Download - Black money final
Lot of Questions to Answer???
• Rs. 40k Crore: Spent by Indian Govt. on NREGA every year.
• Rs. 1.25L Crores: Estimated cost of Implementation of Food Security Bill
Macroeconomics Presentationon
BLACK MONEYNaveen Sounderajan
Pratik DukhandeRajaSekkaranRavi KaushalUday Kumar
Sandeep Jannu
Agenda
Introduction
Causes of Black Money
Macro-Economic Perspective of Black Money (Inflation, Fiscal Deficit)
Methods to Estimate Black Money
Converting Black Money into White Money
Effects of Black Money
Govt. initiative to curb Black Money
Suggestions to Curb Black Money
Money Gone Black…• Black money is earned through illegal activity and, as such, is not taxed.
Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through illegal money laundering.
• Possible sources: Drug trafficking, Weapons trading, Terrorism, Prostitution, Selling counterfeit or stolen goods and selling pirated versions of copyrighted items such as software and musical recordings.
Causes of Black Money
Shortage during War
Scarcity of Resources
Unfair Practices
Faulty Taxation and Excise Duty
Temptation of Tax
evasion
Downgrading of product
Price Control Policy of Govt.
Commodities
Artificial scarcity
Corruption
Bribes
Karnataka Coal Scam
Elections, Party Funds
BJP: Rs. 4000cores
Source of funds???
Real Estate Transactions
Devaluation of Property
• Understanding the implications of Black Money on • Inflation• GDP• Fiscal Deficit
Macro-Economic Perspective
Caus
es o
f Infl
ation
Demand Pull
BLACK MONEY
Disposable Income
Dearness Allowance
RBI’s Monitory Policy
Cost Push
Wages
Taxes
Raw Materials
Profit Margin
A Politician
Declare yourself a farmer
IT RaidUses PAN Share Market Deposit in Bank
Black Money
Swiss BankGold, Silver, Diamond
Plays Safe
Election CampaignMoney Lenders
YES YESNo No
Black Money & GDP
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Swiss Bank Liabili-ties
23373 15000 11000 9000 9500 12100
Fiscal Deficit 148600 250000 330100 412000 369000 520000
Estimated Total Black Money
136000 178000 226000 287700 306000 319000
50000150000250000350000450000550000
Black Money and Fiscal Deficit
Axis Title
Methods to estimate black money:Input/output method:
• Uses input/output ratio & input to calculate true output.
• Calculates black money as the difference between declared output & expected output.
• Useful only if applied to individual sectors but being used for the whole economy is useless.
• Ignores structural changes in the economy including technology.
Survey approach
Fiscal approach
Methods to estimate black money:Velocity of money method:
• Based on assumption that currency is used by both shadow & regular economy
• Money is used to circulate incomes in both regular & shadow economies
• Compare the velocity of money (average number of times currency changes hand in a year) to the income captured in the NAS (National Accounting System)
• Difference gives the black component.
• Assumption that NAS provides accounted incomes accurately cannot be true.
• Large proportions of incomes from unorganized sectors are not captured correctly.
Methods to estimate black money:Kaldor’s approach:
• Estimated non-salary income by breaking national income into:
1. Wages & salaries
2. Income of self-employed
3. Profit, interest, rent etc.
• NDP – Wages & salaries = total non-salary income
• Estimated actual non-salary income assessed to tax in each sector to find the total.
• Estimated non-salary income above exemption limit – actual non-salary income assessed to tax = black money
Variations in Economists’ estimates:
Limitations:• Excludes income generated through illegal activities
• Not standardized, no absolute figures/ small ranges, varies widely among economists.
• Taxes other than income tax are evaded (sales tax, excise duty, stamp duty etc)
Money Laundering and Converting Black money into White Money
Money Laundering
• The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.
The Money Laundering Process
Placement Layering Integration
DISGUISED OWNERSHIP
CRIMINAL A
HAWALACompany’s account, promoted by A in foreign Countries
Company in India promoted by A
Hands over
DepositedInvests
As Shares
Dividends & Income
As white money
MIXED SALES
Increase Expenses with fake bills
WHITE MONEY
Both Mixed
Pay less tax
Converted
Long term bonds
Special Economic Zones
Section 10AA of Income Tax exemption:
• 100% Income Tax exemption on export income for 5 years.
• 50% for next 5 years thereafter.
• 50% of the ploughed back export profit for next 5 years.
Showing the amount as exports from SEZ’s.
Ill Effects of Black Money on Indian Economy
1• Mass Poverty: Inequitable distribution of income and hence
purchasing power
2• Low collection of taxes such as Income Tax, GST
3• Low GDP and widening fiscal deficit
4• Effective spikes of inflation in the economy
5• Crippled growth of the infrastructure within the economy
Steps taken to curb Black Money… Till Now
1• Successive waves of economic liberalization in India since the 1990s
2• Voluntary disclosure scheme in 1975
3• Demonetization of the notes of higher denomination
4• Foreign Exchange and Prevention of Smuggling Activities Act to curb smuggling
5• Withdraw from circulation all currency notes prior to 2005
6• CBDT has begun its operation of trailing stashed bank accounts of the Indians in
the tax havens (Tax Information Exchange Agreements)
Steps that can be taken to curb Black money
Simplification of tax laws
Implement GST and Direct taxes code
Sign Bilateral International Agreements to ensure sharing of information on tax evaders
Reforms in Sectors Vulnerable to Generation of Black Money: Bullion and Jewelry Sector, Real Estate, Cash Economy
Strengthening of the Prosecution Mechanism and FIU , CEIB & other institutions
Enhancing the Accountability of Auditors
Incoming and outgoing funds to NGOs and religious trusts must be regulated and transparent.
Thank You!!!