Four charts to explain India’s black money problem

Differing definitions, different estimates make it difficult to measure black money accurately

Prime Minister Narendra Modi has promised to bring every penny of black money stashed abroad back to India. But bringing this unacounted for money back, or indeed even its discovery, is a difficult task, leave alone legal intricacies of tax treaties. While previous governmental efforts have resulted in disparate estimations, some scholars even argue that this money has been laundered back into India through foreign investments. Here are four charts that provide a quick recap of the black money problem.

Some studies exclude certain sources of black money. For example, the GFI excludes criminal activities and a part of corporate tax evasion, both massive sources of black money. Hence, its estimates are naturally more conservative. This study also mentions that in the developing world, including India, corporate tax evasion is responsible for 60% of overall black income, criminal activities are responsible for 35%, while corruption, which has caused much furore in India, accounts for only 5%. While the reduction in personal income tax rate from nearly 100% in the 1970s to under 30% now has reduced tax evasion, it has been offset by higher rates of corporate taxation.

Moreover, 23,118 cases had been registered till 31 March, 2012 under Foreign Exchange Management Act (FEMA), and penalties worth 1,678 crore had been levied. But that is hardly a drop in the ocean, argue critics.

Clearly, more needs to be done. Perhaps it would be prudent for the government to focus more on curbing further generation of black money.

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