Mainstream, VOL LIII, No 8, February 14, 2015
Black Is Not So Beautiful
Monday 16 February 2015, by
This article by Marxist/Maoist thinker Kobad Ghandy (who is still lodged in Tihar Jail No. 2, Ward 5), written quite sometime ago, reached us only recently. However, it is being published as its contents have still not outlived their validity.
“It is perfectly possible to pervert the Constitution, without changing the form, by merely changing the form of the administration and to make it inconsistent and opposed to the spirit of the Constitution. Constitutional morality is not a natural sentiment. It has to be cultivated. We must realise that our people have yet to learn it.... Democracy in India is only a top-dressing on an Indian soil, which is undemocratic.”
—Ambedkar, while introducing the Draft Constitution in the Constituent Assembly, November 4, 1948
It is official, Black money constitutes as much as 75 per cent of our GDP. This is according to a report of the National Institute of Public Finance and Policy (NIPFP), commissioned by the UPA Government and submitted to the then Finance Minister in December 2013.1 The report was suppressed by the UPA and not presented before Parliament.
The economy is the life-line of any country. If the bulk of it is outside the legal and constitutional framework, it means the country is thrown into the anarchic hands of robber barons wherein all policy-making becomes meaningless—whether of the RBI, the Planning Commission, the Budgets etc. etc.—as it would apply to a mere 25 per cent of the economy.
At such a moment we cannot but recall Ambedkar’s statement made over 65 years back. This statement becomes even more relevant when we realise that 90 per cent of our people (even 75 per cent of the non-agricultural population) exist in the informal/unrecognised sector, for whom no law applies and no written contract exists.2 And the share of the corporate sector in the GDP is under 18 per cent (and gets all VIP treatment of tax concessions, credit etc.) while that of the non-corporate sector is 45 per cent (and yet this sector is squeezed for credit, market etc.).3
The NIPFP report considered real estate as the most important source of black money, followed by large scale manufacturing, the film industry, smuggling and under/over-invoicing of foreign trade. It said the FDI route is being used to take black money out and bring it back to India. According to Prof Raghabendra Jha, between 1998 and 2012 fake trade invoicing with 17 countries resulted in capital flight of $ 186 billion. In his opinion, the “mecca” of black money is real estate—of the $ 2 trillion economy 10-15 per cent is in real estate of which 40 per cent is estimated to be in cash—that is a gigantic Rs 5 lakh crores, equal to our fiscal deficit.
The report is exhaustive, giving detailed estimates of black money generated in both the private and public sectors. Real estate with Rs 5.7 lakh crores in black money and exploitation of minerals, with a gigantic 10.3 per cent of the GDP, tops the list. It even details amounts siphoned off through the diversion of PDS kerosene, MGNREGA and other government schemes. Not only that, it touches on such spheres as the amounts extracted by private educational institutions in the form of capitation fees.
One does not know if this report gave any suggestions on how to curb it, but since 1947 more than 40 commissions and committees have been set up to look into black money. Some, like the Wanchoo Committee, was rich with sugge-stions; yet all have been shelved and the monster of black money has only grown. The latest SIT is unlikely to go any further. Now, it has reached such proportions as to become a rakshas rampaging through every nook and corner of the country, trampling and crushing anything that comes its way. No wonder that at least 50 whistleblowers (RTI activists) have lost their lives trying to expose it, with little or no action taken against the perpetrators.
With it being so widespread there will hardly be a single person from the poor and middle classes who do not, in some way, have to face the hydra-headed monster of corruption which generates black money. Any contact with government officials—petty or big—involves it; in any service required—health, legal etc.—one has to suffer it; even for the most petty of the services one needs, one can expect to be cheated. And as far as the poorest go, besides this they are cheated of their money not only by all the welfare schemes, but also by all-and-sundry due to their lack of literacy. Most suffer in silence, facing the humiliation and demeaning attitude of the authorities with either suppressed anger or cringing servitude. Often a petty clerk can be more rude and cruel than his smooth-talking boss.
Lately, of course, this simmering discontent briefly broke out into the open, first with the Anna/Ramdev movements, then in the electoral defeat of the Congress (and its allies), which became the main symbol of corruption/black money. This first destroyed the Delhi bastion of the Congress, and then reduced it to a rump at the all-India level.
The Saradha scam is just an example of the havoc black money and corruption plays with the lives of people and the type of people who gain. Its network was so widespread, it spread across four States, swallowing the life-savings of over 17 lakh families, mostly the poor and middle classes. To dupe these simple people, they had a network of two lakh agents, enticing them with high interest, utilising photos of MPs, film stars and even the Chief Minister. Already in the net are top Ministers of the TMC, two ex-DGPs, and other top police officials, ex-Attorney Generals, top film stars, MPs/MLAs from various parties (TMC, CPM, Congress)... the list could go on and on. Till yet 82 people are recorded to have committed suicide. One can just imagine the acute suffering of those 17 lakh families, while a handful minted crores.
And Saradha is only one such example. The Income Tax Department says Rs 70,000 crores have been raised without authorisation by 800 companies—not to mention the Rs 24,000 crores of the Sahara group.
With rising inflation, increased cost of sickness and dropping incomes, for the poor and lower middle classes saving money entails enormous sacrifice, hoping for some limited insurance for the future, particularly the children. And after all this effort even this limited money is swallowed up by tricksters and sharks! One can imaging their state of frustration. And as far as those who gained, their only concern is how to hide their ill-gotten wealth and avoid getting arrested.
In this article I will first show how black money/corruption is a major factor eating into the moral fabric of the country. Second, I will show how it is destroying our economy—retarding growth and development, distorting the Budget, rendering the RBI’s monetary policies impotent, making the Planning Commission irrelevant etc. Finally I will briefly indicate the spheres through which it operates, and how some immediate results could be achieved through simple policy decisions.
1. Moral Degradation
Sitting at a government hospital I see Ramu and his wife pleading with the official to admit his child. The clerk says there is no place, then aggressively demands Rs 5000. The mother, weeping, pleads with the official that they have already borrowed thousands for the little girl’s treatment and can, at most, give Rs 1000. The official callously turns to the next person, pockets Rs 5000 and admits him. The parents, humi-liated and defeated, take the child away, sobbing. After a few days news comes that she died. There will be no murder charge. Records will say one more ‘natural’ death.
A poor talented youth, Rohit, applies for a government job. He does brilliantly in the written test but ‘fails’ the orals and medicals. Another duffer sails through and gets the job, with Rs 10 lakhs pushed under the counter. The poor boy commits suicide in frustration; the government official waxes eloquent how reser-vation is harming merit in the office.
The cases could go on and on. But, these are no stories for the media; at best they add up to statistics on deaths, suicides etc. The cold data does not indicate the pain and suffering behind it.
There are lakhs, nay crores, of Ramus and Rohits across the country, each suffering at different levels. One fears to enter any government office, police station, municipal/panchayat office, tax office etc. for, not only the bribes to be given but the humiliating treatment meted out by officials and clerks. Now, even admissions in schools, jobs not only in the government, but also the police and army, come with huge price tags. Noble professions like medical and legal have become notorious rackets, utilising the person’s vulnerability. And as for the poorest, over-and-above all this, they are systematically deprived of the funds due to them through the huge social welfare expen-diture, where the bulk of the funds get siphoned off.
Of course, amidst all this one does find many an honest person, but they are forced to survive in an alien atmosphere, wherein the system tends to continuously push the person in the opposite direction.
If we take the entire gamut of corruption and black-money generation, one can safely say 80 per cent of our people face it (that is, about 100 crores) in some form or other, while barely two to three per cent (roughly three crores) of the people would gain from it. No wonder then it became such a key issue in the last elections catapulting the BJP to power, launching the AAP and reducing the Congress to a rump.
Corruption and black money operate at two levels: First, at the mass level where the poor and lower middle classes are deprived of their money, humiliated and abused. Second, at the top level—2G, Coalgate, CWG, Adarsh Housing Scam, Defence deals etc. etc.—where the club of the elite share the spoils, denying entry to indigenous and small entrepreneurs. The first affects the mass of people, the second affects the economy.
Corruption, the insidious tool that generates black money, is an extreme example of promoting self-interest, at the cost of others. The fault lies primarily with the taker (at the mass level), while mostly the giver is a victim of rapacious greed. It is extracted through utilising the helplessness of the victim and his desperate need for some service. It is so cruel that it can kill (like Ramu, Rohit etc.) or bankrupt the victim as the predator is only interested in extracting the maximum, not concerned with his ability to pay.
There is little difference between the criminal gangs in Tihar who extract lakhs and crores through threats and kidnappings, and those who loot through wielding power over others. The former do so at gun-point, the latter at power-point. The former at least take from the rich; the latter take from the weak and helpless. But the attitude of both is similar—to extract vast sums through the minimum of labour.
But, in addition, the later is mean, cheap and degrading as the greater the humiliation and torture meted out, the greater is the potential for monetary extraction. The more the victim cringes and crawls before the predator, the more he is kicked in the face, the more he is made prone and helpless, the greater is the pleasure (of power) of the extorter and the more the amount extracted—for the size of the bribe is directly proportional to the level of desperation.
And when such a culture exists on a mass scale, enveloping most spheres of our life, it acts to destroy the very moral fabric of the entire country. Forget about national interest, even community interest is sacrificed at the altar of extreme self-interest. At times it goes so far as to destroy even families—witness the growing number of property disputes.
What mentality is it when a person can, without any sense of compassion or remorse, crush a person, already down-and-out? What culture is it that derives vicarious pleasure from other’s suffering, through a warped sense of power? What fiendish thinking is it that has no bother about snatching a morsel of food from a hungry child’s mouth, by swallowing up welfare money?
It is precisely such a culture existing on a mass scale that leads to looting live and dead bodies at times of calamities as in Uttarkashi last year and Kashmir recently! It is such a mentality which makes India the world capital of fake drugs resulting in disease and death all around, with governments doing nothing! It is such mass level of insensitivity that has resulted in India becoming the rape capital of the world!
So we find when black-money extortion reaches such levels to encompass the majority of the population, though degrading and illegal, it becomes socially acceptable. Thereby morality is thrown out of the window, and the meanness, cheapness, ruthlessness associated with it, its demeaning nature, its extreme self-interest etc. etc. all gain social acceptability. It thereby acts as a cancer knawing at the moral fabric of our society, making it hollow from within and bloated outside. We become a sick nation. It may come with feudal crudity or Western sophistication—whatever its form, it is as pernicious and degrading.
Now let us turn to its impact on our economy.
2. Black Money and Economic Retrogression
Merely by tapping the huge black money India, with its rich natural resources and talented manpower, can be turned into a paradise on earth instead of being in a state worse than most of the sub-Saharan countries having a per capita income that is a mere one-fifth of China, one-eighth of Brazil, one-tenth of Russia and one-thirtysixth of the USA.
While the government is desperately seeking foreign investment, far greater amounts can be got by taxing the black money generated and raising saving rates to the 2008 level. Consider the facts.
FDI (Foreign Direct Investment) comprises a mere one-to-two per cent of the GDP. 4 Of this (since 2000) over 50 per cent comes from the three tax havens of Mauritius, Singapore and Cyprus comprising mostly hawala money recycled back to India.5 So the actual FDI coming in would at the most amount to one per cent of the GDP or Rs 1.5 lakh crores.
On the other hand at 25 per cent tax on the black money generated (that is, Rs 100 lakh crores at 25 per cent of the GDP) would give the exchequer a whopping Rs 25 lakh crores. And as savings have dropped by eight per cent of the GDP since 2008, a restoration to that figure would give an additional Rs 11 lakh crores. Savings, of course, would increase if the people’s real income (purchasing power) increased.
So even if FDIs were to increase, it would be insignificant compared to that which could be raised from taxing black money generated and raising savings of the people locally.
The extent of black money generated can also be seen from the fact that India has one of the lowest tax-GDP ratios in the world. It is a mere 16.3 per cent (2010) whereas in Brazil it is 33.2 per cent, and in the OECD countries (developed countries) it is 34 per cent. Of course, this low rate would also be due to the huge concessions of Rs 5 lakh crores given to big business as repeatedly dug out by P. Sainath from the Budget annexures.6
The government’s entire budgetary focus is to rein in the fiscal deficit to 4.1 per cent of the GDP. Here the focus is to cut welfare expenditure and subsidies instead of raising tax revenue, at least to international standards. The latter is easily done, not merely by cutting concessions to big business (this in fact is being increased by a proposal to give Rs 6000 crores yearly to power companies) but primarily by reining in the huge black money being generated. After all, Rs 25 lakh crores ($ 420 billion) is a huge amount of revenue lost each year.
It could easily wipe out the fiscal deficit even at six per cent—Rs 8.5 lakh crores—and leave another Rs 16 crores for other welfare measures and investment. Particularly, India’s expenditure on health and hygiene is one of the lowest in the world—making us a nation of sick people.
As a percentage of the GDP India’s expenditure on health is half that of Brazil, South Africa and Argentina.
Also huge infrastructural investment is required for regeneration of our soil and water resources. Though the Modi Government is for the first time speaking of encouraging organic farming, that is not possible without this regeneration of the land discouraging hybrid and GE seeds.
There is also much talk of investing heavily in power. Given India’s huge size, the country faces big transmission losses—over 20 per cent of that produced. The answer to this would be local generation through environment-friendly solar and wind power. Again the government is said to be encouraging this, but it requires big investments and subsidies. In the log term this will give greater returns than the destructive and expensive nuclear power.
Finally, funds have to be put in investments that increase employment and income generation to raise the savings level. Merely high growth does not result in jobs. In fact, between 2004-05 and 2009-10, a period that saw three successive years of over nine per cent growth, data from the NSSO showed virtually no growth in employment. In fact there has been a continuous decline in the regular wage/salarised force which has dropped to a mere 18 per cent of the workforce (2011-12).7 Immediately, if employment is to be generated, there is a massive backlog of about two lakhs in recruitment to the railways, resulting in power mainte-nance and increasing rail accidents. Filling this gap will not only generate employment but also reduce the growing number of train accidents. Even the much-hyped Delhi Metro has been having more than one technical failure a day; one shudders to think what will happen if high-speed bullet trains are introduced.
Such huge promotion of regular (as opposed to casual) employment will help push the savings rate back to 38 per cent of the GDP which existed in 2008 and raise the investment rate from the present 35 per cent to 38 per cent of the GDP (as it was in 2007).8
Besides, even these foreign investment proposals can be more hype than fact. According to a study in 2010-11, the proposals that translated into actual investment were a mere three per cent in Bihar, 8.5 per cent in Gujarat and a high of 18.5 per cent in Haryana. So, how much of the $ 55 billion proposed by Japan and China recently will actually materialise, is yet to be seen.9
As they say, a bird in hand is worth two in the bush. One never knows what will happen with foreign capital as its flow depends on numerous international factors and its demand for varied concessions. But as for tapping the black money, it depends on the will of our government. If there is a will, there is a way.
And here we are not talking about ferreting out the existing massive sums of black money in India and abroad (said to be $ 1.4 trillion abroad). Though that too needs to be done, this requires a separate set of policies (like demonetisation of high quantum notes etc.). What we are arguing about is preventing its further generation year in and year out, and tapping those resources.
So, not only is the curbing of black money an important moral and civilisational question, it is a key factor to promote the national interest. It can become the most important tool for real development, for agrarian revival, for job generation, for the improvement of the health, hygiene and welfare of the people and thereby for the building of a strong, self-reliant and independent India.
But, for this, what are the steps that are required?
3. Time For Action
At the moral level, for a change in culture to come it requires both a mass movement from below (as existed earlier) as well as examples set from the top (politicians, bureaucrats etc.). Mass movements, without changes at the top, soon get dissipated. We have seen what the impact of one Vinod Rai (ex-CAG chief) or one V.K. Singh (ex-Army chief) can do to help ferret out the corrupt and give some hope to the people. There are numerous others too, though maybe not as powerful. A Lokpal may be fine, but what is more important is the type of people who can man such bodies, whether the Lokpal, CBI, CAG etc. If the men at the top of such bodies are corrupt, these bodies will be ineffective.
So what is the immediate action to be considered?
First, sustain a mass movement at the basic level where a new moral cultural ethos is sought to be built up, where honesty should be combined with one’s own interests. Where the interests of our community or even small circle should not clash with one’s self-interest, but exist in mutual harmony. Where the people/community jointly take up issues of corruption, besides other issues, at the local level. Where people are encouraged to anonymously deposit any black money voluntarily into a community account, to be used for the welfare of the local people. The important aspect here is not the money acquired, but the building of a new moral culture. After all, many do feel paying tax to the government is a waste of money as most of it gets frittered away in corruption.
Second, there must be decisive action at the top. People with high levels of integrity must be heading at least key posts, particularly like the Lokpal, CBI, top judiciary, CAG, CVC, NHRC etc. Together with this there needs to be firm action against corruption in high places with the confiscation of money/property, which is put in a separate account and used for the people’s welfare.
Though there have been some reasonably big arrests in the last few months—Saradha scam, Sahara Chief, Jayalalithaa, Chautala, the CEO of a PSU bank, a dalal in the helicopter deal etc. —a common perception is that the really big fish never get caught in the net. Anyhow most get VIP treatment, hospitalised or interim bail denied to others. The recent revelations of the CBI chief’s wheeling-dealings reduced the people’s confidence in these institutions even further.
For all the bonhomie shown recently with China, one could take a leaf out of Beijing’s anti-corruption book.
Since President Xi Jinping launched his anti-corruption campaign at the end of 2012, over two lakh officials have been punished. That includes three dozen Ministers, provincial leaders or top executives at state owned companies.
The latest has been the action against Zhou Yongkang—one of the most powerful persons in China. He was the security chief till two years back and controlled a budget bigger than the Army’s. A large number of his protégés have been arrested, including his son and the ex-chief of the giant PetroChina. Normally, pretexts are given that in a democracy such action is not possible; but in India if the ruthless actions shown toward pro-people activists can take place with ‘democratic’ ease, then why not against the corrupt in big places? The real point is not democracy, but the will to act and hit at the main culprits who stash away thousands of crores, not just the small fry.
Third, numerous policy-steps need to be taken against those which are known centres of black-money generation. A few are mentioned below:
• Scrap PNs — financial instruments not registered with the SEBI and issued by FIIs, to invest in the Stock Exchange without disclosing their identities. Ideally created to route black money anonymously.
• Scrap the Double-Taxation Treaty with Mauritius which allows one to bring in money without disclosing one’s identify through post-box companies that are not taxed. Since 2000 36 per cent of all FDIs, amounting to $ 82 billion, came through Mauritius. Said to be mostly hawala routed through Mauritius back to India.
• Ban TNCs and banks openly indulging in hawala transaction as disclosed by the HSBC case, where it was found that 700 Indians had accounts in the bank’s Zurich branch. The simplicity of the hawala process has been outlined in an article in Frontline (June 27, 2014) by Arun Kumar.
• Close down Commodity Exchanges, which are platforms largely being used by money launderers, tax evaders and stock-exchange operators like Ketan Parekh.10 Commodity trading is bigger than the stock market, involving hundreds of agricultural commodities, foodstuffs, oil, metals etc. Besides, the volume of unofficial trade is at least 20-30 times the ‘official’ business in Futures Exchanges. Commo-dity Futures trading platforms are increasingly being used for income-tax evasion and recycling unaccounted money.
• Amend the Audit Act 1971 —it is outdated and as a result two-thirds of Central Planned Funds do not come within the CAG.
• Stop bailing out PSU banks and meet their NPAs (non-performing assets, that is, bad debts) by seizing the assets of the debtors rather than using the taxpayers’ money. For example, Vijay Mallya has debts to PSU banks of over Rs 7000 crores, but his huge wealth of Rs 20,393 crores is not touched to pay off this NPA.
• Make the NIPFP report public and place it in Parliament.
These are just a few suggested steps in the sphere of policy, some of which have in fact been already suggested by various committees and even by the RBI —but ignored.
Way back in 1955-56 when the licence-permit raj existed, black money was a mere five per cent of the GDP. 11 Though it has been continuously increasing, it took a quantum leap since the 1990s, with the dawn of the neo-liberal era. Black money, as it exists today, is no longer a symptom of a corrupt structure, it is an appendage of the neo-liberal economy. It is a means of generating super-profits in record time. The numerous rags-to-riches stories like the Ponty Chaddhas and Gopal Kandas are but the tip of the iceberg. But it is not only the mafia, crony capitalism generates gentlemanly fortunes as well. So, for example, Globus Constructions’ stock market value shot up by 57,000 per cent in just one year from Rs 2 crores in 2012-13 to Rs 1216 crores. Then again an unknown entity, like Matra Kaush Enterprises’ value rose from Rs 1 crore to Rs 280 crores in a year.12 Anil Ambani’s individual wealth increased by Rs 15,185 crores last year, while his main company, R. Com, was immersed in a massive debt of Rs 40,175 crores.
Even the RBI Governor had this to say about crony capitalism: 13
“One of the greatest dangers to the growth of developing countries is the middle-income trap, where crony capitalism creates oligarchies that slow down growth... An important issue in the recent elections was whether we had substituted crony socialism with crony capitalism, where the rich and influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. By killing transparency and competition, crony capitalism is harmful to free enterprises, opportunity and economic growth. And by substituting special interests for public interest, it is harmful to democratic expression. If there are some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politicians who perpetuate it?”
Good question? But what is the answer?
Though curbing the black economy is not some magic wand to cure India of all its economic and social ills, it can at least help restore some balance and sense to our economy. It can certainly be an important starting point to economic regeneration. And taken on a mass scale, countering corruption could help restore the shattered moral fabric of our country. The time has come to clean not only the streets, but also the soul of the nation.
(October 2, 2014)
1. The Hindu, August 4, 2014.
2. Report by Credit Swisse Economists (2013), 68th Round NSSO for 2011-12.
3. R. Vaidyanathan’s book, India Oninc, as quoted by Swaminathan Anklesaria Aiyar in The Times of India, September 21, 2014.
4. Swaminathan Anklesaria Aiyar in The Times of India, September 21, 2014.
5. Mail Today, September 2, 2014.
6. Article by P. Sainath in Outlook, July 28, 2014.
7. The Times of India, September 23, 2014.
8. Mail Today, September 2, 2014.
9. Swaminathan Anklesaria Aiyar, The Times of India, Spetember 21, 2014.
10. g files, June 3, 2013.
11. Articles by Arun Kumar in Mainstream, February 14-20, 2014.
12. Business World, July 14, 2014.
13. The Times of India, August 12, 2014.