Black Money Talks

Parallel Economy Continues to Flourish

Manas Bakshi

Nearly one year back, a news item that initially created a stir on 17th June 2022 was about a significant jump in funds stashed in Swiss banks by Indian individuals and firms. It included, according to the annual data revealed by Switzerland’s Central bank on 16th June, 22, funds from India-based corporate branches and financial institutions. The amount jumped to 14-year high of 3.83 billion Swiss francs in 2021 from 2.55 billion at the end of 2020. The upward trend in the aggregate funds of the Indian clients with the Swiss banks is in proof of the second consecutive year of surge as far as ‘holdings via securities and similar instruments’ along with customer deposits are concerned.

Notably, these are official figures reported by banks to the Swiss National Bank “and do not indicate the Quantum of the much debated, alleged black money held by Indians in Switzerland. These figures also do not include the money that Indians, NRIs or others might have in Swiss banks in the names of third country entities”.

While the initial stir has subdued, what may be recalled is the renewed election pledge of the Bharatiya Janata Party (BJP) in 2019, and that is nothing but the issue of recovery of black money [Kala Dhan]. As early as in 2016, while showering plaudits on the success of the Income Declaration Scheme 2016, with the assertion that “In the history of independent India, no government has been able to recover black money to such an extent”, Mr Amit Shah claimed that apart from Rs 65,250 crore money disclosed under the said scheme, “The government had recovered Rs 56,378 crore undisclosed earnings in income tax department’s search and survey drive and seized Rs 1986 crore cash.” By this time, enough water has flowed down the river Ganges and black money accumulation has not stopped for a moment.

And there is hardly any reason for the common people of India to be jubilant at the “unprecedented victory of Modi government over black money” because the menacingly surging black money power capable of goading a parallel economy has been threatening the Indian polity since long. Before coming to power in 2014 while BJP was preparing the ground for a nationwide campaign, it had in its manifesto the promise to ferret out black money from the hidden coffers of the black marketeers, hoarders and the like besides providing jobs to crores of youngsters, controlling price hike and punishing criminal offences and so on. What people see in reality is a different picture hardly subscribing to the loud talks–whatsoever–that were floated in the air. The promise of the recovered amount to be distributed among the poor and the have-nots has not yet borne fruit. Instead, the economic offenders blessed with a safe recluse abroad have escaped the dragnet.

In fact, plunder of public money in more ways than one has come under scanner in some states more piquantly in the recent times than ever before. Investigation reveals such money has been invested in opening bank accounts in fictitious names and utilised in real estate business, mushrooming of lottery shops, restaurants, fake organisations and film industry. While formerly, hawala transactions were the main source of amassing black money, now the spectrum is wide enough for flow of black money. Now the networks are stretching beyond the country–the alleged connection of a Bengal-based politician with a Russian model in a recent scam of over Rs 100 crore is one for instance. It largely emanates from bribe of lacs of Rupees offered by unworthy and/or non-eligible candidates to get jobs through back door; though such appointments at various levels–from School to Corporation–have later been proved illegal, and the matter is sub-judice, there are undeniably several other ways and openings for influx of black money. Together with this, as alleged, misappropriation of fund meant for public utility services–from 100 days work to PM Abas Joyona–has also fattened the pockets of some political leaders.

The allegation and counter-allegation of political vendetta between centre and state to malign the image of one by the other may continue but money earned through smuggling of cow, sand, coal and stone is now an open secret. The inverted pyramid of such unaccounted money remains in the dark until and unless it is duly investigated and made public. But the way to escape is also there. And that is nothing but by way of changing political colour to avert investigation.

Hence, nothing pragmatically correctional is likely to emanate following the implementation of a slew of apparently punitive measures against the economic offenders–at state or national level–so long as defection floundering all democratic rules and norms is possible and permissible. It may be pertinent to recall in this context the news flash which some regional TV channels displayed some time back. It is definitely alarming but no rare sight; and it is with regard to those who have enough black money to fly away 2000 Rupee notes from their house-top after winning an election or on the occasion of marriage or some other festivals while millions are scrambling for a morsel of food–even a drop of potable water–in remote rural areas of the country.

Such a phenomenon is particularly in evidence where even 100 days’ work is not ensured to the poor–allegedly due to non-submission of utilisation certificates, malpractices in job allocation and discrepancies in Master Roll. The plight of the migrant labourers from various states including West Bengal during lockdown and after beggars description. Its after effect is still in evidence in the drought-stricken arid areas and flood-prone riparian parts of the country. It is against this backdrop that the unbridled–rather bulging–power and strength of black money wielders is in question. And now, the point for consideration is–since high value denomination of Rs. 2000  are not used in large measure for carrying out regular transactions by ordinary people and it is an easy tool for stashing black money for hoarding–will its withdrawal be a step in the right direction?

The decision of RBI on May 19, 2023 to withdraw Rs 2000/ denomination notes ‘as a part of currency management’ is a welcome effort as the withdrawal of Rs 2000 notes comprising ‘10.8 per cent of the currency in circulation’ will cast ‘very marginal impact on the economy’. More so because, these are not ‘commonly used in any transactions’. But much of the huge amount (crores and crores) of black money seized very recently by ED and IT Department from the hidden coffers of some of the economic offenders and their cohorts wielding political power are of Rs 2000 denomination. Not only that, it is estimated that 80 percent of Rs 2000/  denomination notes are in store of the fraudsters. On several occasions, criminals generating fake currency of high value–apt to vitiate the financial system–have been intercepted. On the one hand, it has helped accentuate the spread of black money to jeopardise proper functioning of the financial system causing price hike and economic disparity in the main and instigate with money power terrorist activities inside the country, on the other.

While the “Reserve Bank of India estimates that most of the Rs 3.6 lakh crore of high-value Rs 2000 notes will be turned in over the next four months”, Rs 2000 notes will remain a legal tender though the deadline for swapping or depositing such high value notes is September 30. It is a platitude to say that Rs 2000 denomination notes as medium of exchange are not commonly used by poor and middle-class people; so there was less rush at bank counters but, at the same time, traders were largely “wary of accepting Rs 2000/ notes, citing a lack of clarity about deposit and exchange facilities at banks as they see a rise in customers wanting to pay for goods with the highest denomination currency which is being withdrawn”.

But the problem lies elsewhere. Since the banks were instructed “not to insist on proof of identity, branch officials were unsure of the procedure to be followed as their internal risk management process required them to do so”, and there was hardly any scope for scrutiny on ‘transacting black money’. As observed by the governor of RBI–“the RBI does not do any scrutiny. It is (by) other agencies like income tax (department)... and others will follow their normal procedure like (that) for Rs 50,000 and above... banks have their own reporting systems like CTR, STR (cash transaction report, suspicious transaction report).”

And this is what paved the way overnight for immediate conversion of black money into gold; it created Pavlovian response leading to a “remarkable rush to buy gold” because almost everyone agreed that ‘visit to the bank was a bad idea’. The withdrawal of Rs 2000 note triggered such panic buying that jewellers witnessed a steady flow of customers buying yellow metal with Rs 2000 notes, so much so that in Kolkata “a customer at a leading jewellery chain booked gold bangles for over Rs 5 lakh and paid in cash–in Rs 2000 notes”. While the pink note created havoc, jewellers too demanded a higher price for gold if it involved significant exchange of Rs 2000 notes.

It can be easily inferred from the above analysis that high denomination notes can easily be diverted to hoarding of gold and investment in real estate business. Considering the threat of black money and fake currency in use a formidable factor as far as spate of black money is concerned, central Government opted for cancellation of Rs 1000 and Rs 500 denomination notes in 2016. But demonetisation at that time or afterwards had cast no magic spell to check spread of black money power except causing enormous harassment to the common people of the country–even reaching the extent of death in some places.

Now, it is crystal clear that in the context of setting a bulwark to black money, withdrawal of Rs 2000 notes bears no indication of the economy returning to the path of rectitude–for it portends no effective measure to track the source of huge income; to be more specific, how and wherefrom a huge amount of Rs 2000 notes were generated. Fact is black or unaccounted money has two sources: First, illegal activities–bribe, crime and corruption. Secondly, undisclosed income from various sources–legal or illegal. Even if the source is detected, government initiative to tackle the issue has so far remained confined to lukewarm schemes like Voluntary Disclosure Schemes and demonetisation.

But both the schemes have so far been found to have cast scant effect on recovery of black money. Unless it is detected at the source of generation, with provisions for exemplary punishment as preventive measures, and expenditure tax is imposed forthwith specially in case of investment in gold, real estate business and the like, there is no way to redress from the cankerous malady.


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Vol 56, No. 17-20, Oct 22 - Nov 18, 2023