictory reports in this regard .Some reports suggest  a total amount of  US$1.4 trillion are stashed in Switzerland while  some other reports  including those  by Swiss Bankers Association and the Government of Switzerland refute this  calling these  claims  false and fabricated. Their data  and statistics  tell  entirely a different tale . As per their version of truth  the total amount held by  in all Swiss banks by citizens of India stand at at  just  US $2 billion.

India ranked third in the world for money illegally moved overseas in 2011. The Global Financial Integrity Foundation presented the analysis of a report on illicit financial flows from developing countries before the SIT.

It estimated that India stands at number 5 among 142 countries in illicit financial flows and pegged the average flow of illegal funds in India at US $ 34,393 million.As per the report,  over the past 12 years, a total US $ 3,43,922 million dollars of illegal funds have been routed through India. High-net-worth individuals and private companies are the primary drivers of illicit flows, the group said in a 2010 report. Lost taxes Asia’s third-largest economy loses an estimated Rs.60 trillion each year from its formal sector, such as banks, and almost Rs.6 trillion of that is moved out of the country.According to White Paper on Black Money in India report, published in May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India were CHF 1.95 billion (INR 92.95 billion, US$2.1 billion). This amount is about 700 fold less than the alleged $1.4 trillion in some media reports.

After formal inquiries and tallying data provided by banking officials outside India, the Government of India claimed in May 2012 that the deposits of Indians in Swiss banks constitute only 0.13 per cent of the total bank deposits of citizens of all countries. Further, the share of Indians in the total bank deposits of citizens of all countries in Swiss banks has reduced from 0.29 per cent in 2006 to 0.13 per cent in 2010.Estimates about the amount of black money vary widely. Indians had moved $644 billion to tax havens as of 2011, according to data from Global Financial Integrity.  Bharatiya Janata Party (BJP) said in a 2011 report that Indians had $250 billion, or 20% of the previous year’s gross domestic product (GDP), hiding in Switzerland alone.

Within 24 hours of his 26 May inauguration, newly elected Modi constituted  an investigative team of former judges and current regulators under the chairmaship of Justice M B Shah  to find the concealed assets, known as black money, and bring them back.

At stake is what’s estimated to be as much as $2 trillion, more than India’s annual gross domestic product (GDP) on 27 October 2014, Indian Government submitted name of three people in an affidavit to the Supreme Court who have black money account in foreign countries. But on the very next day, Supreme Court of India ordered central Government to reveal all the names of black money account holders .Following the order, Government of India submitted the names of 627 people in the Supreme Court of India in a sealed envelope on 29 October 2014.Let us briefly discuss double taxation agreements which  is about declared (white) incomes of entities so that tax may be levied in one or the other country and not in both countries . Black income is not revealed in either of the two countries so there is no question of double taxation. Further, this data would not be available to either of the two countries to be exchanged. Till date, no data has been supplied to India by any of the countries with which this kind of treaty  has been signed.

To conclude the debate and discussion on black money is on and special investigation  team constituted on the order of Apex  Court is seized with matter. But there are   technicalities and complexities  involved in   reaching  to the bottom  as this  issue has  wider international ramifications   intertwined  with so many international  economic and financial factors  such as the  major treaties  of  double taxation avoidance   signed between india and other countries .it may take  a bit longer time  than we expected  as the issue is not  as simple as it seemed to be. Till then we should patiently keep   our fingers crossed.

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