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The Currency That Lies Beneath

The Currency That Lies Beneath

By Medha Shrivastava

Edited by Namrata Caleb, Senior Editor, The Indian Economist

Indians are too smart , especially when it comes to being rebellious. Going against the law is our favorite thing in the world. Remember when we used to burst crackers in school weeks before Diwali and the complacency of going unnoticed? Well, our tax evaders take that to a whole new level. Within the huge and complex Indian economy there is another economy churning continuously- the shadow economy. The currency used in this economy is the black money- which is of course is hard earned money of the tax evaders, which includes politicians(obviously), criminals, terrorists and quite a few among the common yet rich men.

This bootleg market flourishes with the help of shell corporations which are lawful corporations that often  help in converting the black money into white and get it circulating back in the legit market. And then there is the Mauritius route- the island has a low and friendly tax regime which is apparently used by Indian tax evaders to ship their pirate money back to our shore.

The government of India has tried to control this menace with numerous policies right from simplifying tax structure to tax havens.  An amazing solution that cropped up is the modification of the currency. This can help to clear the black money people store in their homes. So what we need is a sudden change in the present currency which does not give people time to convert their money into the new currency illegally. In such a case people cannot take new currency in exchange of old currency, they need to deposit the money in the  bank account ,which cannot be done without a legal procedure. Because time given is less, people who have black money need to decide quickly whether to convert to the new currency or lose the money. This suggestion has to be harbored by the central bank , although  it is very difficult to pull off.  However, we still cannot touch the unlawful  money locked away in the Swiss vaults. Or can we?

Black money from India accounts for a substantial percentage of the total Swiss reserves. According to White Paper on Black Money in India report, published in May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India was Rs 9,295 crore. Facing international pressure- Switzerland finally agreed to exchange information and provide assistance in tax matters after it signed the OECD- Organization for Economic Cooperation and Development’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters, recently. India is among the 58 signatories of the convention. How much of the agreement would be fulfilled is yet to be seen.

So it is safe to conclude that the inflow of the confiscated black money would boost and intensify our economy by several folds and also put the agents of the shadow market out of commission for a wee while. But would the evasion of taxes and the corruption end?  Not really. As long as we are rich and happy, the extreme poverty, hunger, illness does nothing to us. Yes, we agreed to be ethical in what we do, but how many freebies did we really sign for?

Medha Shrivastava is pursuing Economic Honors from Gargi College, Delhi University. She wants to visit the underground vaults of RBI and she aspires to become a permanent food critic at Master Chef Australia. You have to ignore people who call her weird and hyper. She is creative and her imagination is limitless. She is a futurist, bookworm and a fan of classic rock.

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