Transcript of "Himalayan challenge corruption in india"
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BIG CHALLENGE: CORRUPTION AND BLACK MONEY
orruption in public places, poor governance, lack of proper monitoring generate huge
amounts of black money in the system. The unaccounted money is not reflected in
country’s tax income, Gross Domestic Product (GDP) and Current Account Balance; thus
distorts the financial report card of the country. “The White Paper on Black Money “released by
the Government of India in May 2012, defines ‘black money’ as assets or resources that have
neither been reported to the public authorities at the time of their generation nor disclosed at
any point of time during their possession. Some experts estimate that black economy comprises
around 40-50 per cent of country’s GDP. Black money and corruption are two sides of the same
coin. Corruption happens at three levels: Political level and bureaucratic level (wholesale
component) and lower functionaries of administration (retail component). As seen in 2G
Spectrum, Coal and Mining scams, industrial houses and big business class are actively involved
in propelling corruption.
Black money severely impact the economy. Governance failure and corruption in the
system affects the poor disproportionately. Research has established that corruption reduces
productivity, lowers investment, causes fiscal drain and has destabilizing effect on efficiency
( Bimal Jalan, 2005). It retards growth. Big ticket corruption is often associated with wrong
choice of public projects, project delays, leading to low productivity and low fiscal revenue and
in turn increases the cost of production by the business entities. This is more pronounced on
small and medium enterprises and overall growth of employment. With loopholes in
implementation, huge drain of country’s resources is seen in Government’s developmental
According to late C.K. Prahalad, (Internationally reputed Business School Professor,
thinker), the estimated loss due to corruption in India, in terms of investments, and growth
was around US $50 billion a year. Experts opine that large amounts of black money siphoned
out of India, through illegal channels (hawala route, import and export and invoice
manipulation) are stashed in Swiss Banks, in tax havens like Cayman Island, Luxemburg,
Marshall Island etc. In February 2012, the director of Central Bureau of Investigation ( CBI)
stated that the Indian have kept US $ 500 billion in off-shore tax havens. Axiomatically,
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portion of dirty money is recycled back to India as Foreign Direct Investment and Foreign
Portfolio Investment, mostly through Mauritius route. Legally, Mauritius permits setting up of
one dollar, one director and one investor company on its soil, ostensibly to channelize such
money to India as foreign investment, which is technically known as round tripping. The
dividend income from such investments in India is exempted from Income Tax owing to Double
Tax Avoidance Agreement (DTAA).
Transparency International- an international civil society based at Berlin has turned
fight against corruption into a global movement- measures Corruption Perception Index every
year to indicate levels of public sector corruption in various countries. Expressed in the scale of
100 (very clean) to 0 (very corrupt), the Index for 2013, listing 177 countries, put Denmark and
New Zealand on the top slot while Afghanistan, North Korea and Somalia at the bottom. India
occupies as low as 94th position, below Brazil (72), China (80), Sri Lanka (91), but above Thailand
(102), Argentina and Mexico (106).
Unaccounted money is generated every moment ( 24x7) in the country. There is loud
talk of black money stashed abroad. What about the unaccounted money circulating within the
country? Like, black money taken out of the country hinders growth, generation of black
money within the country increases inflation. This is also a reason why inflation spins out of
control of RBI/ Government. I.P Bajpai , Senior Journalist, NDTV, in a recent article “ Black
Money ? Surely, We’re All Guilty)” mentions ,more than 90 % of real estate deals involves a
cash component and as high as 40-50 % of the deal as buyer wants to minimize stamp duty and
seller evades capital gains tax. No government has made any efforts to pin it down. There is not
enough public debate on this. Property deals needs to be addressed through a strong regulator.
The ‘vertical integration’ of corruption at various levels of the government hierarchy –
elected politicians, higher bureaucracy and lower bureaucracy is an area of grave concern.
(Guhan and Paul, 1997). On the supply –side of corruption, protection provided to government
servants and public servants need to be curbed. The demand-side of corruption has two
components. The most pervasive is the ‘retail’ component consists of the demand generated by
the members of public who require permissions, licenses to carry on ordinary business of life
(Bimal Jalan, 2005). Assessment of tax, getting back tax refund, permission for getting a
electricity connection, approval of housing plan from development authorities, assessment of
holding tax, even getting a birth and death certificate in time are only few examples.
Ever since the 2010 protests by the ‘India Against Corruption’ leader and more forcefully
since Anna Hazare’s fast, the issue of corruption has led Indians to re-evaluate what the state
really means to them. (William Gould, Senior Lecturer in Indian History, University of Leeds).
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In a landmark development Central Government has notified 'The Public Servants
(Furnishing of Information and Annual Return of Assets and Liabilities and the limits for
Exemption of Assets in Filing Returns) Rules, 2014' in terms of which every public servant at the
Central level: Ministers, MPs, Officers/Employees of the Government or PSUs shall disclose
their assets/liabilities etc. or that of their spouses to respective Competent Authorities, who in
turn shall upload such information on the website of the concerned Ministry/Department.
Exchange of tax information on India-linked companies should be strictly pursued with
other countries. India has DTAA with 82 nations including all popular tax havens, of
which with 30 countries the agreement has been expanded which requires mutual
effort to collect taxes on behalf of each other. Such provisions must be included in all
the tax agreements.
The public awareness initiatives should be launched by the tax authorities on the lines of
The expectations are high with the strong hope that that Lokapal in the Centre and
Lokayukta in the state, once constituted must work as deterrent to corrupt practices in
the political, administrative system in the country.
[The author is a former Chief General Manager,
Reserve Bank of India. The views are personal.]