The debate on “Black Money” and its recovery

Once again in recent weeks there has been much discussion in political circles and the media about “black money”.

Once again in recent weeks there has been much discussion in political circles and the media about “black money”.

In his monthly radio broadcast on November 2, 2014, the Prime Minister assured the people of our country that his government would bring back every single paise of money illegally stashed away in foreign banks. He admitted that this was money that belonged to the toiling people of our country. At the same time, he said that neither his government, nor the previous government, had any idea of how much “black money” was stashed away in Swiss banks.

During its campaign during the General Elections for the Lok Sabha, the BJP had propagated that the amount of “black money” stashed away in Swiss banks was roughly 1,400 billion dollars. (8.4 lakh crores). It accused the Congress Party of not being serious in recovering black money, and promised to bring back all the money within hundred days of coming to power. Now the Congress Party as well as other bourgeois parties are propagating that the BJP is not serious about its promise. It is in this context that the Prime Minister asked the people of our country to have faith in his government’s intentions about recovering the money.

What is “black” money?

What is termed as “black” money is in fact wealth obtained by exploiting the labour and natural resources of the working class and people. The bourgeoisie extracts surplus value from the labour of workers. Over the years, the share of workers’ wages as a proportion of national wealth created each year (GDP) has been steadily decreasing. From the official National Accounts Statistics of the Government of India, we can deduce that about Rupees 31 lakh crores were pocketed by the capitalist class from the territory of India in 2012-13, in the form of profit, interest and rent income. This is the legal and accounted part, or the “white” surplus value extracted by capital in that year. An additional massive amount – the “black” part, which is estimated to be half of the “white” part – was extracted and pocketed outside the sphere of official accounts. In other words, around 15 lakh crores Rupees was thus extracted! This is almost twice the total monies that the BJP claimed was stashed away in foreign banks!

How is black money generated? Private companies regularly generate unaccounted or “black” income, typically by over- reporting their expenses and under-reporting their profits. Mispricing of trade – i.e. making invoices that either overstate or understate the actual value of transactions – is said to be the biggest way of moving “black” money around. This unaccounted income pocketed by capitalists is used for financing unaccounted expenses, including bribing government officials and ministers to take decisions in their favour, financing election campaigns of various bourgeois parties and politicians. Some of it is invested in real estate, or kept as cash or parked in banks abroad.

These banks are popularly referred to as Swiss banks, even though they are not necessarily or even mainly in Switzerland. The characteristic feature of such banks is that they do not ask the depositors the source of the money they are parking, and also do not tax them. Capitalist governments of different countries, including India, have consciously worked out treaty arrangements with countries whose economies thrive on such banking practices to enable capitalists, ministers, senior government and army officials, who regularly accumulate unaccounted wealth to safely park these monies.

A huge amount of “black” money has traditionally been generated in the kickbacks for signing lucrative weapons purchases, from the weapons producing countries, as well as in other big ticket purchases such as that of planes for Air India, and in other purchases abroad by the state trading agencies. 

In sum, what is called “black” money is money of the toilers and tillers, either directly expropriated by the bourgeoisie, or by looting the state exchequer. It is a substantial portion of the surplus value extracted from the working class. It belongs to the working class and people of our country.

The working class and toiling masses have every reason to be extremely angry at this loot of the country. The demand that the government recover this money and invest in the well being of the people is just.

It is well known that the ruling class has been consciously generating “black” money and utilising it ever since independence. The rate of accumulation of this “black” money has been increasing with each passing year. There is need to understand why the ruling class has put the spotlight on “black” money in recent years.

The working class and toiling masses are indeed very angry at the rapidly growing disparity in wealth and lifestyle between the bourgeoisie and themselves. While the working and living conditions of the vast masses of toilers and tillers have been steadily worsening, the big capitalists, and various officials of the state have been amassing huge wealth. People are seeing how various politicians and bureaucrats have turned into capitalists themselves through the loot of the state exchequer and by using their positions to enrich themselves by handing out favours to this or that Indian or foreign capitalist.

The source of the problems facing the working class and people, the disease, is the capitalist system, which is defended by the state. Capitalism in our country and worldwide is extremely parasitic. It is sucking the life blood of the working class and all the toiling people. The state is a parasitic state which further extracts from the whole of society in the interests of the monopolies.

In order to end the exploitation and plunder of the labour and resources of our people, the working class has to lead the peasantry and other exploited and oppressed in a social revolution that will establish a new state of the workers and peasants, put an end to capitalism, and build a new socialist society.

At different times, the ruling class highlights this or that symptom of the disease, to divert the anger of the toiling masses from the real source of the problem, the capitalist system, and the state that defends this system. In recent years, it is pointing to such symptoms of this disease, such as corruption and “black:” money.

In all capitalist countries, including the US and Britain, the ruling class generates “unaccounted” wealth from the labour of the toiling masses at home and abroad, and from the plunder of state exchequer. Imperialist states such as US, Britain and France, even launch wars of aggression, and use public monies to benefit the capitalist corporations that benefit by war and plunder of other countries. It is well known that it is the capitalist corporations that fund the election campaigns of different parties in these countries.

A major reason behind the recent spotlight on “black” money is the role played by the US imperialists in highlighting it. It is known that international agencies controlled by the US have in the past decade been highlighting “corruption” in various other countries. They have been blackmailing the ruling cliques of these countries with threats of exposing them and expropriating their savings in Swiss banks if they do not fall in line with the US on various questions. Most of the figures about the extent of “black: money stashed away in Swiss banks bandied about in our country originates from these imperialist controlled agencies.

In the light of the above, the question that needs to be raised is whether the government is serious about recovering “black” money.

According to Department of Industrial Policy and Promotion (DIPP) data, from 2001 to 2011, 41.8 percent of the entire FDI in India was from Mauritius. The next big inflow was from Singapore (9.17 percent).

The white paper on “black” money of the Government of India of 2012 notes: “Mauritius and Singapore with their small economies cannot be the sources of such huge investments and it is apparent that the investments are routed through these jurisdictions for avoidance of taxes and/or for concealing the identities from the revenue authorities of the ultimate investors, many of whom could actually be Indian residents, who have invested in their own companies, though a process known as round tripping.”

Thus the government is well aware that a lot of the monies generated as “black” money is being regularly routed back into the country. In fact, the program of globalisation through liberalisation and privatisation has both generated huge amounts of “black” money, as well as created avenues for its investment within the country.

The annual generation of “black” money is estimated to be Rs.65 lakh crore. A part of it is consumed for bribery, covert funding of elections and so on, and the rest is saved. Only a portion is sent thru Hawala transactions (see box). The bulk of “black” money generated is actually in India and not abroad.

Out of the funds taken abroad, a part is returned in the form of “round tripping” (see box). There are several channels for this return of money. Thus, only a part of the money taken out of the country remains abroad. Out of the money that remains abroad, a part is spent on luxuries while another portion is invested in real estate and other businesses. Only a fraction of the illicit funds taken out of the country goes into bank accounts.

There are at least 80 known “tax havens”. However the focus of the Indian state is only on a list of few hundred accounts which have been leaked from abroad. These accounts are several years old, and those operating them have been given adequate notice to withdraw funds and send them elsewhere.

Since the majority of the “black” money is actually within India, it is very much possible for the government to expropriate it. One emergency measure could be to cancel the larger denominations of currency notes, say of Rs 1,000’- and Rs 500/-, and issue new notes in their place. If everyone holding such currency notes is forced to deposit them in banks and reveal how the money was obtained, a substantial part of the “black” money within the country would surface perforce. However, there is not even a murmur amongst the ruling circles about the “black” money either hoarded or being circulated within our country. It is very clear that the Indian state and its institutions have no intention of eliminating the generation of “black” money, or in confiscating this money.

For the working class and toiling masses of our country, the question of “black” money is a serious issue. This is our money, surplus extracted from our toil, and from the loot of the natural resources of our country. It rightfully belongs to us, and must be deployed for the well being of society.

It is perfectly possible to fulfil the needs for all members of society and deploy the social surplus to raise the living standards and productive capacity of the population. For this, the greed for private wealth accumulation must be prevented from dominating any sphere of the economy or society. The working class must organise and unite with the peasantry and other exploited sections in order to overthrow the man-eating system of exploitation and usher in its’ place, a system in which exploitation of man by man will cease to exist. The money that has been plundered from the people by exploiting our labour and natural resources– whether accounted or unaccounted, whether “white” or “black” indeed belongs to the toiling people only!

Some interesting facts about “black” money

Shell (dummy) companies

Sets of dummy companies are used to move ill-gotten wealth around. In the coal scam, several Kolkata based companies were used to move large amounts of money that had nothing to do with the regular business of the companies. If company A wants to transfer (black) money to company Z, it does not do so directly – it transfers to company B which in turn transfers it to company C and so on till it reaches company Z. Untangling this web of transactions while not impossible is time consuming and difficult. One estimate puts the amount of “black” money so transferred by shell companies in Kolkata between 36,000 to 72,000 crore rupees just in 2010 -11!

A mere handful of persons act as directors for over 30,000 companies registered in Mauritius, one of the well-known tax havens of today

How money is sent abroad

Hawala

Money is transferred through an international network of brokers without there being any real movement of funds

Over invoicing of exports

If a consignment is actually worth say 3 million US $, it is shown as being worth say 3.7 million US $. The difference of 0.7 million US $ is deposited in someone’s account located in or near the importers’ country.

Trusts

Often trusts are set up with trustees being the nationals of a foreign company, but beneficiaries being the relatives of the Indian citizens who set up and invest the initial corpus

How money is brought back into India

Shell companies

Companies having very little or no assets or business operations are created abroad to bring back money via tax havens like Mauritius.

GDRs (Global Depository Receipts)

Indian companies with no tangible assets or business operations raise capital through GDRs and help bring back black money into India.

Participatory notes

These are instruments issued by financial institutions to overseas investors that allow the latter to invest in Indian stocks without registering themselves with the Indian regulatory authorities. This is another favourite method of bringing “black” money back into India.

 

Share and Enjoy !

Shares

Leave a Reply

Your email address will not be published. Required fields are marked *