BLACK MONEY CONVERTABILITY
FOR the Common Good
Sourav Agarwal 07927803
07927816 Ramesh Thamotharan
ENVIRONMENTAL ECONOMICS AND POLICY

What is Black Money ?
• Concept
• How does it flow in the Economy ?

Why Black Money is Generated ?
1. Tendency of people to increase Purchasing Power.
2. Conducting Transaction illegal in nature.
3. Inflation.
4. Corruption.
5. Laws.
6. Perception about Government.

Government, Its Policy, and
Black Money
Government is a expected to function for
maximum good of all.
Not possible !!
Deviations do Exist and so do Anarchicts.
Government should act as a regulator and
interfere as minimum as possible.

Parallel economy as % of GDP
• Developed countries – 8 to 20 %
• Transition countries – 20 to 30 %
• Developing countries – 25 to 50 %

Size of parallel economy
• Rs 3034 crores in 1967-68
– 9.5 % of GDP
• Rs. 46,867 crores in 1978-79
– 49 % of GDP
– a 15-fold increase in 12 years
• During 80s parallel economy grew faster than
the GDP
– 46.7 % vs 40 % (between 1980 and 1989)

Impact
• High taxes result in cash transactions that go
unaccounted
• Under-declaration of deals skews market info
• Affects the process of capital allocation
• Upsets accuracy of economic forecasts
• Erosion of public confidence on the system
that leads to a vicious cycle

Have there been laws ?
• Tax amnesties have been provided
• Permanent (Settlement Commission) and
temporary (VDIS)
• To promote better tax compliance
• In return for immunity from prosecution

Tax Amnesties in India
Year Authority Income Revenue Total % of total
disclosed Collected Revenue revenue
1951 N/A 70.20 10.89 N/A N/A
1965 Finance Act 52.18 30.80 N/A N/A
1965 Finance Act (2) 145.00 19.45 N/A N/A
1975 Voluntary 1587.89 249 2204 11.29
Disclosure
1985 Finance Act 10778.34 458.79 11858 3.87
1985
1997 Finance Act 33776.90 9729.02 38895 25.01
1997

Would regulations help ?
• Incentivisation of above-board transactions
• Value Added Tax (VAT) encourages better
accounting
• Vigilance may help a little (RTI, CVC)
• Risk of being caught is not worth taking
beyond a point
• Frequent tax audits and high penalties for
evasion

The way out
• Why should there be a law ?
– Size of the parallel economy is reason enough
– The economic, social impact of not having one is
very high
• How should the law be ?
– A mix of temporary and permanent provisions
– More incentives for above-board transactions
– Coupled with reduced taxes and better vigilance