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HindustanTimes Thu,21 Aug 2014

Is Pranab's white paper on black money an exercise in futility?

Gautam Chikermane, Hindustan Times   May 28, 2012
First Published: 00:30 IST(28/5/2012) | Last Updated: 00:31 IST(28/5/2012)

Finance minister Pranab Mukherjee's white paper on black money is an extensive exercise that, in the end, has delivered little more than a research report. Its biggest expectation has become its weakest link — the lack of a number on the size of the black economy that has turned this paper soulless. We can bicker about the need for such a paper or whether it could have been tabled not last week but next year.

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But there is a bigger question we need to ask in these volatile times of fractured political mandates is on outcomes: will any government, today or tomorrow, have the courage to truly end this disease of black money, eating our country's innards since Independence?

The size of India's black economy will come by year-end, Mukherjee has assured us. But I don't think Mukherjee's estimate is going to be strikingly different from estimates of previous serious studies that have pegged the figure between 15% and 50% of GDP. While absolute estimates may differ among economists, one trend common to all studies is the rise — all studies say the percentage of black economy has increased over the years. According to JNU professor Arun  Kumar, it was 2% of GDP in 1955, 7% in 1970, 18% in 1980 and 40% in 1995. So, back-of-the-envelope extrapolations should put the figure at 55% today, though if you look at the real estate boom that has exploded since 2003, a higher figure would not be out of place.

To put in simple terms, at a conservative 40% of GDP, every Rs. 2 out of Rs. 5 in India's economic activity is illegal, unaccounted for, black. It has reached where broadband aspires to — everywhere.

"The black economy is a functioning system and is not just incidental made up of a few isolated incidents here and there," Kumar wrote in a paper that examined the subject in the context of how it is "undermining the idea of the nation".

From the undeclared output of industry to bribes paid to officials, the unaccounted for economy rules. "Illegality has come to be accepted in our daily life and this has bred more illegality, bringing into contempt the rule of law," Kumar wrote. "Because the black economy is systemic, the individual feels helpless."

All of us have encountered this helplessness and I'm no different. "Look son," a former ambassador to a north African country once told me patronisingly, "you can either change the system or buy a house." He was referring to my insisting on paying completely by cheque for one of his houses — to me the only option but for him a matter of evading capital gains tax.

The promise of the EMI was supposed to have ended this malaise in real estate, as aspirants from below broke the concrete ceiling and got themselves a few square feet of living space. Instead, the financial sector has "adapted" very creatively to it, offering loans for furnishings that can be withdrawn and converted into cash.

The other logic that has crashed before us is that if tax rates are reduced, black economy will follow. Though the highest income tax rate has fallen to 33% today from 97.5% in 1971, the percentage of black economy has increased. The five mega scams of recent past — the Rs. 1,067,000-crore mining scam, the Rs. 163,000-crore Delhi airport scam, the Rs. 176,000-crore 2G scam, the thousands of crores lost in the Commonwealth Games scam, hundreds of crores in Adarsh Housing Society scam — are only the high-profile faces of a larger and deeper malaise that is seeing pressure from ground up building.

Anna Hazare's solutions may not be acceptable to Parliament. But his unrelenting agitation and the resultant debate on bringing a strong Lok Pal Bill could change the texture of corruption in high places. Whether it will trickle down is debatable. On a day-to-day basis, corruption has congealed and brought together petty officials — from municipal bodies to the police, the PDS agent to parking mafias — together. Their strength: a parallel morality backed by a parallel governance, the patronage for which comes from the top.

Morality, in fact, is getting in the way of accurate assessment. The moment we think of the expression 'black money', psychological factors come into play, defining those indulging in it as the economic villains of India. Wild numbers begin to multiply on chain mails, amplifying their grip on households, leading to furious debates that lead to nowhere. For all the trillion-dollar estimates being stashed in Swiss Banks, for instance, the number is closer to $2 billion according to them.

Like all good reports, Mukherjee's white paper tells us a lot about black money --- its definition, generation, location, legislations. So, while we munch on these ideas and get a broader view on the phenomenon, expecting change is asking for too much. Black money runs in our financial arteries, it has become part of our culture. It would be interesting to see how this debate shapes up, in the form of new laws, rules, regulations with their accompanying loopholes; new watchdogs that will end up as profitable sinecures for ageing bureaucrats. But the cure lies in complete transfusion. And India's political economy is not ready for it — yet.


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