A dark, bustling business: How India's black money racket runs

  • Gaurav Choudhury, Hindustan Times, New Delhi
  • Updated: Jun 30, 2014 19:42 IST

Prime Minister Narendra Modi is moving fast to repatriate hundreds of billions of dollars in slush funds or black money stashed abroad, as part of a wider clampdown on corruption that he promised during his election campaign.

The Indian government has written to Switzerland seeking details of Indians who have stashed away unaccounted money in the country. (Photo representative/Thinkstock)

The government is building pressure particularly on Switzerland, seeking details of Indians who have parked unaccounted for money in the Alpine country's highly secretive banks. It has quickly implemented a Supreme Court directive to set up a high-powered special investigation team, headed by retired judge MB Shah, to look into the issue of black money that is said to run a parallel economy in India.



The efforts to rid India of corruption comes at a time when public patience with graft has run thin, underlined by massive street protests across the country three years ago that forced political parties to start addressing the scourge.



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Easier said than done: Busting India's black money racket



Hindustan Times presents a lowdown on how deals thrive outside the financial system in a bustling cash economy, hoodwinking authorities by creating a web of transactions to obscure the source of slush funds.




What is black money


Black money arises mainly from incomes not disclosed to the government usually to avoid taxation, and, sometimes, because of its criminal links




In god we trust, rest only cash


About two-thirds of India’s GDP run on cash—about Rs 62 lakh crore a year. For instance, grocery is bought and services are paid in cash.




Realty leads pervasive evasion


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.

http://www.hindustantimes.com/Images/popup/2014/6/gx-prominenttax.jpg

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India writes to Switzerland seeking black money info



HOW THE DIRT GETS WASHED



1. Under invoicing



Supply:

Firm Y supplies goods worth Rs 1 lakh, but does not present the bill



Billing:

Firm Y presents a bill of Rs 60,000 to firm X for the goods it supplied



Cheque:

X presents a cheque of Rs 40,000 –after deducting Rs 20,000 as tax—to Y



Due amount:

A month later X pays Rs 40,000 to Y in cash, which is not accounted




2. Investment in unlisted private companies



Borrow:

X “lends” Rs 10 crore in “cash” to Firm Y through a convertible debenture



Investment:

Firm Y uses the “cash” lent by X to pay vendors in cash



Sell:

Firm Y accepts payment from its final consumers only in cheque



Convert:

X “converts” Rs 10 crore he had lent into equity shares of Y



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Data shows increase in Swiss bank stash of Indians



3. Property deals http://www.hindustantimes.com/Images/popup/2014/6/gfx-fivecountries1.jpg



Sell:

X sells a plot of land to Y at Rs 20 crore



Pay:

Y pays 50% (Rs 10 crore ) in cash and the balance in cheque.



Deposit:

X deposits the cheque of Rs 10 crore and withdraws part in cash



Divert:

X Places a request before bank to for a demand draft of a huge amount to purchase gold for business



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