Money and its Colour

For the past one year, there has been a prevailing discussion on Black Money. Black Money, that has been stashed abroad by some intelligent manipulators, evades the eyes of the watchdogs which are tutored to not see such designs.  It is no wonder that many successive governments have been unable (deliberately or otherwise) to trace and recover the black money.

The inability has been coupled with an unwillingness to get to the root of this unlawful accumulation of wealth by the people.  Since the root of the problem remains undiscovered the resolution of this evil in the society remains unchecked.

There are three primary triggers of Black Money.

Firstly, a hugely complex and irrational taxation structure that provides enough reasons for the citizen to try to avoid paying taxes accompanied by a distinctly corrupt bureaucracy that facilitates

Second, a very unscientific financial monitoring system which runs on the philosophy of reactive scrutiny rather than pro-active prevention of such acts of evasion.  The reactive scrutiny also gets activated on either a non-fulfilment of demands of the law-keepers or on the whistle blowing by an informed participant in the act, again on non-fulfilment of demand.

Third, the government is averse  to  initiate steps for data driven monitoring of all commercial activities and allowing the unstructured Commercial Practices to continue.

There are many other triggers which derive the strength from the above, to be perceived as a practical commercial approach.

Black Money, as some people have been insisting, is not only stashed abroad. Black Money forming a parallel economy within the country of a substantial size also needs to be discovered and retrieved for the benefit of the country.

Complex Tax Structure with inordinate rates of taxes and, at times, irrational premises for levying such taxes lead to a very high dependence of the commercial entities  on cash transactions.  Cash transactions, invariably, are done with an intent to avoid a traceable log of the transaction. In the last few decades of the economic history of the nation, no visible attempt has been made by any government to strongly and decisively intervene and confront the reality of Cash Transactions being the enabler of tax avoidance.

Instead of reducing dependence on Cash Transactions, the Governments in the past have further encouraged Cash Transactions by introducing High Denomination Currency. Rs.500 and Rs.1000 notes make it extremely convenient to do high value cash transactions.  In fact, these denominations were introduced with the express intent to facilitate large value transactions as Rs.100/- and Rs.50/- notes were not fitting into the requirement of large value transactions. Transport and Storage of large volume of Currency Notes was inconvenient and Noticeable.

There is an immediate need to make cash transactions of high value not only inconvenient but also undesirable.

While the Currency Denominations are Rationalized, there is a need to increase the participation of people in the Banking System.  With the appropriate measures, the Financial Inclusion Mission of the new Government can effectively manage to provide Banking Accounts to the entire population. The imperatives in this area would taken up in the next discussion.