In popular parlance, the unofficial economy goes by the

name of black money and the official, of white money.

Black and white are also variously substituted by
number two and number one, unaccounted and
accounted, unreported and reported, unrecorded and
recorded and so on. Prof. J.C. Sandesara

As is my wont, rather than writing piecemeal articles, I have

this "BE done with it Approach." Black is the flavour of the
season what with Demonetisation and its aftermath. The jury
is still out on the need or efficacy of this measure: suffice to
say, in the words of Joseph Addison, "Much can be said on
both sides". But disruption is the key word. A much touted
word, yet demonetisation disrupted the way Indian economy
functioned. At one fell blow, the conventional approach of
economists was thrown out of the window. The jury may still
be out on the long term impact on the economy. Also the
distrust of the world in the Indian currency may take years to
come back. Yet, the days of Cash is King are now over.

The paper shall rely upon a number of resources With my

continued abhorrence of Bibliographies, I refuse to
acknowledge individuals or organisations whose outpourings
I have managed to integrate into the paper. Being a rabid
supporter of Aristotle, I continue to Believe that "RT IS
IMITATION" However lest I may be accused of plagiarism,
on of the think tanks paper on Black Money was well nigh
written in my chambers. Therefore I have no moral
compunctions in following the age old adage, "In Rome do as
the Romans Do."

My grateful Thanks to papers of 2012 Committee and Shri

Gurumurthy's Stolen Wealth Abroad. Hopefully by the time
this series is half way through other Committees may have
submitted their reports on the subject.

Ajay Kumar Agnihotri

BLACK MONEY THE GENESIS & FACTS

INTRODUCTION

Black money is a term used in common parlance to refer to

money that is not fully legitimate in the hands of the owner. This
could be for two possible reasons. The first is that the money may
have been generated through illegitimate activities not permissible
under the law, like crime, drug trade, terrorism, and corruption, all of
which are punishable under the legal framework of the state. The
second and perhaps more likely reason is that the wealth may have
been generated and accumulated by failing to pay the dues to the
public exchequer in one form or other. In this case, the activities
undertaken by the perpetrator could be legitimate and otherwise
permissible under the law of the land but s/he has failed to report
the income so generated, comply with the tax requirements, or pay
the dues to the public exchequer, leading to the generation of this
wealth.

Defining Black Money

There is no uniform definition of black money in the literature or
economic theory. In fact, several terms with similar connotations
have been in vogue, including unaccounted income, black
income, dirty money, black wealth, underground wealth, black
economy, parallel economy, shadow economy, and
underground or unofficial economy. All these terms usually refer
to any income on which the taxes imposed by government or public
authorities have not been paid. Such wealth may consist of income
generated from legitimate activities or activities which are
illegitimate per se, like smuggling, illicit trade in banned substances,
counterfeit currency, arms trafficking, terrorism, and corruption. For
the purpose of this document, black money can be defined as
assets or resources that have neither been reported to the public
authorities at the time of their generation nor disclosed at any point
of time during their possession.
Economy consists of economic system of a country or other
area, the labour, capital and land resources, and the economic
agents that socially participate in the production, exchange,
distribution, and consumption of goods and services of that area. All
kind of professions, occupations, economic agents or economic
activities, contribute to the economy. Consumption, saving and
investment are core components in the economy and determine
market equilibrium. An informal economy is economic activity that is
neither taxed nor monitored by a government, contrasted with a
formal economy. The informal economy is thus not included in that
governments Gross National Product (GNP). Informal economic
activity is a dynamic process which includes many aspects of
economic and social theory including exchange, regulation, and
enforcement.
Parallel economy means functioning of an unsanctioned sector in
the economy whose objectives run parallel and in contradiction with
the objectives of official or sanctioned or legitimate sector in the
same economy. This is variously referred to as unaccounted
economy, illegal economy, subterranean economy, or
unsanctioned economy.
According to D.K.Rangnekar If the Parallel economy poses a
serious threat to stability and growth of the official economy, surely
it stems from the fact that the magnitude of blackmoney is large
and rigged deals are growing in volume and complexity at an
alarming rate. Apart from the wide ramifications of the parallel
economy, one might also be alive to the fact that black incomes
are accentuating the inequalities in income and wealth and
breeding a new class of black rich in a society which is already
harshly stratified.
Illegal economy is taxevaded economy. It is possible to
convert illegal economy or black money into white money and vice
versa. For example, when a person manages to get the receipt from
the shopkeeper by paying the salestax for a commodity but does
not purchase it actually, he generates black money as
reimbursement is made to him against the receipt. The money not
actually paid is the black money in such a case.
The parallel economy has political, commercial, legal,
industrial, social and ethical aspects. There are wide confrontations
between the objectives of the legitimate and illegitimate sectors
under parallel economy. D.R.Pendse argued that there are two
possible sources of black money. Firstly, it may originate from
illegitimate source of income arising out of illegal gratification such
as payment of Selami or Pagri or income from smuggling, bribery
etc. Secondly, it may originate from legitimate and legal sources of
income but concealed from tax authorities out of tax evasion.
Various attempts have been made to assess the black money in
India from time to time. Major few of them are as presented here:

I. Kaldors Estimate: Although the Taxation Enquiry

Commission had examined the structure of Indian
Taxation, a review by Prof. Nicholas Kaldor was
desired by the Government in late 1955 in view of the
larger dimensions assumed by the problems of
resources for the plan since the commission reported
(Important Events 194661). Prof. N. Kaldor in his
report on Indian Tax Reform estimated the nonnational
income (i) wages and salaries (ii) income of
selfemployed and (iii) profit, interest and rent. After
making the rough adjustmements, according to
Wanchoo Committee, the estimated income income
on which tax has been (black income) would probably
be Rs. 700 crores and Rs. 1000 crores for the years
196162 and 196566 respectively. Projecting this
estimate further to 196869 on the basis of percentage
increase in national income from 196162 to 196869,
the income on which tax was evaded for 196869, the
income on which tax was evaded for 196869 can be
estimated at a figure of Rs. 1800 crores
II. Wanchoo Committees Estimate: Shri K.N.Wanchoo,
retired Chief Justice of the Supreme Court of India, as
chairman explained what the term black money meant
in its final report submitted in December, 1971. This
committee estimated nonsalary income for 196162 of
amounting Rs. 2686 crores and nonsalary income
actually assessed to tax as Rs. 1875 crores, thus, tax
 escaped for Rs. 811 crores. Therefore, in 196162,
black money was of amounting Rs. 700 crores which
rose to Rs. 1000 crores in 196566 and further Rs.
1400 crores in 196970. Very lately it was accounted to
be 4.4 percent of GNP.
III. Rangnekars Estimate: D.K. Rangnakar as a member
of the Wanchoo Committee submitted his report in
1982 (India Today, 2005). According to Rangnekar, tax
evaded income for 196162 was the order of Rs. 1,150
crores, as compared to the DTEC estimate of Rs. 850
crores. For 196566, it was Rs. 2,300 crores, as
against Rs. 1,216 crores estimated by DTEC. The
projections of black money for 196869 and 196970
were Rs. 2,833 crores and Rs. 3,080 crores
respectively

IV Chopras Estimate: A Committee under O.P.

Chopra was formed in 1982 for measuring black money
in India. O.P.Chopra prepared a series of estimates of
black income where it increased from Rs. 916 crores (6.1
percent of GDP) in 196162 to Rs.8098 crores (10.5
percent of GDP) in 197677. The study showed that a
buoyant economy offers more opportunities for
unaccounted income. During periods of recession, it may
be difficult for producers to exact unaccounted money.
Chopra also corroborates the hypothesis that tax evasion
is more likely the higher the rate of tax. His findings also
support the hypothesis that increase in prices leads to an
increase in unaccounted income. Further, he found that
funds are diverted to agriculture to convert unaccounted
(black) income into legal (white) income

V. Guptas Estimate: Government of India formed a

committee under Poonam Gupta and Sanjeev Gupta in
1981 for calculating black money in India. They used
 Feiges method of transaction income ratio to estimate
black money in a country. They used average of three
years viz. 194950, 195051 and 195152 as the bench
mark for estimating black money for the year of
196768 to 197879. They estimated that it was 19.8%
of GDP at market price. The black money increased for
Rs. 3034 crores in 196768 to Rs. 46867 crores in
197879. The main findings of studies on black money
were: (a) A buoyant economy offers more opportunities
for unaccounted income; (b) The ratio of unaccounted
income to assessable nonsalary income has gone up
after 197374; (c) Increase in prices leads to an
increase in black money; (d) Funds are diverted to
agriculture to convert black money into white money;
and (e) One per cent increase in overall taxes leads to
more than 3 percent increase in the black economy
relation to the official economy

The National Institute of Public Finance and Policy estimated

that in 1985 amount of black money in India was nearly Rs.
1,00,000 crore, which is approximately 20 percent of the
national income. In 1996, the estimated black money was
believed to be more than Rs. 4,00,000 crore (The Hindustan
Times, January 20, 1997).

My own estimates are based on presence of black or

undeclared assets. Per estimates, India has close to 26000-28000
tonnes of gold, nearly 1,25 lakh tonnes of silver. Besides the quantity of
diamonds and investments in land. All put together the amount of
converted cash is close to 28-30 lakh crores. That is close to 4.5-5
trillion Dollars.

The estimates of gold are based on the presumption that 25-30%

gold ever mined in the world had found its way to India. The total gold
mined is believed to be 171000 Tonnes. This translates to 45000-50000
tonnes having come to India since the time gold has been mined in the
world. However considering the pillaging of gold by invaders and then
the East India company, the actual amount may have diminished to
present estimation above.

Silver mining was never known in India, but fondness of the metal
for utensils, Jewellery etc, meant huge imports over the years.

There is no way the value of diamonds can ever be discovered and

guesstimates may peril any adventurer in this direction.

Black money has always been and still is an important component of

land and property dealings. The cash component ranged from 30% to
75%. The component of cash to cheque has narrowed substantially over
the years, but old cash already assimilated in the economy has
nevertheless to be computed.

Table 1: Estimates of Black Income in India

Rs. crores
 Year GNP at Kaldor Wanchoo Ragnekar Chopra

market Committee

prices

1953-54 9993 600 (6.0) - - -

1960-61 14946 - - - 916 (6.1)

1961-62 15879 - 700 (4.4) 1150 (7.2) 716 (4.5)

1962-63 16991 - - - 837 (4.9)

1963-64 19544 - - - 1452 (7.4)

1964-65 22897 - - - 1564 (6.8)

1965-66 23948 - 1000 (4.2) 2350 (8.8) 1439 (6.4)

1966-67 27461 - - - 1685 (6.1)

1967-68 32036 - - - 1816 (5.7)

1968-69 33024 - 1400(4.2) 2833 (8.6) 1318 (4.0)

1969-70 36580 - - 3080 (8.4) 2714 (7.4)

1970-71 40177 - - - 2062 (5.1)

1971-72 43266 - - - 1392 (3.2)

 1972-73 47750 - - - 1795 (3.8)

1973-74 58863 - - - 4757 (8.1)

1974-75 69755 - - - 8611(12.3)

1975-76 72698 - - - 7292(10.0)

1976-77 76937 - - - 8098(10.5)

Note: Figures in brackets indicate black income as percentage of GNP at

market price in the respective year.