Recent evidence points to one issue responsible for India’s poverty. This one problem seems to be at the heart of all corruption; it has been the driving force behind unemployment and inequality in India for the past five decades. Officially cited as illegal funds in foreign tax havens, the issue is better known by its underground name, “black money.” There are many misconceptions over what exactly black money is and how much this has affected India’s GDP, but one thing is for sure: India is atop the list of countries with illicit tax flows, and probably has more black money than the rest of the world combined.

Issue

Black money is not, as many people assume, counterfeit money. It is money that is earned illegally and not reported to the government, so as to avoid paying taxes on it. Where is this money being stashed, exactly? Swiss bank accounts. Many movies and articles depict these Swiss banks as a some sort of top-secret haven for politicians, but in reality, unimaginable amounts of India’s currency have flowed into these surreptitious banks over the past couple of decades, and no one knows precisely how much. Some accounts report around a $100 billion in Indian black money over the past decade, while the Global Financial Integrity (GFI) reports over $1.4 trillion since 1948.

The latter of these quantitative estimates is quite outrageous, but the fact of the matter is that we cannot truly be sure of how much black money is really flowing out of India. The margin of error is wide, simply because the nature of black money is so secretive— especially considering that politicians, cricketers, and film actors in India are all involved in the business. When many of the people that have power in India are at the helm of this black money issue, the data is bound to be skewed.

Impact

The concerns on bringing black money back into India have picked up during the recent election. Bahujan Samaj Party chief Mayawati has called out both the Congress and BJP for not making serious efforts to eradicate the problem:

“That money would have solved the problems of our poverty and unemployment. They say that the re-conversion will improve their social status and economic condition…Changing religion will not improve your condition but changing the government both in the state and at the center will.”

The BJP has hinged its campaign on reform in India, but it seems like even they have given into black money. Congress has directed attention to where the BJP has gotten money from, with Congress spokesman Anand Sharma acccusing leading candidate Modi for obtaining 90% of his campaign money from black money.

Moving forward

The black money problem is not something that India’s government can remain idle about. Union Minister Kapil Sibal explains the epidemic perfectly:

“Those who funded will seek favors. The rich will demand rich returns. There is no free lunch. The nation will be on sale. This is a party for the rich, by the rich.”

There are efforts being driven now, but little progress has been made. The G-20 (Group of Developed and Developing countries) made black money a focus two years ago, but no results have shown. The best bet would be to support the Supreme Court of India, which has recognized the inability of the government to put a stop to illicit tax flows. Last month, the Supreme Court firmly held to its decision to set up a Special Investigation Team to bring back India’s black money stashed in foreign banks.

Regardless of how the problem is stopped, there is no question that India’s economy has suffered from black money.  If India doesn’t end this flow of unaccounted currency, estimates like $1.4 trillion dollars will not be as outrageous as we believe in the future.

[Image attribute: India RealTime]