Revenue secretary Shaktikanta Das’s statement that India has equal amounts of money stashed locally as it does abroad comes as a breath of fresh air given how much emphasis is being paid, by the courts and others, on getting back black money from abroad. Indeed, it has been this newspaper’s view that, given the returns to be made from investing in India, it is unlikely those with black money will not be trying to bring this back into the economy—indeed, the suspicion has always been that a large part of the money coming through tax havens was actually just Indian money being round-tripped. The question really is how the government plans to tackle the issue; and for that, it needs to have some analyses on where the black money is being generated, and how.
If, for instance, the view is that the proportion of the black economy is reducing with economic reforms, then an important plank of the strategy has to be to intensify reforms including cutting down the high tax rates. The Tax Administrative Reforms Commission has just calculated that India should have 6 crore taxpayers as opposed to the 3.6 crore right now—a strategy based on this has to focus on intelligence gathering and studying data by the taxman to catch tax evaders. If the view is that the plethora of tax exemptions is making tax evasion higher, the strategy has to revolve around cutting the R5.72 lakh crore of exemptions in FY14. If black money is being generated in areas where government permissions are still required, a black money strategy has to focus on reducing government permissions … essentially, any strategy to catch black money has to stem from an understanding of how and why black money is being generated.
In this context, it is important the government release the studies on black money got done by three think tanks, National Institute of Public
Finance and Policy, National Council of Applied Economic Research and National Institute of Financial Management. Once these studies are released, there will be a better understanding of what is driving black money flows—each of the institutes has, in all probability, also given strategies to tackle such flows. GIS mapping, for instance, could play a big role in reducing black money in real estate, widely believed to be one of the biggest channels for black money; rationalisation of circle rates in keeping with market rates could well be another. Creating input chains, under VAT and now GST, is another important way to curb black money creation. No discussion of black money, of course, is complete without looking at election funding—as long as elections need to be funded by political parties, there is a powerful incentive to leave enough loopholes for generating black money.