Out of cash

Given that this article was written a month before the demonetisation drive was announced, it makes for an interesting read. The Income Declaration Scheme (IDS) has led to the addition of about Rs 30,000 crore in taxes to the exchequer since about Rs 65,000 crore in black money has been declared. Reports suggest that only about Rs 15,000 crore was voluntarily declared. The rest of the declarations were forced out by aggressive scrutiny from the IT department. This extra tax revenue will certainly help in balancing the budget. If we look at it from a different perspective, it's just a drop in the ocean of black money. The declared amount, Rs 65,000 crore, is approximately 0.45 per cent of the official GDP. Depending on what estimate you use, black economy generates somewhere between 25 and 40 per cent of official GDP. For example, going by the famous election jumla, the quantity of black money stashed abroad itself amounts to about Rs 15 lakh per person. So this is a tiny percentage of black GDP; it will barely skim the surface of black economy. It is also unclear how much money the IT department spent setting up systems, making raids, etc., to collect this cash. The Income Declaration Scheme, as always, sends a wrong signal like every other amnesty scheme. It reinforces the impression that another such scheme will be offered a few years later. There are three sectors, which run primarily on black money, and two of those are absolutely untouchable while malpractices in the third sector are hard to change. One of the three sectors fuelled by black money is real estate. That is, at the least, acknowledged as a problem area. Almost every real-estate transaction involves some cash component; quite often tha

This article was originally published on November 28, 2016.