Unveiling India’s Battle Against Black Money: Government Policies and Strategies
Introduction:
In the complex landscape of India’s economic challenges, the issue of black money has long been a cause for concern. Black money refers to income that is not declared for tax purposes and is often obtained through illegal means. Recognizing the detrimental impact of black money on the economy, the Indian government has implemented various policies and strategies to curb its circulation and encourage financial transparency.
Table of Contents
Demonetization – A Bold Move:
One of the most talked-about initiatives to tackle black money was the demonetization drive undertaken in 2016. Prime Minister Narendra Modi’s announcement to invalidate high-denomination currency notes aimed at flushing out unaccounted wealth from the system. The move, while disruptive, was a clear signal that the government was committed to addressing the issue head-on.
Demonetization led to a surge in digital transactions, pushing the country towards a more cashless economy. Though the immediate impact on black money holdings is debated, it marked a significant step towards reducing the reliance on physical currency and promoting traceable transactions.
The Implementation of GST:
The introduction of the Goods and Services Tax (GST) in 2017 was another pivotal moment in India’s fight against black money. GST replaced a complex web of indirect taxes with a unified tax system, making it harder for businesses to evade taxes and encouraging compliance.
By creating a transparent and accountable taxation framework, the GST regime aimed to bring more economic activities under the tax net, minimizing opportunities for generating unaccounted wealth. The move was not only about revenue collection but also about fostering a culture of honesty and financial responsibility.
Stricter Anti-Bribery Laws and Enforcement:
To strengthen the legal framework against black money, the government has implemented stricter anti-bribery laws and enhanced enforcement mechanisms. Measures such as the Benami Transactions (Prohibition) Amendment Act, which empowers authorities to confiscate benami properties, have been instrumental in curbing the use of proxy ownership for concealing illicit wealth.
Additionally, the government has actively pursued cases of money laundering and tax evasion, sending a clear message that those involved in such activities will face severe consequences. This shift towards a more aggressive approach in tackling financial crimes has created a deterrent effect and increased the perceived risks associated with holding black money.
Digitalization and Financial Inclusion:
The push towards a digital economy has played a crucial role in reducing the prevalence of black money. Initiatives like Jan Dhan Yojana, aimed at promoting financial inclusion, have brought millions of previously unbanked individuals into the formal banking system. The increased usage of digital payment methods has not only made transactions more traceable but has also minimized the use of cash in illicit activities.
International Cooperation and Information Exchange:
Recognizing that black money often transcends national borders, India has actively engaged in international cooperation and information exchange agreements. Participating in forums like the Common Reporting Standard (CRS) has allowed the country to receive financial information from other jurisdictions, making it harder for individuals to hide assets abroad.
Below we consider some of the important measures taken by the government to check the growth of black money.
Measures to check tax evasion:
One of the main causes of black money generation is tax evasion. Therefore, the government has undertaken various measures to check the evasion by plugging loopholes in tax laws based on the recommendation of various Commissions and Committees appointed over a period of time like Nicholas Kaldor’s proposals for Indian Tax Reforms (1956), Recommendations of the Administrative Reforms Committee (1969), Direct Tax Enquiry Committee (1971) etc. However, not much could be achieved as there was a total lack of commitment to implement the tax laws with full honesty and determination.
Special Bearer Bond Scheme:
The Government of India announced a Special Bearer Bond Scheme in 1981 for canalising unaccounted (black) money into productive uses. The Special Bearer Bonds, 1981 of the face value of ₹ 10,000 each were issued at par with a maturity period of 10 years. On maturity, the holders of these bonds were to receive ₹ 12,000. Complete immunity was granted to the original subscriber or possessor of the bonds from being questioned about the possession of the bonds or about the sources of money used to acquire these bonds. The total amount collected under the scheme was ₹ 964.3 crore.
Demonetisation:
Demonetisation of large denomination currency notes has been suggested from time to time as a restrictive measure. The Government of India attempted demonetisation in 1978 when it demonetised high denomination notes (₹ 1,000 and ₹ 5,000). This measure had no effect as only ₹ 165 crore worth of these notes were in circulation.
A much bolder measure with profound implications was announced on November 8, 2016 when the two largest denomination notes, ₹ 500 and ₹ 1,000 were ‘demonetised’ with immediate effect. At one fell stroke, as much as 86 per cent of the cash in circulation was thereby rendered invalid.
Voluntary Disclosure Scheme:
The Government of India has floated various voluntary Disclosure schemes from time to time. The Direct Taxes Enquiry Committee (1971) rightly opposed the introduction of such schemes as they “placed a premium on fraud and are unfair to honest tax payers.”
One of the important and highly publicised scheme was the Voluntary Disclosure of Income Scheme (VDIS) announced in the 1997-98 Budget.
A very tough sounding law, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was enacted in 2015. A one-time compliance window under the aforesaid new law was provided from July to September 2015 as an opportunity to declarants to declare their undisclosed foreign assets subject to certain prescribed conditions.
An Income Declaration Scheme (IDS) was announced in the 2016-2017 Budget.
The second voluntary disclosure scheme announced in the financial year 2016-17 ( after IDS covering the four month period June, 2016 to September 30, 2016) and the first after the November 2016 demonetisation was the Pradhan Mantri Garib Kalyan Yojana (PMGKY) 2016 covering the period December 17, 2015 to March 31, 2017.
Right to Information Act:
The entire political and economic system in this country has for most of the period since Independence, worked in a highly non-transparent manner with the result that no one knows what is going on in the government or the private sector.
In the light of this scenario, the enactment of the Right to Information Act in 2005 is a welcome measure. RTI Act seeks to empower the citizens, promote transparency and accountability in the working of the government, contain corruption, and make the democracy work for people in real sense.
Prevention of Money Laundering Act, 2002:
The Prevention of Money Laundering (PML) 2002 was enacted to prevent money laundering and provide for confiscation of property derived therefrom, or involved in, money laundering and for matters connected therewith or incidental thereto.
The Act came into force from July 1, 2005. The Act was ammended by the Prevention of Money Laundering (Ammendment) Act 2009 with effect from June 1, 2009. The Act was further amended by the Prevention of Money Laundering (Ammendment) Act 2012 with effect from February 15, 2013.
Lokpal and Lokayukta Bill,2013:
Lokpal and Lokayukta Bill,2011 was passed by the Parliament in December 2013. The Bill seeks to establish an anti-corruption watchdog that will have within its purview even the office of the Prime Minister.
Conclusion:
India’s battle against black money is a multifaceted journey that involves a combination of policy interventions, legal reforms, and changes in societal attitudes towards financial transparency. While challenges persist, the government’s commitment to eradicating the roots of black money is evident in its strategic and bold initiatives. The collaborative efforts of policymakers, law enforcement agencies, and citizens are essential to building a more transparent and accountable economic landscape for the benefit of all.