Evil MIB: Money in Black

When a country like ours is on the threshold of creating ripples across the world economy, let's look at one of the biggest evils that is pegging India back: Black Money. Tax evaders in India should profusely thank Nehru proffered mixed economy. This resulted in building up of black money. It is believed, black money in India has kept pace with white money so much so it is running parallel to the nation's economy!! One cannot really blame the commercial sector or the tax evading individuals if the Congress led government was taxing 60-70% of their income(1950s through 1990) and the resulting accumulation of unaccounted money in trying to evade paying the same. One of the most shocking statistic is, less than 3% of India's earning population is under the tax bracket. Imagine a country of India's size with a huge population finding its feet with such a woefully low amount of tax money. Or the other way of looking at it is how heavily is the salaried class being taxed! The only way forward is lowering the tax percentage and widening the tax net.

Every Indian (tax paying and tax evading) is more or less sure that Mr. P. Chidambaram is going to come out with an amnesty scheme in some form or the other. It is essential for the Finance Ministry to realize that post-amnesty compliance is extremely important if the honest tax paying public is to feel good and also for the larger betterment of the financial backbone of the economy . It is as important as unearthing blackmoney itself.

Let us understand what the developed countries have in place to curb black money, tax evasion, defaulting on loans (which, gives rise to non-performing assets of the financial institutions) and fraud. All developed countries have a social security system or a number system for governance, in place. A number is assigned to an individual when he/she is born or when he/she becomes a citizen of the country. The unique number associated to each individual makes it virtually impossible for the "anti-economy" element to disappear from one bank,and live happily ever after by enjoying credit facilities from another. This system also helps financial institutions by generating personal credit history of individuals who wish to enjoy credit facilities. This ensures that honest people will reap better facilities and the defaulters are penalized. Credit and Debit card usage in Indian economy is on the upswing for the last four years. Keeping this in mind, Reserve Bank of India (RBI) can focus on giving a thrust to credit-card industry by bringing in innovative policies through which we can at least ensure that all future transaction is going to be "white". This will ultimately increase the revenue for the government.

Our FM can definitely take heart from the fact that he was the architect of the most successful amnesty scheme ever launched in India in his previous stint. But, he may know for a fact, similar scheme may not be successful this time. Studies have shown if a tax amnesty scheme is to be successful it should be something of a once in a lifetime opportunity. Opportunity for millions to feel proud that they have given something to their country, opportunity to come clean, opportunity for them to set an example, opportunity to sleep peacefully knowing fully well that they don't have to run and play hide and seek with the taxman. Instead of the government taking a 30-35% cut on an amnesty scheme like VDIS what if FM comes out with a plan which encourages people to invest their black money. By doing so the government may not directly gain for its coffers but at least a major portion of the black money will be unearthed and it will hit the mainstream economy contributing to the infrastructural well being of the country. This will also generate a great deal of employment opportunities ultimately off setting the damage caused by non-payment of taxes. One could perhaps remind the honorable Finance Minister what he said once before, "We can be color blind if black money is invested in certain sectors". Tourist and real estate industries are the most appropriate sectors where investment of black money could be encouraged because they are both labor intensive and are synergic in sustaining the employment they generate. Let us keep our fingers crossed until such a brainwave hits our Finance Minister!

My Blog on "Unionising of the BPO brigade" is still a case of work in progress!! It is going to take some time...