Indian Economy News & Discussion - Aug 26 2015

[Suraj]

Govt issues draft GST procedural rules, Council to finalise them on Friday

The businesses within India may get online registration within three days of submission of application under the proposed Goods and Services Tax (GST) regime, according to draft rules floated for registration, invoice and payments for the new indirect tax regime by the indirect tax department.

The non-residents, who will come under the purview of GST, will be required to electronically submit the application for registration at least five days prior to the commencement of business and deposit full tax liability in advance, according to these rules.

Experts fear that e-commerce companies mat end up with multiple registrations because of some provisions.

The draft rules were a swift move by the Central Board of Excise and Customs (CBEC) with an eye on the April 1, 2017, roll-out of the new indirect tax regime. The rules, on which comments are sought by Wednesday, are likely to be finalised by the GST Council on Friday.

FinMin pitching for Jan 31 Budget

The finance ministry is said to be pitching for the Union Budget 2017-18 to be presented on January 31, an event which would give Parliament exactly three months to approve the Finance Bill before April 1.

The final decision on the Budget date will be a political one and will be taken by the Cabinet Committee on Political Affairs (CCPA). Finance Minister Arun Jaitley had said last week that while the government was in favour of advancing the Budget to enable the passage of the Finance Bill before the start of the next financial year, a final call on the matter will be taken after studying the state election schedule.

Uttarakhand, Manipur, Goa, Punjab and Uttar Pradesh are slated to go to the polls early next calendar year.

The Budget planners and policymakers in North Block are pushing for a January 31 Budget. It will be a Tuesday, which also raises the likelihood of the 2016-17 Economic Survey being tabled in Parliament on Monday (January 30).

“We have pitched for the last day of January and will prepare the Budget, keeping that date in mind. It will give Parliament three months to pass the Finance Bill,” a senior official said.

Aim for 10% GDP growth over a decade, says Chief Statistician

India needs to aim for a 10 per cent gross domestic product (GDP) growth rate and sustain it over a decade if the country wants considerable development and emerge as an economic power, the country's chief statistician T C A Anant said.

According to Anant, the aim for a double digit GDP growth needs to become a habit with the policymakers in the country which they need to endure over a period of time.

Citing the feasibility of a target when India's GDP fell to a five-quarter low of 7.1 per cent in the quarter ended June, Anant referred to China stating, "They were able to maintain it for over 20 years at a stretch which boosted economic activity in that country."

[Suraj]

India rockets up WEF global economic competitiveness rankings

India's economy is booming. It's also becoming much more competitive.The country has zoomed higher in a new ranking of global competitiveness by the World Economic Forum, marking the second consecutive year of massive gains following a long malaise.

India was the most improved country in the 2016 ranking, moving up 16 places to 39th. It's a major improvement from two years ago when it languished in 71st position.

WEF said that India has made progress across the board, especially in market efficiency, business sophistication and innovation. It has also made significant gains in human welfare: Infant mortality has fallen by half over the previous decade, and life expectancy has increased from 62 years to 68 years over the same period.

Recent improvements have been supported by breakneck economic growth. In the latest quarter, gross domestic product expanded by 7.1%, a quick enough rate for India to keep its title as the world's fastest growing big economy.

WEF analysts did take note of areas that need improvement. It praised efforts by the country's central bank to bring transparency to financial markets, but said more should be done to clean up commercial banks.

The group warned that more reforms are needed if India is to "prosper in its next stage of development, when it will no longer be possible to base its competitiveness on low-cost, abundant labor."

One graph that shows India’s big leap in global competitiveness under PM Narendra Modi

The Global Competitiveness Index report 2016-17 released by the World Economic Forum shows India has made the biggest leap among all countries of the world this year. India is placed at the 39th position, which is 16 notches above the last year’s rank. Incidentally, in 2015-16 also India had jumped 16 positions in the Global Competitiveness Index.

While Switzerland has topped the list for the record eighth time, it is closely followed by Singapore and the US. With a score of 4.52, India is also the second-most competitive among BRICS nations behind China, which is ranked 28th. Switzerland’s score is 5.81.

Every single measured parameter counted as a positive year on year this time. Great achievement on the part of GoI to execute. Next year's rankings should see a further boost from new changes like GST.

The original report in full: The Global Competitiveness Report 2016-2017

India gets its own subsection this time, after rising 16 positions each the last two years:

[Suraj]

Rupee Bonds See Biggest Surge in Foreign Holdings in Two Years

Foreign holdings of Indian government and corporate notes jumped by the most in two years Wednesday, amid speculation the surge resulted from the inclusion of funds raised through masala bonds.

Total ownership increased by 80.78 billion rupees ($1.2 billion), the biggest for any day since August 2014, according to data compiled by National Securities Depository Ltd. and Bloomberg. Of this, 74.49 billion rupees flowed into corporate securities, with the rest in sovereign and state-governments’ debt.

Wednesday’s increase took this month’s inflows into rupee bonds to about 156 billion rupees, the most since January 2015. Total foreign holdings, at 3.50 trillion rupees, are now the highest since November 2015. Indian notes have rallied this quarter as the global hunt for yield, improved domestic liquidity and expectations of an interest-rate cut by the central bank spurred demand.

Housing Development Finance Corp., India’s biggest mortgage lender, sold 30 billion rupees of three-year, one-month masala notes in July, becoming the first local issuer to tap the offshore rupee-debt market. About 120 billion rupees has been raised through such issuances, Economic Affairs Secretary Shaktikanta Das said on Tuesday. Sale of local-currency bonds overseas will be within the aggregate limit of foreign investment permitted in corporate debt, according to an April notice from the Reserve Bank of India.

[Gus]

This is post Rexit? so, good?

[Suraj]

Rexit hasn't really caused a ripple in the market. As of Sept 16, forex reserves are $370 billion, and September has shown a rise in foreign holdings of rupee debt, regardless of the accounting specifics of counting masala bonds as part of these holdings. There's no reason not to do so anyway. Masala bonds are rupee denominated bonds, except that they're issued by LSE and not by Indian sovereign or private entities within India.

Just the very existence of masala bonds means that foreign investors are comfortable holding Indian rupee debt, implicitly accepting the exchange rate risk element themselves. What's more, GoI is under constant pressure from outside investors to allow them to buy more rupee debt, because they provide both much greater yield and general assurance of good administration and minimal risk of default. In other words, the foreign holding of rupee debt is supply constrained and not demand constrained.

Forex reserves up $1.166B to $370.766B

[vish_mulay]

http://indiatoday.intoday.in/story/inco ... 77505.html

Deadline for declaring undisclosed income has expired. The Income-Tax department has collected black money worth more than Rs 65,000 crore from across the country. Andhra Pradesh has topped the list at Rs 13,000 crore.

[Suraj]

$10 billion in unaccounted for black money being declared is a pretty good haul indeed.

[NRao]

$10 billion in unaccounted for black money being declared is a pretty good haul indeed.

Seriously?

In the mid 70s India had 50% below. About 5 years ago some friends in India estimated 66% below. If Indian eco is about $1 trillion, then $10 billion, even by 70s standards, should be nothing.

[Rahul M]

66% is a bit too much IMO.

'surgical strikes' on black money holders are supposed to start tonight. we can expect an extension by a week or so to gather up some last minute holdouts.

[hanumadu]

The haul is much better than the over seas income declaration scheme. I was kinda disappointed with that. Probably, people thought that Modi/India does not have the reach overseas while within India, he has more information and means to find and punish the guilty. One thing I like about the scheme is it's not pay what was due, but a penalty component over and about that. If we include overseas income declarations, black money recovery and the current IDS, money in excess of 20 billion dollars were recovered. India should open 3 to 4 technical universities with a corpus of 5-7 billion each and attract top talent to teach there paying internationally competitive remuneration. We need MITs and Stanfords ASAP.

[NRao]

OK, take 50% - the old figure. Even then. Indians need to pick up some of the burden. The $10 billion is not enough. And, now is the time, when all others are not doing as well and India is. Heck if India were to make it big time, all those who turned in will recover all that in no time.

[Suraj]

Seriously?

In the mid 70s India had 50% below. About 5 years ago some friends in India estimated 66% below. If Indian eco is about $1 trillion, then $10 billion, even by 70s standards, should be nothing.

Below what ?

Personally, I think a lot of 'black money' talk is overrated. It makes for great conspiracy theory, but almost everyone deals with the black economy. Your neighborhood kirana store dealing solely in cash ? Black money. The guy on a bicycle with a wickerbasket full of fish being sold for cash ? Black money. How does all this fit in ?

People attempt to make a distinction between 'good black money' and 'bad black money' but that's very subjective. What if the kirana store guy sends his money to radical Islamic causes, but the builder who takes black money is simply getting around bureaucratic costs by passing on lower taxation and bribery costs in the form of a cheaper cash or half-cash/half-cheque price ? What about the wages paid in cash to all the laborers who built the construction ? Also black money.

There's a problem with translating '20% of the economy is informal so we should find $400 billion in black money' . It doesn't work like that. What does get declared is cash in hand that people are not willing to be prosecuted for, with explicit knowledge of its irregularity. That's a far lower sum than the dollar value of the informal economy. Even more money is circulating that's irregular, but the political costs of extracting it is high. How about the wages of those laborers paid using black money ?

The fact that there's no way to formally describe 'black money' should be a clue that it's hard to make any authoritative claim about how much of it is a good haul or not. $10 billion is a fair number in my book. One can go after every last rupee, but you'll have a civil war on your hands as you extract it from the hands of the mango man, who also deals with the black economy every day too.

[NRao]

Below ground (as it was called then) or underground. Black money.

The issue is about tax collection. So, in the late 70s they had estimated about 50% of the wealth that was not taxed. Do not recall how large the Eco was then.

No idea what you mean by "conspiracy theory". I have two kids who wrote on the topic in college - 10+ years ago. Unfortunately not on India, which is what I wanted them to address. Turns out their prof was an advisor to the prez of a south American nation, who was his PhD student. The papers were good, but not on India (the prof was top notch and thought it would be worth the while).

[NRao]

BTW, people keep two pos machines to manage monies. In the US.

Also, all those people who deal with currency are expected to declare it. Yes, the sabjiwala, etc should. Whoever does not has black money. Anywhere.

[Suraj]

Below ground (as it was called then) or underground. Black money.

The issue is about tax collection. So, in the late 70s they had estimated about 50% of the wealth that was not taxed. Do not recall how large the Eco was then.

Then that means a very large amount of economic activity, in terms of actual people involved, not value, is impacted. It's NOT politically tenable to track and tax all that. All kirana stores activity, all informal trade in goods and services. The mason or plumber or fisherman, or even the guy selling peanuts on the beach... it's all 'black economy' . It all goes untaxed. Technically they're supposed to be licensed and to report their incomes. But that pretty much does not happen.

The $10 billion is just the big guys with enough to lose from not declaring the money held. But the fact is vast sections of the population deal with the black economy every day. Just saying '$10 billion is nothing , black economy is $400 billion+' actually amounts to little. Nothing much can happen with that informal economy now, most certainly not of prosecution. What can happen over time is that kirana stores get replaced by formal chain stores, the fisherman on a bicycle gets replaced by a cold storage shop, the casual mason gets replaced by an agency with licensed personnel and formally tracked revenues, etc. All that will take time though.

Seeing 'black ecnonomy' as a criminal enterprise to be prosecuted is the wrong idea. Some money can be recovered, and in fact $10 billion in this case is substantial, since all declarers are now compelled to continue to declare and pay in future. Total income tax revenues is ~2.5 lakh crores. They picked up 25% of that in this round of declarations. Not a bad figure. It's unreasonable to expect every last rupee of black economy to declared. Because of the nature of economic activity, that would be regressive and would mostly impact low income people who don't deal with the formal economy much at all. And it would be a political harakiri to go after subsistence earners because their money was acquired from informal economic activity.

[Yagnasri]

Further, there is also need to relook into Income Tax itself and increase limits for saving etc. Increasing limits on savings to a massive level will help a significant amount of savings from many people who otherwise do not even wish to declare income.

[vish_mulay]

Suraj, just a nitpick. The government is getting 29K crore as tax. I think 65K is total amount declared. In addition there is 30K collected out of penalties this year without voluntary declaration. Overall 60K crore additional collection making it more than 300K annual collection.

[JayS]

We should also keep in mind the return on the investment for catching black money. Monitoring crores of small vendors and trillions of small value transactions is not gonna give much in taxes as majority of those people will be anyway in lower tax brackets. As we move towards digital currency this money will anyway come into the system. Its just that it will take time. Also this tapping this money serves very little purpose in stopping the black money induced problems like corruption, unrealistic RE values etc.

OTOH it makes much more sense to go behind the big fishes and high value transactions to curb black money. Its much easier to track few million or even single digit billion transactions. Also IMO the social impact this would have is also far more. When people realise that even big fishes cannot escape easily mid and small level folks will fall in line easily. We have to remove that "chalata he" attitude.

What I am expecting is a Surgical strike on big fishes now. Modi has shown that he can walk the talk.

[Gus]

Suraj, just a nitpick. The government is getting 29K crore as tax. I think 65K is total amount declared. In addition there is 30K collected out of penalties this year without voluntary declaration. Overall 60K crore additional collection making it more than 300K annual collection.

yes, but the remaining money of what's declared - minus the penalty etc, that stays in the hands of the declarer - becomes white and can be part of formal economy and generate activity in formal economy, instead of staying black and generating more black.

[Suraj]

yes, but the remaining money of what's declared - minus the penalty etc, that stays in the hands of the declarer - becomes white and can be part of formal economy and generate activity in formal economy, instead of staying black and generating more black.

Yes, the transition from black to white is a process. It's not a criminal activity to be chased down, though there's a populist view on those lines. 'Black money' is seen as something the rich and corrupt are indulging in. But in reality most mango men deal with it daily. What can be prosecuted or even formally declared is a small fraction of it. The rest will only become white through a combination of economic changes, as services and production become more formal in nature.

[NRao]

Below ground (as it was called then) or underground. Black money.

The issue is about tax collection. So, in the late 70s they had estimated about 50% of the wealth that was not taxed. Do not recall how large the Eco was then.

Then that means a very large amount of economic activity, in terms of actual people involved, not value, is impacted. It's NOT politically tenable to track and tax all that. All kirana stores activity, all informal trade in goods and services. The mason or plumber or fisherman, or even the guy selling peanuts on the beach... it's all 'black economy' . It all goes untaxed. Technically they're supposed to be licensed and to report their incomes. But that pretty much does not happen.

The $10 billion is just the big guys with enough to lose from not declaring the money held. But the fact is vast sections of the population deal with the black economy every day. Just saying '$10 billion is nothing , black economy is $400 billion+' actually amounts to little. Nothing much can happen with that informal economy now, most certainly not of prosecution. What can happen over time is that kirana stores get replaced by formal chain stores, the fisherman on a bicycle gets replaced by a cold storage shop, the casual mason gets replaced by an agency with licensed personnel and formally tracked revenues, etc. All that will take time though.

Seeing 'black ecnonomy' as a criminal enterprise to be prosecuted is the wrong idea. Some money can be recovered, and in fact $10 billion in this case is substantial, since all declarers are now compelled to continue to declare and pay in future. Total income tax revenues is ~2.5 lakh crores. They picked up 25% of that in this round of declarations. Not a bad figure. It's unreasonable to expect every last rupee of black economy to declared. Because of the nature of economic activity, that would be regressive and would mostly impact low income people who don't deal with the formal economy much at all. And it would be a political harakiri to go after subsistence earners because their money was acquired from informal economic activity.

Funny. I googled "back money" and see what I got:
https://www.google.com/search?q=black+m ... 8&oe=utf-8

This is serious stuff WRT India. (Actually there is LOT more to such stories - like in the 70s, some 50% of grain was lost in transit because they used hooks to manually lift the gunny sack. These hooks caused holes, through which over the entire transit India lost about 50% of teh grain.)

You are missing the point. And as a result you are introducing very meaningless issues.

Technically, yes, a peanut seller who does NOT declare his income to IT, is generating black money. Why is it so difficult to understand that?

On political grounds, I agree, but only because the cops are robbers too. Who is going to have the guts to face a son-in-law who is massively corrupt? So, that is understandable.

Policy makers, enforcers, income generators, reporters, editors, etc, etc, etc are part of this. I have no idea what it is now, but a flat was bought with about 33% white, rest black. Way back. So, you see it is not just a peanut seller, it is everyone. Even if only 65% of the flats fall under this equation there is a ton of black money out there. The per capita is huge.

In the early 70s the UN (in its infinite wisdom) authored a paper on corruption and it was clear about one thing: all nations are corrupt. But it went on to state something to the effect: the impact in the US is less because it occupies a far smaller slice than in India (yes, it dd mention the two nations) as a size of the economy.

Even if one is very generous and claims $500 billion in black money, that is sizable.


But, i was thinking. With this $10 billion haul ............. good. At least the Rafale is free. The GoI can now invest in a Smart City or two.

[Suraj]

Sorry I have no idea what you're trying to say here. You want to go by the technical definition ? Fine - pretty much every adult in India is a tax dodger then. Including you and me. The pack of peanuts or glass of sugarcane juice you or I bought just converted our white money to black. Is someone expected to declare all the peanuts and bananas they bought on the roadside as part of voluntary disclosure ? By your google definition that is required, because you abetted the creation of black money and technically you're obligated to disclose every last banana and peanut bag too. In reality, none of this can either be prosecuted or even declared in any immediate manner.

My own central point is simple - black economy is a sign of economic immaturity. It's not a criminal issue as such. Technically it's all 'illegal', but in reality, and in political terms, most of the 'black money' out there cannot be 'taken away'. Instead, a cash based undeclared economy symbolizes the lack of formal structures enabling economic activity. A large part of the 'black economy' is simply informal and undeveloped economic activity.

Take the example of the fisherman on a bicycle with a basketful of fish. Every minute spend pedaling around the neighborhood is time he's not spending fishing. If he spends time cleaning and scaling the fish, that's even more time not spent fishing. He catches a limited amount of fish, and sells it on his own, unprocessed. What he can't sell is lost income. A formal economic structure would be one where a cold storage and processing center operates near the beach. All the fisherman does is get the fish and sell to them. They purchase and give him a receipt. Then they process and sell it, with all of it being reported activity.

But all this requires capital that a single fisherman does not have. It's not going to change until economic growth and accumulation of capital develops to such an extent that this is possible. In the meantime, GoI attempts to get some people to declare money they've held, under threat of punishment. A limited amount can be declared this way. But this is largely a political exercise and not an economic one. Using economic measures to judge whether it was successful are not really useful. If such an exercise is taken to its fullest extent, a lot of people will be burned, including a lot of mango men.

[Gus]

we always fall into the trap that india's issues are created by 'somebody else'...not us.

[NRao]

Sorry I have no idea what you're trying to say here.

That India has a lot of black money and that the $10 billion collected is a very small amount. I think India should collect that amount every quarter - not saying it is doable.

You want to go by the technical definition ? Fine - pretty much every adult in India is a tax dodger then. Including you and me.

Nope. IF you/I completely disclosed ALL our income, then neither of us is a tax dodger nor contributing to black money. Cannot be.

The pack of peanuts or glass of sugarcane juice you or I bought just converted our white money to black.

As buyers, assuming the buyer is using white, we do not convert white into black. Not even possible.

It is the seller, IF that person does not declare that as income, then, yes, that white money becomes black.

It is rather simple. Declare and it remains white, do not declare and becomes black. (Assumes that the buyer is using white.)

Is someone expected to declare all the peanuts and bananas they bought on the roadside as part of voluntary disclosure ?

Not buy. Sell.

A buyer cannot contribute to black money. Even in the case of the flat example I gave, the buyer parts with X amount of money. The seller declare 33% and does not declare 66%.

By your google definition that is required, because you abetted the creation of black money and technically you're obligated to disclose every last banana and peanut bag too. In reality, none of this can either be prosecuted or even declared in any immediate manner.

google search was to show a mundane search resulted in "India" related definitions.

On disclosure: yes, every last peanut-bag/banana - if that is really the unit of trade/commerce - has to be declared. It is an IT rule, not mine.

My own central point is simple - black economy is a sign of economic immaturity. It's not a criminal issue as such. Technically it's all 'illegal', but in reality, and in political terms, most of the 'black money' out there cannot be 'taken away'. Instead, a cash based undeclared economy symbolizes the lack of formal structures enabling economic activity. A large part of the 'black economy' is simply informal and undeveloped economic activity.

Criminality is determined by the law, nothing else. It is not a social issue.

Having said that (as I had alluded earlier), the major contributors to Indian black monies are not so much at the lower income level (peanuts/bananas), but at the much,much higher levels - corporations, individuals in the gov,




I did do some more research and found that most of teh articles refer to monies that have been taken out of the country/countries. India is in the "top 10" (for black monies taken out of the nation). Wiki states that in 2011, the GOI estimated $500 billion to be in foreign locations. There is one estimate in the trillions. But, various reports estimate Indians take out anywhere from $40-70 billion, black money, a year out of the nation.

How much of the black money is left to circulate within India? I have not come across that as yet. I am betting it is about $1 trillion +/- $0.2 trillion.

[Suraj]

Nope. IF you/I completely disclosed ALL our income, then neither of us is a tax dodger nor contributing to black money. Cannot be.

As buyers, assuming the buyer is using white, we do not convert white into black. Not even possible.

It is the seller, IF that person does not declare that as income, then, yes, that white money becomes black.

It is rather simple. Declare and it remains white, do not declare and becomes black. (Assumes that the buyer is using white.)

A taxman does not care if your money is white to begin with when you performed a transaction that made it black. You're an accessory to the transaction that converted white money to black, even if it was over a bag of peanuts. In such a situation, when they try to find out where the black money came from, the trail ends in your wallet.

If anything, your argument is a microcosm of why black money will never go away. Those who abet its creation as the buyer will simply blame the seller for not reporting, and the seller will just as well blame the buyer, saying no one forced you to buy the peanuts/bananas/sugarcane etc, so by buying them, you willfully transacted in adding to the black economy.

The extent of such conversion is so widespread and runs across so many basic transactions that 'declare it - it's trivial' sounds very Rahul Mehta-esque in its suggestion. Example:

But, various reports estimate Indians take out anywhere from $40-70 billion, black money, a year out of the nation.

A mason or plumber or auto driver spends hours and hours working and saving up. All his earnings are cash. He scrimps and saves and used it to send his son/daughter abroad to study. Guess what just happened ? About $100K in black money transferred abroad. Ten thousand people doing that, and that's a billion of black money gone abroad. Every year, the Gulf expatriates send home more than $50 billion, though the vast majority of them are poor/lower middle class folk. It doesn't take a lot of effort to generate $50 billion of currency movement.

GoI has already conducted an exercise to identify owners of bank accounts in certain foreign countries. A lot of those turned out to be legitimate accounts. Money is fungible. It's easily concealed and moved. There's a balance to be struck between policy that attempts to discourage large cash transactions, and focusing on growth that formalizes economic activity.

Just going after black money as a criminal issue is bound to fail. At some point, the effort to extract black money through government coercion becomes an extortion racket, because it comes not through economic changes that create a large reported economy, but by the government using force. A quick slippery slope downwards...

[NRao]

These args are really derailing the topic - black money. Will give this one more try (hopefully).

A taxman does not care if your money is white to begin with when you performed a transaction that made it black. You're an accessory to the transaction that converted white money to black, even if it was over a bag of peanuts. In such a situation, when they try to find out where the black money came from, the trail ends in your wallet.

True, the tax man does not care if my (buyer) money is white. Agreed. It is not his job in most cases, there are exceptions.

For the umpteenth time: as a buyer, in the transaction you have outlined, I cannot be an accessory. (I have no idea if the seller (of the peanuts) is going to declare his/her income. So I am not sure why you keep harping on this point. And, if I am not aware of his intentions, there is no way I can be held responsible.) (And, certainly you cannot come to me AFTER I haev eaten the peanuts and complain that he has not declared his income, so ..............)

(I am done with that argument.)

If anything, your argument is a microcosm of why black money will never go away. Those who abet its creation as the buyer will simply blame the seller for not reporting, and the seller will just as well blame the buyer, saying no one forced you to buy the peanuts/bananas/sugarcane etc, so by buying them, you willfully transacted in adding to the black economy.

You seem to be confused.

Black money has been there since ancient time, so its existence has never been an issue. Economists account for it. So, yes, it will never go away.

The problem with "Black Money" is when it gets to be very large, it becomes a parallel economy. And, at times derails the main national economy. THAT is the problem people/economists/leaders fear. When no amount of control/tweaks of the national economy has any expected movement for the nation, then the black money becomes a major problem. Check out Pakistan. It has a grey economy, where the Pakistan Army has major industrial investments that is NOT under the Pakistani gov, yet is the backbone of the nation. Black enough money.

So, the peanut or banana or sugarcane selling people - yes they do generate black money, but never enough to be a threat to the national economy.

No idea who is Rahul Mehta, so will leave that aside.

But, various reports estimate Indians take out anywhere from $40-70 billion, black money, a year out of the nation.

A mason or plumber or auto driver spends hours and hours working and saving up. All his earnings are cash. He scrimps and saves and used it to send his son/daughter abroad to study. Guess what just happened ? About $100K in black money transferred abroad. Ten thousand people doing that, and that's a billion of black money gone abroad. Every year, the Gulf expatriates send home more than $50 billion, though the vast majority of them are poor/lower middle class folk. It doesn't take a lot of effort to generate $50 billion of currency movement.

Again, no idea where this is going.

The issue is not movement of funds, or how hard people work or facilities provided to them, nothing. It is if these funds are declared as income (if they are income).

Every society has people who do exactly that - scrimp, etc. The question is if they declare their income.

Do you know if such people in India declare? If you have an answer for that we can figure out if that is black or white money. Simple.

GoI has already conducted an exercise to identify owners of bank accounts in certain foreign countries. A lot of those turned out to be legitimate accounts. Money is fungible. It's easily concealed and moved. There's a balance to be struck between policy that attempts to discourage large cash transactions, and focusing on growth that formalizes economic activity.

Just going after black money as a criminal issue is bound to fail. At some point, the effort to extract black money through government coercion becomes an extortion racket, because it comes not through economic changes that create a large reported economy, but by the government using force. A quick slippery slope downwards...

Good.

In the final analysis, IMHO, and this has been my position for decades (4/5), the amount of black money is a reflection on a society. It is an indicator of how corrupt a society is. All these gyrations - been going on for some 60 years now - are representative of the society and is very concerning.

[Suraj]

For the umpteenth time: as a buyer, in the transaction you have outlined, I cannot be an accessory.

As Gus said, "it's always someone else's fault". The seller will equally adamantly argue that no one forced you to hand him the money that added to the black economy.

Being clueless doesn't mean you're no role to play in it. In fact, most people will just claim the same, that they were clueless. "I didn't know the builder was operating in black money. He said the cheque will take longer to settle and cash would enable us to conclude the deal quicker". Or "I didn't know the school operated in black money. They have a long waiting list and I could not risk the wait for the money order because of the bank holidays, so I used cash"... There is no end to stories like this. The black economy stand upon the collection of all those stories.

"Corruption", like "black money", is a term easily abused. And like black money, it never goes away. All that usually happens is that corruption gets formalised. Instead of paying an unconcealed bribe, you pay 'convenience fees' or 'activation fees' or 'renewal fees' etc.

[NRao]

Sorry.

Please continue.

[LokeshC]

As a non economist, let me try to see if I can chime in something of value.

Black Money is un-reported money that therefore wont generate a taxation event when transacted, and thus would reduce the tax base of the country.

Now, hypothetically, if the income tax is 0% for income lower 10lacs per annum, the money reported or otherwise will not be of any use for the govt. 90% of India would fall under this exemption. And taxing them would do nothing but drive up inflation in the short term.

Now all these "chota/mango" aadmis would deal with a zameendar, loan shark or some such shady middlemen for cash flow purposes, since they really have no other options (yay! for Nehruvian Economics). Most of these dalaals use shady accounting to keep the money black and those middlemen are the guys we need to go after with an iron hammer and Modi sarkar seems to be doing it.

Go after the big fish. The big fish prey on the little guy anyway.

India needs a cleanse from middle-men. They are nothing but a legacy of colonial oppression.

[A_Gupta]

Corruption is in the eye of the beholder. The genius of the Anglo-American system is that it formalizes what would considered corruption by most objective observers. (For example, the British pillage of India was almost all legal.) As long as everyone who matters is "winning", nobody cares. Meanwhile other systems tie themselves into knots trying to eliminate corruption.

The moral dimension of corruption should be reserved for things like human trafficking; the problem of black money in India should be seen as mostly a legal problem, mostly not a moral problem; and the legal problem is likely some improper set of laws and regulations that needs to be fixed.

Anyway, grossly off-topic, will delete it if so asked.

[NRao]

India tax evasion amnesty uncovers hidden billions

A tax evasion amnesty in India has prompted tens of thousands of people to declare more than $9.5bn (£7.3bn) in undeclared income and assets.

Finance minister Arun Jaitley said the four-month window that ended on Friday brought in 64,275 declarations.

All were offered immunity from prosecution in return for paying tax, a surcharge and a penalty.

It is estimated that the government could raise nearly $4.5bn (£3.4bn) from the scheme.

Undeclared income or "black money" is a huge issue in India.

The government contacted about 700,000 suspected tax evaders earlier this year, urging them to declare hidden income and assets.

They were told they would not be pursued by the authorities if they came clean and paid a penalty.
Those who came forward included a group of street food owners in Mumbai who are said to have declared nearly $7.5m.

The BBC's Sanjoy Majumder in Delhi says that despite the huge numbers, the amount declared is only a fraction of the country's undisclosed earnings.

It does not account for money stashed in Swiss banks and overseas tax havens which some government investigators believe amounts to around $500bn, he says.
During India's 2014 elections, Prime Minister Narendra Modi promised to crack down on corruption and black money.

In a series of tweets on Saturday, he declared the amnesty "successful", saying it was "a great contribution towards transparency and growth of the economy".
The government says the money raised will be spent on public welfare.

Authorities have been under pressure to act following the release of the so-called Panama Papers in April that lifted the lid on how the rich and powerful use tax havens to hide their wealth. About 500 Indians were among those named.

[NRao]

LC,

A youngster from India was visiting last week. He happened to mention a story.

A vendor of gool gapps, selling it within the compound of a secretariat in ND, claimed he was a poor vendor. Apparently he was visited by IT. I guess he kept no records, which is OK. The IT guy followed him and be weeks end they started to count the plates that were discarded by his clients. Found he was making tons and nailed him.

I do not think IT went after any of his clients. Cannot say.

[Suraj]

Personally, I think GoI is handling this matter with greater maturity than us casual observers. The arguments here seem to center on going after the big guys with pitchforks, French Revolution style. But GoI has been more mature than that.

It spent time and effort setting up access to formal banking via the PMJDY push. There's criticism about the 'zero balance accounts' but relatively speaking, this is a symptom of just how far a lot of people are from formal banking. More has been accomplished in the last two years in terms of access to formal banking, than in the previous 44 years. Indira Gandhi's claimed reason for nationalizing banks in 1971 was to increase coverage of banking, and yet nothing happened for decades. Almost 250 million new accounts have been opened the past two years.

Similarly, the use of direct benefits transfer removes another source of accumulation of informal cash hoard - through pilferage and waste of subsidies. Another thrust is the MUDRA scheme to make access to formal credit at low rates easier for the mango entrepreneur. The MUDRA scheme disbursed Rs.1.33 lakh crore in 2015-16, and already Rs.53000 cr so far this year.

Finally, it made the push to prosecute black money. This overall approach is a far more mature one than simply chasing down the wealthy. That sort of attitude harks back to the socialist era.

[NRao]

Some interesting data points.

Indians have declared Rs 65,000 crore in black money. But that’s just 4% of the BJP’s estimate

Some idea of the amount of black money:

In the run-up to the 2014 general elections, Narendra Modi claimed that all Indians would be able to get at least Rs 15 lakhs in their bank accounts once he recovered black money stashed abroad.

As I had mentioned, the issue is about declaring income. Here is the FM:

"The objective was to try and make India a more tax-compliant society," he said. "Tax compliance leads to higher revenues and reduction of budget deficits, and the money collected is spent on infrastructure, the social sector and rural areas.”

The average worked out to be about Rs 1 crore per individual who participated in the programme.

The government stands to receive more than Rs 29,000 crore in tax revenue from these declarations as a one-time windfall, which amounts to about 0.2% of the country’s gross domestic product. Those who opted for the scheme have to pay 45% of their disclosed income in two instalments as a penalty.

However, the latest disclosures still fall way short of matching up to the BJP’s own estimate of the quantum of black money in India. According to its paper published in 2011, the party said that Indians hold more than Rs 16,75,000 crore in black money, which it claimed it would bring back once in power. The current declarations are less than 4% of the party’s own estimate, proving that there’s a long way to go in plugging the holes in the Indian tax net.

On its part, the government has filed 55 prosecution suits against those named in the Panama Papers leak earlier this year that revealed Indians had made foreign deposits worth Rs 5,000 crore in offshore accounts. Moreover, it has started prosecution in 164 cases that came up during last year's HSBC disclosures, which estimated that Indians had stashed Rs 25,420 crore in the bank's Swiss accounts during 2006-2007.

A lot of black money to recover.

[NRao]

I-T dept collects black money worth above Rs 65,000 crore, Andhra Pradesh tops list

Method used:

CARROT AND STICK POLICY

The fact of the matter is the 'carrot and stick policy' of the Income Tax department has really worked on the ground. In the whole of September, at least 20-30 random surveys were conducted by the department on a per day basis across cities. The authorities directed tax evaders to participate in the IDS by luring them with benefits or threatening them with prosecution and penalty after the scheme gets over.

This instilling of fear by the I-T department in the minds of tax evaders has clicked and helped the Centre collect black money at this level.

[NRao]

Panama papers is expected to recover up to 5000 crores.

[NRao]

Here we go. Technology.

Heat on tax evaders could be endgame for black money

New Delhi: The noose is tightening around tax evaders.

Be it the implementation of the goods and services tax (GST) or the greater use of technology to link and profile translations or the stepped up international exchange of information between countries, the chances of tax evaders coming under the tax department’s scanner is increasing.

This probably explains why the recent income disclosure scheme received such a phenomenal response from tax evaders with almost 65,000 taxpayers coming forward to declare their undeclared income. More than Rs65,000 crore of domestic undeclared income was declared under this one-time window that closed last month.

The tax return forms under GST approved by the GST council last week mandate sharing of the details of the profit and loss account as well as the balance sheet of the manufacturer or the trader. This means that the indirect tax payments can be linked to the direct tax payments made by the same entity. In addition, GST network is adopting a permanent account number (PAN) or PAN-based registration system ensuring effective monitoring of all transactions.

The tax department has also contracted L&T Infotech for more effective mining of the vast amounts of information at its disposal. Under Project Insight, all data available with the tax department like tax return forms, tax deducted at source, information about high value transactions from annual information reports will be linked and analysed.

This will add to the steps already taken by the department using its existing resources. Investigations by income tax authorities in the last two years have resulted in detection of undisclosed income of Rs56,378 crore. Further, through detection of non-filers, the tax department has recovered Rs6,000 crore in taxes.

The stepped up sharing of information among countries as well as revision in double taxation avoidance agreements is also narrowing the avenues for tax defaulters.

India amended its tax treaty with Mauritius to prevent round-tripping of funds. Such talks are also on with Cyprus and Singapore.

Negotiations with Switzerland over automatic sharing of information are also at an advanced stage.

The government has initiated prosecution proceedings against many tax evaders after information received through various sources. In a press conference on Saturday, Finance minister Arun Jaitley had said that from the so called HSBC list, Rs8,000 crore of assessment has been made and 164 prosecutions have been filed. In disclosures made by the International Consortium of Investigative Journalists, Rs5,000 crore has been detected as unlawful income of Indian citizens overseas and 55 prosecutions have already been filed.

In the Panama cases, the government has made 250 references to other countries with regard to unlawful assets held by Indians outside.

Enhanced reporting requirements under the global base erosion and profit shifting norms also narrow the scope of global corporations to evade taxes.

[JayS]

A buyer cannot contribute to black money. Even in the case of the flat example I gave, the buyer parts with X amount of money. The seller declare 33% and does not declare 66%.

Not true. The black money transactions happen by agreement from both sides. Arguably some times white collar middle class person have no option but to give in to the demand of black money (of the record transaction). Apart from that it bodes well for both the parties. The on-paper price remains low, thus attracting lower stamp duty and lower property on name for the buyer too. Seller has to show less money as income and less capital gain tax. The black component varies from 10-90% in my observation. Lower range for apartments and higher ranges for land dealings. Only in BLR I have seen it too be much less for buying apartments.

In Noida/Gurgaon area where there was unbelievable inflation of RE prices from 2000 onwards mostly thanks to black money, it would be troublesome for middle class white collar guy to sell his apartment due to significant black component involved. Its difficult to manage 50+lakh in black for average Joe. There is a cartel I have heard, of agents who help you sell property and then even manage the black money component by either reinvesting in other property or by buying gold under the radar.

[NRao]

The black money transactions happen by agreement from both sides.

That I'd a given.

That quote of mine was if the buyer is not aware.

What then?

[Gus]

Suraj - zero balance account are below 25%