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REASONS FOR GROWTH OF BLACK MONEY IN INDIA

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REASONS FOR GROWTH OF BLACK MONEY

There are several factors responsible for the emergence of black money.

a. Controls  and  licensing  system

  • The system of controls, permits, quotas and licenses which are associated with misdistributions of the commodities in short supply results in the generation of black money. Since considerable discretionary powers lays in the hands of those who administered controls this provided them with a scope for corruption – ‘speed money’ for  turning a  blind eye to the violation of controls. All this gave rise to trading in permits, quotas and licenses, malpractices in distribution and in the process; it generated sizeable sums of black money.
  • Price and distribution controls have in the past led to the generation of black money on a significant scale. Any price control without any adequate machinery of distribution and speedy arrangement  for   increasing  supplies  is potentially a source of black money  generation.
  • Similarly, the system of licenses requires large number of inspectors for completing various formalities and thus good amount of hush money has to be paid. Where controls are not implementable, they have led to harassment and black money generation.

b. Tax  structure

  • High tax rates and defective tax structure have also been responsible for the existence of black money to a large extent. Till recently the tax on income and on wealth was very high to invite evasion. The marginal rate of income tax was as high as 75 per cent. And when it was combined with the tax on wealth, it was still higher. This was the situation in respect of personal taxation until a decade ago. The corporate tax rate too was very high. In these circumstances the temptation / gain from tax evasion was substantial.
  • Tax-laws in country are so complicated that a layman fails to understand it. Even honest assesses are unable to file cor-rect returns. This encourages people to evade  tax.

c. Donation  to  political  parties

  • Black money also arises from political activities such as elections where candidates spend well above the ceiling prescribed by the Election Commission. This huge expense in turn makes them corrupt.
  • The Government has decided to ban donations to political parties in 1968; it prompted businessmen to fund political parties, especially the ruling party, with the help of black    money.
  • Ostensibly, this decision was taken to reduce the influence of big business on the electoral process, but in practice what happened was precisely the opposite. Businessmen everywhere have by now learnt that they should pay a certain charge out of the black money to the coffers of political parties and then be sure that the political leaders will only bark but not bite. Big business, in the process, has been able to tame the political leadership. This is evidenced by the relaxation of various controls, permitting business houses to enter areas reserved for the public sector, putting a large number of banned items on the Open General License list etc.

d. Generation of black money in the public sector

  • Every successive five-year plan is planned for a larger size of investment in the public sector. The projects undertaken by the public sector have to be monitored by the bureaucrats in Government departments and public sector undertakings. Tenders are invited for the various works and these tenders are awarded by the bureaucracy in consultation  with the political  bosses.
  • Thus, a symbiotic relationship develops between the contractors, bureaucracy and the politicians and by a large number of devices costs ‘are artificially escalated and black money is generated by underhand deals. Instability of the political system has given a further momentum to this process. Since the ministers are not sure  of their tenure and in a majority of cases, the tenure is very short, the principle ‘Make hey while the sun shines’ is adopted by most of them.
  • The larger number of scandals that are unearthed by the Opposition only support the contention that huge investment in the public sector is a big potential source for black money generation. In this process, bureaucrats act as brokers for political leaders and thus the nexus between business, bureaucracy and politicians promotes the generation of black  money.

e. Deterioration in the moral and civic standards

  • The most important reason of tax-evasion and black-money is the genera deterioration in the moral and civic standards of our  people.Our businessmen employ very ingenious methods to generate black-money. Large amounts of black-money can be generated through the sale of fixed assets and scrap. Sometimes influential firms obtain quotas or import licenses in excess of their actual requirements and sell them at cash premiums.
  • Industrial manufac-turing licenses are similarly obtained through influences and sold to a second party at an enhanced value. Purchase bills ore over-invoiced or dummy bills are prepared. Large-scale smuggling of gold and various luxury items is an important source of black-money. Sometimes, relatives whose income is not taxable are kept on the payrolls of a company; they are paid their salary which is taken back in the forms of black-money.

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