Laveesh Bhandari, Founder and director, Indicus Analytics
There is black money and black income, and there is corruption and bribery. These go hand in hand most of the times - but not always.
Black income is surprisingly not very high in India, since a large part of the Indian economy is not taxed. But there is widespread agreement that there exists a lot of black money in India. What is black money then? Over and above the black income it would include all funds 'earned' or collected on which taxes are not paid. Hence funds from bribery and side payments are included, and so are the undeclared portion in real estate transactions. The way to eliminate black money in India, therefore, lies in making such transactions costly. In other words, corrupt behaviour needs to be punished, and the incentive to not declare the full value of property needs to be eliminated.
Corruption and real-estate transactions are intimately related. It is difficult to park large amounts of cash in a locker or in other physical assets, be it jewellery or art objects. Real estate is the best black money parking scheme in India. Across the country about 50% to 80% of the value of real estate transactions is not declared. (Though there does exist a small island of new residential construction in organised sector where almost all is in white). This has many advantages. First, it saves on stamp duty. Second, no amounts of government raids can catch the ill-gotten money. Third, real-estate is a fairly liquid parking slot. And fourth, perhaps the most important, such investments have been generating very high returns.
Strangely while the economy has been slowing down, the manufacturing sector has been slowing, agriculture not growing as much as desired, construction sector growth starting to level off - real estate values in India's capital cities have been rising unabated. As per the Residex property values in Delhi have increased by about a third in the last one year. What is true of Delhi is also true of other capital cities though to a lesser degree. The centre of government is where corruption is highest and that is where it is best to park large amounts of funds.
Today's India has among the highest property prices in the world: correct this for level of productivity in a country and correct for the quality of real estate, and Indians pay far more for quality- and productivity-adjusted square footage than any other nationals. This is making our service and manufacturing sectors highly inefficient and driving out the unorganised sector from Indian cities, making it impossible to achieve inclusive growth.
We must go after the corrupt, whether through the Lokpal or through some other mechanism. Police, anti-corruption bureau, CBI, CVC and other agencies have to be made answerable, made efficient and given freedom to do what they are supposed to do. There are signs this is happening.