Saturday, March 5, 2011

India; Billions in Unaccounted Wealth and it's "Nemesis" by Sean Sawyer

Indian black money stashed away abroad equals half the size of the country’s GD, according to some estimates. Finance minister Pranab Mukherjee states the government will adopt a five-pronged strategy to takedown the black market. The underlying question is the government equipped to have tough and innovative measures beyond the already experimented voluntary disclosure scheme with in-built features of amnesty to tax evaders, who would have thought that it isn't working.

IIM-B professor R Vaidyanathan , who has tracked the issue of underground economy quite closely, argues that new Indian approach should not care much about “privacy” and “tax evasion” but be based on 21st century global standard of “transparency and integrity”. “In the medium term, India should work for a new global financial architecture to abolish all tax havens which are based on 19th century economic architecture getting extended to 20th century,” he says. Individuals who are on the black market answer to themselves and not governments, transparency is not in their vocabulary.

Prof Vaidyanathan also proposed a few innovative measures, including framing of a rule under which travel by cabinet ministers to tax havens must be reported to PMO, and there should be a ban on using private aircraft to travel to tax havens by politicians, business honchos, etc. (P.S. TSA eat your hearts out.)

India’s underground economy stood at about $640 billion at the end of 2008 out of which three-quarters ended up outside of the country, according to report from Global Financial Integrity published in November 2010. “Opportunities for trade mispricing grew and expansion of the global shadow financial system—particularly island tax havens—accommodated the increased outflow of India’s illicit capital flight.

The government on its part has begun an 18-month long exercise of conducting a study on unaccounted wealth both inside and outside the country touching upon issues like money laundering and its ramifications on national security aka protection of the government. Three national institutions which are expected to take inputs from various ministries or departments have begun the exercise.

the Budget has given a clear indication that the government’s action plan to curb black money would include framing of a legislation, setting up institutions for dealing with illicit funds and imparting skills to the manpower. Which by government standards will probably be inefficient.

Individuals who participate in an extralegal market of this magnitude have already gone quietly into the night and prosper their. These individuals know that government edict is full of half truths and empty promises. Centralized force only crumbles in on itself and can not take down these individuals who decentralize to evade such tyrants. The underground economy adapts well to government cohersion. The Indian black market is the economic security the masses of unconscious black marketeers go to and any plans to stop them are futile.

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