An expert`s view on demonetization.

Which are the other forms of Black Money?

Gold, Precious Metals, Properties, Shares, Stocks and stashed abroad in tax heavens.

Which are the major tax heavens in the world?

Delaware (U.S), Luxembourg, Switzerland, Cayman Islands, the U.K. (City of London), Ireland, Bermuda, Singapore, Belgium and Hong Kong.

An expert on black money has said that removing liquidity from the economy via demonetisation is unlikely to have an impact on the generation of black money, though it may send the economy into a tailspin.

“Cash is like blood throughout the economy and if you suck out 85 percent of the blood from somebody and replace it with 5 percent of the blood that person will collapse,”

Cash is used in India for business, trade, industrial and household transactions. All these sectors have been affected by the demonetisation of 500 and 1,000 rupee banknotes,

The rationale behind demonetisation was to strike at the roots of black money.

But, It is estimated that cash is a tiny fraction of India’s domestic black economy, not more than 2-3 percent.

The size of India’s economy is currently $2.2 Trillion, or about 150 lakh crore rupees.

Out of this 62 percent, or about 93 lakh crore rupees is generated as black income every year.

It is estimated that only 1 percent of all the black wealth in the economy is in the form of stacks of cash in suitcases, safes and gunny bags.

This amounts to just Rs 2-3 lakh crore, which is the amount that demonetisation has liquidated. It may be around Rs.5 -6 lakh crores or may be 5% of the entire black money.

“For uncertain gains it has put the entire economy in jeopardy,”

The Government has just begun its operation on a small scale on the black money with demonetization and the next program is on Benami Properties and Gold. 

The investigation into the amounts stashed abroad in tax heavens is VERY HUGE.  Un imaginable.

This money flows back to india in the form of reinvestment!!!!

It is said that many businessmen export junk or waste products and raise the invoice for huge amounts, by bringing back the stashed money abroad.

There are many ways, by which the exporters can get more than what they have shipped.

Take for example: (a small case).

An exporter gets an order for pure silk fabrics from his contacts abroad for the shipment of pure silk fabrics at $10 a meter.  He ships waste or junk with the connivance of xxxxxxxx and raises the invoice at the rate of $10 a meter.  The moment, he gets the order, he applies for the replishment quota to import Chinese yarn, to manufacture the product in India and imports china pure silk yarn at Rs.1,000/- a kilogram.  The imported Chinese yarn is sold in the open market for Rs.3,000/- to Rs.4,000/- a kilo gram.  He pockets Rs.2,000/- to Rs.3,000/- a kilo gram in black money.

Then, buys the junk or waste and books the xxxxxxx and it is exported as pure silk.  The value of the junk or waste fabrics is 10 paise to 20 paise per meter or it is based on the weight.

Thus the tax evader exports pockets crores.  The whole business world knows about it.  Even the government has details, knowledge and information about it, but NOBODY DOES ACT. 

In a similar fashion, the gold trade or export is done.  There are various other means, wherein, black money is generated.  The government has all the details about it, but cannot or did not act till date.

This demonetization may be a beginning, must be continued with benami properties, gold and detection of amounts deposited abroad.

The rest of the black wealth is in the form of gold, real estate, stocks and shares, or just stashed abroad in tax havens.

Around 40 percent of the black money stashed abroad comes back to India via ‘round tripping’.

Illicit money that has been ferreted out of India via hawala channels or trade mis-invoicing is deposited in international tax havens. From there the money comes back to India via an investment route like Mauritius, which has favourable tax treaties with India. Black money is now effectively ‘whitewashed’.