Black Money: A dilemma for INDIA

Over the years, large sums of black money have been converted into foreign currencies and stashed in banks outside of India. The issue has turned into a social enigma for the Indian governments. The new Indian government has made it a point to bring back what it calls its treasures. So what’s “Black Money” It is the aggregate of income which is taxable but not reported to the tax authorities”.

Such a dilemma is black money in India that politicians, actors, businessmen to small retailers are involved in it. In fact it is a significant part of Indian life. Only recently there were wide and prolonged anti-corruption protests in the streets of the Indian Capital New Delhi. Huge amounts of cash travel across India during election seasons to bribe voters. Rich ladies prowl Delhi’s malls with bricks of cash in their bags, or with attendants who carry the bricks for them. And, there is a network of quaint people much in demand for their ability to magically transmute Indian Rupees collected anywhere in India into dollars that can be made to appear almost anywhere else in the world.

It is generally been agreed upon that every dollar that leaves one country must end up in another. Very often, this means that illicit financial outflows from developing countries ultimately end up in banks in developed countries like the United States and United Kingdom, as well as in tax havens like Switzerland, the British Virgin Islands, or Singapore.[i]

The Associated Chamber of Commerce and Industry of India estimates that nearly US $2 trillion of black money from India is currently stashed abroad.[ii] Global Financial Integrity (GFI) estimates that between 2002 and 2011, nearly US$344 billion of illicit money moved from India to various tax havens and in 2011 US$84.93 billion was sent abroad as can be noticed in the chart below:[iii]

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Global Financial Integrity research suggests that about 45% of illicit flows end up in offshore financial centers, and 55% in developed countries. GFI recognizes black money besides drug cartels, trade misinvoicing, money laundering and terrorist wiring as illicit financial flows. Globally, GFI estimates that illicit financial outflows from the developing world totaled a staggering US $946.7 billion in 2011, with cumulative illicit financial outflows over the decade between 2002 and 2011 of US$5.9 trillion. India ranked as the fifth largest exporter of illicit money between: 2002-2011, with a total of $343.04 billion. The Top 10 countries with the highest measured cumulative illicit financial outflows between 2002 and 2011 were:[iv]

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The new Indian government has established a high-powered Special Investigative team (SIT) to look into the issue of black money and slush funds and has directed it to complete the tax probe on suspected black money by March 2015. The Indian government has already submitted a list of 627 Indians who have accounts in HSBC bank, Geneva, to the Supreme Court[v]. Similar measures have also been taken with respect to Indian account holders in Germany and France. The apex court has asked the government to submit to it the names of all accused foreign bank account holders’ information.

Furthermore, as a counter black money strategy, the government has also set up a panel of high level representatives from governments, international organizations, civil society organizations and the private sector which will explore and provide suggestions on:

Actions at the domestic and international levels to tackle illicit financial flows, as part of the means of implementation – and sources of finance – for the post-2015 development agenda;

  • Ways in which more coherent policies can be generated in creating an environment that discourages illicit financial flows (e.g. transparent tax systems, financial transparency, clean business environments, and institutional capacity);
  • Areas where international co-operation can support efforts in mobilizing domestic resources for sustainable development, including through knowledge sharing and capacity building.[vi]

With the proposed target by the UN OWG to significantly reduce by 2030 illicit financial flows as background, support new global standard on automatic exchange of information. The Indian government is focusing on the need for policy coordination among major economies since increased mobility of capital and technology has created new opportunities for avoiding tax and profit shifting.







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