Black Money Basics in 3 Minutes

By now it is clear to everyone that demonetisation is a total failure. In the beginning, we were told that demonetisation is going to wipe out Rs. 3 to 4 lakh crores of black money. There were even speculations that government is going to use the 3 to 4 lakh crore rupees leftover with RBI, for spending on social welfare programmes. But, all of this has been proved wrong – very little, if any, black money has been destroyed.

What is the reason behind this failure? Has demonetisation failed because there is no black money in India?

The truth is – there is a lot of black money in India. But, it is not lying in people’s trunks in the form of piles of cash. According to government’s own estimates only about 6% of black money in India is held in the form of cash. 94% of it is actually held in the form of gold, land, buildings and even as benami bank deposits.

Moreover, a large chunk of black money belonging to Indians, is not actually held within the country. According to some estimates nearly Rs. 34 lakh crores of black money has flown out of India (in a decade), into tax havens abroad.

This flow of black money happens through legal channels, through a process of over and under invoicing.

Corporations controlled by prominent industrialists like  Gautam Adani (imported coal scam), Anil Ambani (imported coal scam), Ruia (imported coal scam), Anil Mittal (telecom scam), Mukesh Ambani (KG-Basin scam) – were known to have been involved in such transactions of over invoicing the costs and under invoicing the revenue.

The black money generated in this process is stashed in tax havens. It is brought back from there to India through legal channels – in the form of FDI. As a result, a lot of FDI coming into India is actually India’s own black money. Today, more than 50% of India’s FDI actually comes from just two such tax havens (Mauritius and Singapore), which are well known for being used by the Indian rich to stash and recycle their black money.

The FDI coming through such well known Tax havens has gone up by about 40%, since Mr. Modi has come in to power.

If the government is really sincere in its fight against black money – it is not very difficult to prevent the black money from going abroad. After all, modifying and renegotiating tax treaties is entirely in the government’s hands.

The real question is - does Mr. Modi really want to do it? Would he go after the Adanis and Ambanis of the country, whom he regularly courts?

Disclaimer: Kicked Up Pumps by Audionautix is licensed under a Creative Commons Attribution license (https://creativecommons.org/licenses/by/4.0/)

Artist: http://audionautix.com/