During the last national elections , the BJP as part of its election campaign promised to bring back to the country , black money lodged overseas. It passed very stringent laws and penalties for people who do not declare their overseas holdings. Expectations were that billions of dollars would flow back. Unfortunately upon expiry of the deadline only about INR 7000 crores was declared. It was a good attempt even if it was with limited success.
While the overseas holdings makes good press, the larger amount of black money is within the country. In Delhi go to the Lajpat Nagar, Chandi Chowk, Chawri Bazar or the mandi's all transactions are cash based. Not all , but a large number of lawyers ,accountants,doctors and other professionals prefer cash payments for their services. In addition all payments for greasing the wheels whether in the government, public or private sector are in cash. This is the same in every single city in the country.
However its not that the money is hidden under the mattress or buried in chests. A large portion goes into real estate investments and into conspicuous consumption such as jewellery, designer clothes or bags or overseas trips so it does circulate back into the economy. It is just that the government misses out in collecting taxes on this undeclared income.
Part of the problem is that the avenues are limited. Yes you can invest in real estate. . However there is no pportunity for investments in the capital markets particularly debt . I have attempted to buy corporate bonds but without success as the minimum trading lots runs into crores.
In my opinion the government should declare an amnesty with no penalty. However the holder should be required to invest the amount declared into government bonds. Fifty percent of the funds should be required to be invested in government bonds with a maturity of five years, bearing interest at one percent below the prevailing savings rate. Another twenty five percent should be should have a maturity of seven years at the prevailing savings rate. The remaining funds should go into ten year bonds at a savings rate plus one percent. The scheme does not end there as this will no be incentive for the black money holder to declare his/her holdings as the funds will be locked up for a long period.
The government should then make some of the public sector and private sector banks to make a market with a restriction that the spread ( between buying and selling should not exceed one eight or one quarter) and that the trading lots should be in amounts of one lac.
The black money holder can then sell the bonds at a discount ( which would require him to take a loss ) but then it allows him to re-enter the funds into the legitimate economy. The government obtains a substantial amount of funds at below market rates and at the same time create liquidity in the debt market at the retail level. In my opinion a win-win situation for all.
While the overseas holdings makes good press, the larger amount of black money is within the country. In Delhi go to the Lajpat Nagar, Chandi Chowk, Chawri Bazar or the mandi's all transactions are cash based. Not all , but a large number of lawyers ,accountants,doctors and other professionals prefer cash payments for their services. In addition all payments for greasing the wheels whether in the government, public or private sector are in cash. This is the same in every single city in the country.
However its not that the money is hidden under the mattress or buried in chests. A large portion goes into real estate investments and into conspicuous consumption such as jewellery, designer clothes or bags or overseas trips so it does circulate back into the economy. It is just that the government misses out in collecting taxes on this undeclared income.
Part of the problem is that the avenues are limited. Yes you can invest in real estate. . However there is no pportunity for investments in the capital markets particularly debt . I have attempted to buy corporate bonds but without success as the minimum trading lots runs into crores.
In my opinion the government should declare an amnesty with no penalty. However the holder should be required to invest the amount declared into government bonds. Fifty percent of the funds should be required to be invested in government bonds with a maturity of five years, bearing interest at one percent below the prevailing savings rate. Another twenty five percent should be should have a maturity of seven years at the prevailing savings rate. The remaining funds should go into ten year bonds at a savings rate plus one percent. The scheme does not end there as this will no be incentive for the black money holder to declare his/her holdings as the funds will be locked up for a long period.
The government should then make some of the public sector and private sector banks to make a market with a restriction that the spread ( between buying and selling should not exceed one eight or one quarter) and that the trading lots should be in amounts of one lac.
The black money holder can then sell the bonds at a discount ( which would require him to take a loss ) but then it allows him to re-enter the funds into the legitimate economy. The government obtains a substantial amount of funds at below market rates and at the same time create liquidity in the debt market at the retail level. In my opinion a win-win situation for all.
