The scent of 'black money' is in the air again. At the Supreme Court's order, Modi sarkar has set up a Special Investigation Team to look into cases of illegal outflow of money to foreign havens.

Astronomical figures of treasure hoards hidden abroad have been bandied around, especially in the recent elections. To understand what black money is and how it can be recovered,

Subodh Varma

spoke to India's pre-eminent expert on the black economy,

Prof

of Jawaharlal Nehru University, Delhi.

How do you define 'black money'?

What is the measure of this 'black economy' in India and how much of it is stashed away in foreign tax havens?

How can the foreign-based black money be retrieved?

The present government seems to be very active in pursuing black money. Will this yield results?

Would the black economy cool down if taxes were lowered?

Actually , 'black money' is a tiny component of the huge 'black economy'. All unreported incomes whether by legal or illegal means, and their subsequent use in consumption or investment forms the 'black economy'. The part of this economy which is available as 'money' is called black money . Often black money is taken to mean money generated through illegal activities like bribery. That's just one part of black money. If a private tutor or a doctor earns some income, that's not illegal. But when it is not included in his income returns it becomes `black'. At the societal level, this is a system, it's institutionalized. A sugar mill owner will under weigh the sugar cane, the juice and the crystalline sugar, and also bribe excise officials to report less production. So he gets extra unreported income at every stage of production and distribution.My estimate is that more than 50% of India's economy is black. About half of this is consumption while the remaining half is savings Of these savings, about 20% is taken out of the country . That means, of the total black economy , about 10% is in foreign banks. Some is consumed there (yachts, houses, vacations) and some is routed back to India through various means including hawala, or through the Mauritius route. If all the money that has been illegally taken out were to be invested back in India, the gain would be equivalent to $2 trillion (about Rs 120 lakh crore). This is not the amount of money stashed abroad — it is the opportunity cost of that.First of all, I think going after just the foreign component of black money is a diversion. The bulk of the money is right here in the country! It is very difficult to get money out of foreign tax havens unless someone has been really stupid. Let me clarify that all Indians with foreign accounts are not criminals. If it is untaxed, unreported income then it needs to be tracked and brought to book. No amount of agreements to avoid double taxation or infor mation sharing will yield information on real account holders. There are devious means by which money is transferred through several layers of shell companies. If you ask a Swiss bank, they might tell you the 'names' they have but these are not the real people. It will require a great deal of meticulous work here to get the right persons. This is what the US did in the case of its citizens who had stashed money in UBS . They prepared a case in US and presented it to the Swiss. That's what India should do.The only other way is to wait for somebody to steal the data as happened in the case of LGT — the Lichtenstein based trust.Since 1948, about 40 committees, commissions, etc have looked at the problem from different angles. There have been raids, there have been amnesty schemes. The result is zero. My feeling is that the Special Investigation Team (SIT) set up by the government under Supreme Court pressure will be of limited use.It is going to look at existing cases and go by what is offered to it - nothing more. The problem is that there is a triad of vested interests that runs everything in the country -business, politicians and the executive arm of the government. The Radia tapes have shown a glimpse of this nexus. This triad is the main beneficiary of the black economy . So, there has never been a political will to tackle the black economy in the past, and I doubt that the present government has it. Otherwise, Modi can order a crackdown on all hawala operators and all other routes of illegal money flows. Only pressure from people's movements will force the government to crack down on the black economy .This is like saying that if the red light was not there you would not be charged with jumping it! Remember, India has one of the lowest direct tax to GDP ratios in the whole world. Chidambaram used to say that our tax-GDP ratio has improved. But that's because of the enormous increase in corporate profits. Calculations show that just the top 0.1% of the population earns more than the bottom 55%. This is because of deregulation and concessions in taxes. Yet the black economy is flourishing.