The Black Money Myth : Money Can never be black !!!

The Black Money….the most discussed and debated subject in social media today and in media..here is a sincere effort to dispel some myths on black money in the minds of the people and also to prove that real money can never be BLACK !

 

1.       Traditionally people think that Black Money is the money which is earned through illegal sources and hence hidden.However the colour changes to “BLACK” when even a legal income is hidden from tax authorities .So next time you don’t declare the savings bank interest in your IT return and just furnish Form 16…you WILL BECOME a black money creator .

 

2.       Black money need not be stored into any secret vault of swiss mountains .Swiss banks don’t give any interest on the money and some banks even charge YOU  to keep your money with them.So instead of wasting the money is such secret bank lockers,this money finds the way to domestic economy through various sources like investing in real estate.That explains why real estate market in India does not follow a classic demand-supply curve for price auto regulation.

 

3.       Now let’s look at the case of Black money invested in real estate as in above point number two .If you give that money to builder in cash while buying a flat,the same builder will use that money to either pay the bribe to the government to get clearances for the project,use money to pay labour contractors/smaller material suppliers  in cash or keep it for himself to spend.In any case: 

 

A.      The government babu who takes the bribe in cash might be  using that cash to buy that diamond necklace for his wife in all cash from a local jeweler who allows him to buy in cash without PAN number.-à Jeweller will pay to his labour and also buy some clothes,white goods etc for his family.   OR

 

B.      The labour contractor and his men who get money from builder will also buy their daily necessities from that money and will send some money back to their village to family via money order. OR

 

C.      The material supplier also uses the money to pay school fees for his children and to send his parents on pilgrimage to Varanasi !

 

 

Image Copyright :Indian Express Website

4.       Now the above example makes it clear that the initial money which was given in cash without any receipt to the builder by flat purchaser anyway changed hands and came in circulation in small amounts which was used by various people to buy goods and services.The economy anyway gets a boost with this spending .So I frankly never understood ,other than the tax evasion and shortfall how black money can really affect the economy.I will love to understand from experts.Every expert who speaks on black money says that because of black money the economy is suffering.I don’t understand how.Yes the 30 % money which could have been paid to the government as tax could have been used by government for the people welfare schemes .But still the now “hidden” and “ black” 100 % money came to economy consumption right ?

 

5.       Second consideration is about the fact I mentioned in point number one.Money can not be generated at random while currency notes can.So currency notes have no inherent value unless they are exchanged for equal amount of goods or services.So when people say black money is generated and economy has no use ,it is half truth.Consider this,a manufacturer earns money from the goods he makes and exports.So in that process,the labour ,the material,utilities ,services all get consumed and the value added material becomes finished goods.So value and the money gets generated and distributed in the economy.What is lost for the state is the under recovery of the taxes from the profit the manufacturer earns.

 

 

So in a sense,yes ..India HAS a black money problem but the way it is blown out of the proportion saying figures of lakhs of crores is a sheer stupidity.I am NOT  a proponent of evading taxes or not even saying that you do cash transactions to avoid a money trail,but the fact remains that that’s the way Indians spend and still lakhs of households run on cash.The recent government initiative of Jan Dhan Yojana to take the banking to the masses is the first step towards cashless transactions and I am sure over the next decade it will slowly happen.Till then let’s enjoy while people like Ramdev throw some ridiculous  figures of black money stashed in swiss banks :-p