1. Lot of Questions to Answer???
• Rs. 40k Crore: Spent by Indian Govt. on NREGA every year.
• Rs. 1.25L Crores: Estimated cost of Implementation of Food Security Bill
3. Agenda
Introduction
Causes of Black Money
Macro-Economic Perspective of Black Money (Inflation, Fiscal Deficit)
Methods to Estimate Black Money
Converting Black Money into White Money
Effects of Black Money
Govt. initiative to curb Black Money
Suggestions to Curb Black Money
4. Money Gone Black…
• Black money is earned through illegal activity and, as such, is not taxed.
Recipients of black money must hide it, spend it only in the underground
economy, or attempt to give it the appearance of legitimacy through
illegal money laundering.
• Possible sources: Drug trafficking, Weapons trading, Terrorism,
Prostitution, Selling counterfeit or stolen goods and selling pirated
versions of copyrighted items such as software and musical recordings.
5. Causes of Black Money
Shortage during
War
Scarcity of
Resources
Unfair
Practices
Faulty Taxation
and Excise Duty
Temptation
of Tax
evasion
Downgrading
of product
Price Control
Policy of Govt.
Commodities
Artificial
scarcity
Corruption
Bribes
Karnataka
Coal Scam
Elections, Party
Funds
BJP: Rs.
4000cores
Source of
funds???
Real Estate
Transactions
Devaluation
of Property
6. • Understanding the implications of Black Money on
• Inflation
• GDP
• Fiscal Deficit
Macro-Economic Perspective
8. A Politician
Declare yourself
a farmer
IT RaidUses PAN Share Market Deposit in Bank
Black Money
Swiss BankGold, Silver,
Diamond
Plays Safe
Election
Campaign
Money Lenders
YES YESNo No
10. 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Swiss Bank Liabilities 23373 15000 11000 9000 9500 12100
Fiscal Deficit 148,600 250,000 330,100 412,000 369,000 520,000
Estimated Total Black Money 136,000 178,000 226,000 287,700 306,000 319,000
0
100000
200000
300000
400000
500000
600000AxisTitle
Black Money and Fiscal Deficit
11. Methods to estimate black money:
Input/output method:
• Uses input/output ratio & input to calculate true output.
• Calculates black money as the difference between declared output & expected output.
• Useful only if applied to individual sectors but being used for the whole economy is
useless.
• Ignores structural changes in the economy including technology.
Survey approach
Fiscal approach
12. Methods to estimate black money:
Velocity of money method:
• Based on assumption that currency is used by both shadow & regular economy
• Money is used to circulate incomes in both regular & shadow economies
• Compare the velocity of money (average number of times currency changes hand in a
year) to the income captured in the NAS (National Accounting System)
• Difference gives the black component.
• Assumption that NAS provides accounted incomes accurately cannot be true.
• Large proportions of incomes from unorganized sectors are not captured correctly.
13. Methods to estimate black money:
Kaldor’s approach:
• Estimated non-salary income by breaking national income into:
1. Wages & salaries
2. Income of self-employed
3. Profit, interest, rent etc.
• NDP – Wages & salaries = total non-salary income
• Estimated actual non-salary income assessed to tax in each sector to find the total.
• Estimated non-salary income above exemption limit – actual non-salary income
assessed to tax = black money
15. Limitations:
• Excludes income generated through illegal activities
• Not standardized, no absolute figures/ small ranges, varies widely among economists.
• Taxes other than income tax are evaded (sales tax, excise duty, stamp duty etc)
17. Money Laundering
• The process of creating the
appearance that large amounts of
money obtained from serious
crimes, such as drug trafficking or
terrorist activity, originated from
a legitimate source.
19. DISGUISED OWNERSHIP
CRIMINAL A
HAWALA
Company’s account,
promoted by A in foreign
Countries
Company in India
promoted by A
Hands
over
Deposited
Invests
As Shares
Dividends &
Income
As white
money
22. Special Economic Zones
Section 10AA of Income Tax exemption:
• 100% Income Tax exemption on export income for 5 years.
• 50% for next 5 years thereafter.
• 50% of the ploughed back export profit for next 5 years.
Showing the amount as exports from SEZ’s.
23. Ill Effects of Black Money on Indian Economy
1
• Mass Poverty: Inequitable distribution of income and hence
purchasing power
2
• Low collection of taxes such as Income Tax, GST
3
• Low GDP and widening fiscal deficit
4
• Effective spikes of inflation in the economy
5
• Crippled growth of the infrastructure within the economy
24. Steps taken to curb Black Money… Till Now
1
• Successive waves of economic liberalization in India since the 1990s
2
• Voluntary disclosure scheme in 1975
3
• Demonetization of the notes of higher denomination
4
• Foreign Exchange and Prevention of Smuggling Activities Act to curb smuggling
5
• Withdraw from circulation all currency notes prior to 2005
6
• CBDT has begun its operation of trailing stashed bank accounts of the Indians in
the tax havens (Tax Information Exchange Agreements)
25. Steps that can be taken to curb Black money
Simplification of tax laws
Implement GST and Direct taxes code
Sign Bilateral International Agreements to ensure sharing of information on tax evaders
Reforms in Sectors Vulnerable to Generation of Black Money: Bullion and Jewelry Sector, Real Estate, Cash Economy
Strengthening of the Prosecution Mechanism and FIU , CEIB & other institutions
Enhancing the Accountability of Auditors
Incoming and outgoing funds to NGOs and religious trusts must be regulated and transparent.
