Finance minister P Chidambaram is likely to reveal a new estimate of India’s unaccounted “black money”, most of it stashed abroad, in the budget session and follow it up with a plan to hold it to account, top officials told HT.
The new estimates, the first since 1985, have been compiled at the government’s behest by three think-tanks, the National Council for Applied Economic Research (NCAER), National Institute of Public Finance and Policy (NIPFP), and National Institute of Financial Management (NIFM).
This report, submitted to the government in December, is speculated to have pegged the size of black economy at about 30% of India’s gross domestic product (GDP) or about Rs. 25 lakh crore.
About a third of India’s black money transactions are believed to be in real estate, followed by manufacturing and shopping for gold and consumer goods.
The Centre has tracked Rs. 50,000 crore in undisclosed incomes over three years, while tax evasion worth more than Rs. 1,000 crore has been detected from inputs from foreign countries.
The revenue department is pursuing 50,000 pieces of information on suspicious transactions received from overseas and domestic agencies.
Nearly 12,500 inputs on assets and payments received by Indian citizens in several countries have been obtained, “which are now under different stages of processing and investigation”.
The BJP, in a 2011 report, had estimated India’s black economy to be worth around $500 billion and $1.4 trillion or about between Rs. 27.5 lakh crore and Rs. 74 lakh crore, while US think-tank Global Financial Integrity had estimated India had lost $123 billion (Rs. 6.76 lakh crore) in "black money" in 2001-10.
This is money that is earned and transferred illegally abroad in tax havens, such as Cayman Islands, typically to avoid taxes.
Viewed as going hand in hand with corruption, “black money” had been at the top of the agenda of widespread public protests last year.
These sums, compared to India's total annual welfare spending of about Rs. 3 lakh crore, are staggering.
If hidden incomes of Rs. 25 lakh crore were to be disclosed and taxed at 30%, it would generate Rs. 8.5 lakh crore, enough to build a 2,000-bed super-specialty hospital in each of India’s 626 districts.
Alternately, it could offer a “zero-tax” year for all individuals and companies, and still enable a sufficient budget that funds all expenses, including salaries and welfare schemes.
The government has introduced compulsory reporting in case assets held abroad and also started tax collection at source in case of purchases in cash of gold or jewellery in certain cases.