BLACK MONEY : UNLEASH ITS STORED ENERGY TO FIGHT DOWNTURN

Most developed countries do not have much of black money operating within their countries, especially for normal day-to-day lives or even most of the economic activities. Their systems, therefore, could easily adopt the computers, e-transactions, e-cards even in small hotels, petrol stations, shops etc. Americans carry very little cash. In contrast in India most transactions even big ones are done in cash. It helps in tax evasion. Also to convert black money for a “white” service or product. This is one of the main reason why e-governance is not picking up in India.

Of course, developed countries have their vices. They create “phantom money” – fully legal – through various forms of financial engineering. To a limited extent, it is healthy to cover the imponderable futures – like insurance, wild fluctuations in prices etc. But the financial product games of derivatives, hedge funds etc have grown into big bubbles. Also banks in some select small countries (not just Switzerland but about 50 – odd in number) provide total secrecy in operations. This has helped black money flow from developing countries – democratic, despotic, autocratic etc. Rich and powerful extract black money from the domestic economy and put it the “safe havens”.

Unfortunately the global finance operations and the related financial engineering (from developed countries) have helped the money from secret banks (mostly black now due to huge flow global flow) to enter into other countries as investments. Any honest economist has to admit that quite a bit of foreign flows to India have a large component of black money. India’s growth has benefited from such a flow.

Also there can be no denying that quite a bit of domestic black money also now flows into the Indian economy. Many services sectors, real estate etc. are glaring examples. Others receive too ! In fact, if all these black – economy operations are taken into account, India’s economy will be estimated to be much bigger. Growth perhaps more than 8% which is projected officially.

In spite of these realities, we still take moral high ground against any amnesty system to bring out black money openly. Only one year was given post 1991. (Without a liberal market economy, black money will not come out easily !). That is not enough, as those who have huge money are afraid of bringing out.

This is the time Govt. openly announces a black money investment scheme. In order to also give a social benefit orientation, the scheme can be as under. No questions asked about whereabouts of money or investments and also some tax benefits for investments in rural areas, backward districts etc, if the investments are in the following:

• Schools, colleges, Universities, educational/skill imparting institutions of any type as fully Indian or in joint venture with other countries.
• Hospitals, mobile medical facilities etc fully Indian or in JVs.
• Tourism development related investments in Tier-3, Tier-4 towns, coastal areas, and rural areas (can be hotels, hostels, roads, parks, transport fleet, booking facilities, documentary films, advertisement etc). (This will enhance employment).
• Similar investments for enhancing design and technical features of artisanal products and local cultural products including marketing infrastructure, advertisement etc.
• Similarly for those who are investing to help marginal farmers who may do contract farming with big companies.
• All forms of infrastructure (Road, water, electricity etc) related to any of the above. The rights of investors for these facilities created should be liberal.

The list is illustrative. A few more can be added. If this scheme is announced soon stating that it will be operational at least for five years, then the black money unleashed into the formal Indian economy will be several times more than what Govt. can afford to invest with tax payers money. Our banks will suddenly become cash rich !

It will help India to be stable amidst global down turn and loss of employment will be prevented. Many new domestic employments will be created. Since the black money can flow legally into formal economy, the operations can also use computers, thus opening up the domestic sector to IT operations. Our IT companies who lose US outsourcing jobs can benefit. Huge educational sector also can pave way for IT growth.

It will be VIRTUOUS CYCLE unleashed by the “dark matter” or “dark energy”, which unfortunately got created by the VICIOUS CYCLE of high tax and control raj (1947-1991).

Over a period of a decade or more with faster economic growth and more economic space, hopefully with major administrative reforms) much of the causes of corruption will disappear. (I have elaborated in my book A to Z of Success in the topic CORRUPTION).

Do we have the real moral fibre in us as a nation, to accept that we are ordinary persons as any body else, and allow the dark economic reality of Indian life, to work for people’s benefit ?

Y S Rajan

10/11/08