The government’s response to a Supreme Court question on what it is doing about black money is made out in finance minister Pranab Mukherjee’s latest budget speech. A five-fold strategy is in play here. India is now a member of the G-20’s financial action task force that is spearheading the global anti-money laundering initiative. Besides this, India has also joined Financial Integrity and Economic Development, a global coalition of civil society organisations and more than 50 governments working to address inequalities in the financial system, and the Global Forum on Transparency and Exchange of Information for Tax Purposes. Also, the government has concluded discussions for 11 information-sharing agreements with tax departments of other countries while 23 tax treaties are in various stages of revision.
An enlarged domestic money laundering law in 2009 has seen the number of cases registered shooting up from 50 between 2005 and 2008 to over 1,200 by January 2011. The strength of the Enforcement Directorate has been increased three-fold to deal with the heavier workload. The finance ministry, too, has commissioned a study on unaccounted income and wealth held within and outside India. It’s been asked to suggest methods to gouge out illicit money. Finally, Mr Mukherjee proposes to announce a comprehensive national policy in the near future to strengthen controls over prevention of trafficking and to improve the management of narcotic drugs and psychotropic substances. There is also a slew of measures to tackle the allied issue of corruption.
A group of ministers looking into graft will go into state funding of elections, speedier processing of corruption cases of public servants, transparency in public procurement and contracts, discretionary powers of central ministers and a competitive system for exploiting natural resources.
The Supreme Court’s question to the government on what it is doing about black money is actually three questions rolled into one. First, why should a black market exist? Second, what makes money go underground? And third, what are the chances that a person plying his trade in the parallel economy will be caught? The answer to all three is governance, or the lack of it. Mr Mukherjee’s intervention in the national debate on black money may have been adequate had the issue not acquired the endemic proportions it has in India. Joining the global crusade against funny money is not enough for a country that has, anecdotally at least, too much of it. India must lead the crusade. As a beginning, it needs to introspect on the shortages that create black markets in the first place, the regulatory mechanism that nudges resources underground, and the lack of policing that allows the parallel economy unfettered growth.