INDIAN ECONOMY

Black Money and Demonetization

Dr. Arun Srivastava

ASTHA Publishers & Distributors OASTHA Contents

Preface

1. 1NDIAN BANKNOTE DEMONEIIZAIION 2016 1

• Procedure • Televised Address • Government Ordinance • Exchange of Old Notes • Facts and Figures • Withdrawal Fimits • Prior Leakage of Information • Allegations and Claims • Strikes • Banking • Human Trafficking • Radical Groups • Hawala • Railways • Cash Shortage • Stock Market Crash • Transportation Halts • Agriculture • Business • Digital Transactions • Forecast of G DP Growth Rate • Drop in Industrial Output • Municipal and Local Tax Payments • Gold Purchases • Donations in Temples • Multiple Bank Transactions • Railway Bookings • Backdated Accounting • Accepting Deposits without PAN • Income Tax Raids and Cash Seizures • Implications of Demonetisation • Moving Towards a Less Cash Economy

2. UNDERSTANDINGBLACK MONEY: HOWITAFFECTS INDIAN ECONOMY? 27

• The Sources of Black Money • The Impact of Black Money on Indian Economy • What Government has done to Prevent Black Money?

3. BLACKMONEY:ESTIMATTONSANDEVSTTTUTTONS 32

• The Problem and its Complexities • Factors Leading to Generation of Black Money • Generating Black Money by Manipulation of Accounts • Estimates of Black Money Generated in • Estimates of Black Money Stashed Abroad • Illicit Money Transferred outside India: Reports of the IMF and GFI • Misuse of Corporate Structure • Central Board of Direct Taxes • Enforcement Directorate • Financial Intelligence Unit • Central Board of Excise and Customs and DRI • Central Economic Intelligence Bureau • CBI and Police Authorities 4. IMPACT OF CORRUPHON ON ECONOMIC DEVELOPMENT 66 • Introduction • Corruption and Development • Influencing Government • Innovation • Government Policy • The Asian Miracle and Corruption • The Paradox of Corruption and Growth • Tangible Costs of Corruption • Intangible Costs of Corruption • Uneven Impact of Corruption and Development • The Asian Financial Crisis • Crony Capitalism • Unveiling the Impact of Corruption • Conclusion

5. I HK ISSE LS OF POLITICAI, CORRUPTION 85

• Introduction • The State is always Involved • Political Corruption and Bureaucratic Corruption • Private Corruption and Collective Corruption • Redistributive and Extractive Corruption • The Theory of Redistributive Corruption • Political Explanations • Political Consequences of Corruption

6. THE ECONOMICSAND POLOTCS OF CORRUPTION IN IND1A 105

7. 111

• Black Money in Swiss Banks • Court Cases • Supreme Court on Black Money • Estimates of Indian Black Money • Public Protests and Government's Response • M.C. Joshi Committee on Black Money • Tax Information Exchange Agreements • Proposais to Prevent Indian Black Money • Reducing Disincentives against Voluntary Compliance • Economic Liberalisation • Reforms in Vulnerable Sectors ofthe Economy • Creating Effective Credible Deterrence • Supportive Measures • Amnesty • International Enforcement • Modified Currency Notes

8. THE IMPLICATIONS OFPOLmCALCORRUPTION FOR ENDIA'S ECONOMIC DEVELOPMENT 122

• Fundamental Problems with the Indian Democracy • A History of Political Instability and Party Conflict • The Hindu-Nationalist Agenda: Nuclear Testing and Militaiy Spending • Underground Banking: A Serious Loophole Exploited by Indian Politicians • Bringing Accountability and Justice into the System • Liberalization: A Solution to Problems of Government Corruption? • Conclusion

9. DI REUI EFFECTS Ol BLACK MONEY ON ECONOMY 131

• Introduction • Where does black money come from? • How to Control The Black Money? • An Invasion on Ethical Values in the Indian Society • Steps Taken by Government • Effects of black money on Indian Economy • The Effects of Black Money in the Management Sector • Reasons of Black Money • Suggestions • Conclusion

10. BLACK MONEY, CURRENT STATUS AND IMPACT ON ECONOMY

• Introduction • Deflning Black Money • Generation of Black Money • The Picture of Black Money in India • Black Money of India in Swiss Accounts • Impacts of Black Money on Indian Economy • Measure by Government • Conclusion

11. STRATEGIES ANDTACKI INC Tl IE BLACK MONEY

• Evolution of Strategies to Control Black Money in India • Joining the Global Crusade against Black Money • India's actions through the G20 • Global Forum " Financial Action Task Force • United Nations Convention against Corruption • Prevention of Act • Prevention of Benami Transactions • Public Procurement Bill • Prevention of Bribery ofForeign Public Officials Bill • Amendments to the NDPS Act • Setting up Institutions for Dealing with Illicit Money • Directorate of Criminal Investigation • Cell for Exchange of Information • Income Tax Overseas Units • Strengthening the FT&TR Division in the CBDT • Strengthening oflnvestigation Division ofthe CBDT • Developing Systems for Implementation • International Taxation and Transfer Pricing • Information Disseminated by the FIU • Rationalization of Tax Rates • Further Economic Liberalization • Financial Sector • Bullion and Jewelleiy Sector • Creation of Effective Credible Deterrence • Strategies to Strengthen Direct Tax Administration • Strengthening of the Prosecution Mechanism • Enhanced Exchange of Information • Income Tax Overseas Units • International Taxation and Transfer Pricing • Effective Curbing of Structuring through Tax Hävens • Supportive Measures • Enhancing the Accountability of Auditors • Protection to Whistleblowers and Witnesses • Need to Fine-tune Relevant Laws and Regulations • Organised Crime • Repatriation of Black Money Stashed Abroad • Voluntary Disclosure Schemes and Tax Recovery • Agreement between Countries for Revenue Sharing • Confidentiality of Information under DTAAs/TIEAs

12. TACKLINGCORRUPTION:ANINDIANPERSPECTIVE 211

13. DEMONETTZATTON-AN OPPORTUNTTYTO CURTAIL BLACK MONEY & PROMOTE DIGITALPAYMENTS 224

• Implications of Demonetisation « Moving towards a Less Cash Economy 14. NAnONALANn-CORRUPTlON STRATEGY 229

• State of Coiruption in India • Forms ofCorruption • Impact of Corruption • Need for a National Anti-corruption Strategy • Prevention ofCorruption Act, 1988 • Tax Agreements • Right to Information Act, 2005 • Prevention of Benami Transactions • Regulators in India • Inaccessible, on Responsive, Cumbersome Systems • Political Finance and Electoral Funding

15. THEANTI-CORRUPTIONMOVEMENTININDIA 243

• Introduction • Trends of Social Movements in India • Anti-Corruption Movement in India • • Anna's Life and History: A Critical Push to the Movement • Objectives of the Movement • Trajectory of the Movement (2011 and 2012) • Spiritual Leader Baba 's Protest • The Movement and the Civil Society • The Movement and the Media • Campaign Against Corruption: A People's Movement • The Movement and the Government • Conclusion

Bibliography 277 Index 280