5 truths about black money
Corruption and black money have suddenly become a hot topic in the country. With civil society activists and high profile personalities taking up proactive steps in the recent times, the issue has received a lot of media attention and public interest. We give you the true picture

Corruption and black money are not synonymous as it is often made out to be but are definitely related in the sense that one is complimentary to the other. However, the popular upsurge is mired in a host of popular misconceptions as well.

It's not just about Swiss bank accounts
Firstly, it is a popular concept that corrupt politicians and businessmen have secret Swiss bank accounts where they deposit illicitly earned money. Bollywood has played its role in popularising this image as well. The Seventies had high class villains smuggling gold biscuits and hiding briefcases filled with cash, only to send them off to Swiss banks in fancy helicopters and somehow that image is engraved on our psyche. There is no denying that a lot of money is hidden in Swiss bank accounts. There are official estimates along with speculative ones, and even the Wikileaks founder Julian Assange confirms that maximum Swiss bank deposits come from India today. The debate about talking to the Swiss Banks and pumping the money back to the country is already triggered in the Indian Parliament. But the Swiss deposits are but a tip of the iceberg.

other countries are a better option
In practical terms, it makes very little sense to park one’s earnings in Swiss bank accounts. Getting the money to as far as Switzerland in the Europe makes less sense; there are better options like Singapore Hong Kong or even the Middle East for that. The interest rates that the Swiss banks offer are a pittance; often less than 1%. In today’s world of finance, it is easier and more lucrative to park money in the various investment instruments like equities, bonds, shares, derivatives etc. They can be shifted much easily from one country to another, they are much harder to trace and definitely give much higher returns. Today’s world offers so many various forms of financial assets that holding cash accounts makes very little sense.

money changes color This brings us to a more fundamental question; what is black money? How do we differentiate between black and white money? And more importantly, when does white money become black and black is turned back to white?

Money by itself is neither black nor white. Barring counterfeit notes, all money is legal by itself. A currency printed in government mint with the official seal of the central bank is always a valid currency that can be used for any transaction. When the transactions are not properly reported to the respective authorities, it is called black money.

What needs to be understood is that every simple person out there in the street plays a role in generating, propagating and circulating black money, knowingly or unknowingly. Any kind of tax or excise evasion thus generates unaccounted income or revenue in our economy every day at every moment and white money is turned to black.

Similarly, black money can also be turned into white. Suppose you have not declared some part of your income under Income Tax declaration and successfully get away with it, thereby, generating black money. You decide to celebrate it with a sumptuous dinner at some fancy restaurant where you pay by cash. Your black money is now the white money for the restaurant provided the latter files its returns judiciously. Thus, you not only generated black money, but also utilised the money for your benefit thereby getting rid of it at the same time. This sheer simplicity of money shifting from white to black and white again makes it very difficult to trace black money, and any government can do very little about it. Monetised transactions are a part of our life and as long as all transactions
are not shifted to electronic card swiping-based ones, which are automatically monitored, it is very difficult to prevent this conversion of black to white and vice versa.

Most of the black money does not even reach the Swiss shores
Much of the black money thus does not leave India, but circulates within. Buying a house can have official payments of a certain amount and unofficial payments separately. In such cases, the black money of one is passed on another, while the former trades his black money for a legitimate asset in the form of real estate. Gold is another method of parking black money. Newer forms such as investment in art is another popular form of turning white into black, or simply transferring black money from one hand to another. Reporting undervalued transactions is the most common form of trading black money and there is very little that can be done about it.

It is no wonder that the government too while talking about black money mostly talks about the money that leaves our shores, as monitoring the amount that does not leave is much more difficult. But even the amount that leaves our shores comes back to our economy and the government has done very little about it. The most common method is the Hawala route, an age old form of trading in money that has been in practice even before modern banking norms evolved. While the issue of hawala is often highlighted, very little has been done to stop this old and well-known practice.

It goes around and comes around
Another popular method that is often talked about is round tripping, especially in relationship with Mauritius. Round tripping is a process, under which money is send out of India, says through the hawala route and then invested back into India in the form of FDI. India’s tax treaty with Mauritius prevents taxing of investments from companies registered in Mauritius. Mauritius itself in turn is a tax haven. Tax havens are countries that have zero or very little tax rates. Thus a lot of companies register in such places and they are used to route money into other investment destinations. Thus Indian black money is invested back in India in stock markets like the BSE. With so much hullabaloo about FDI investments in our country, no one really wants to rock the boat.

Not that it is easy to even check such practices. Global finance today is so volatile and non transparent that it is very difficult to track the originating source of any money. Fake companies, numerous subsidiaries, shifting accounts across countries etc make it almost impossible to track. To make matters worse, most bilateral treaties nowadays have trade treaties coupled with investment treaties. Under such investment treaties, the government has to allow more leeway to investments coming in from such partner countries, which makes routing black money back all the more easier. It is the geopolitical compulsion of the government that prevents it from taking stringent steps in this regard; and no one would like to see the Sensex fall.

Thus the battle against black money is limited to the notional Swiss account deposits. The public focus is conveniently shifted to some obscure bank across continents while black money continues to flow freely in our country daily under our noses. The question is not only about political will of the government; it is about vested interest of too many powerful entities both inside and outside the government that makes the whole issue so black.