Economist Arun Kumar tells AKSHITA RAWAT the need of the hour is ensuring accountability in politics
What has been the impact of demonetisationIJ How has it affected black money so farIJ
Demonetisation was supposed to primarily tackle India’s huge black economy, currently estimated by this author at 62 per cent of GDP. However, it has failed to do so since cash is only 1 per cent of the black wealth so even if the entire black cash of about `3 lakh crore had been caught or disabled only 1 per cent of the black wealth would have been demobilised. It would not impact the annual generation of black incomes by the variety of means, like, drugs trafficking, under and over invoicing by businesses, cheating, capitation fees, production of spurious medicines and adulteration of food items. So, the black economy would continue to flourish.
How are the black economies of developing countries different from those of the developed countriesIJ
In the developed economies, the black economy does not impact day to day life but in the developing countries, like, India, it affects every aspect of life. For instance, the police encouraging illegality so that it can collect hafta, doctors not curing patients in time and recommending tests that are not needed or the teachers not teaching properly in class so that they can get tuition or the chartered accountant signing on the dotted lines or the illegality in elections. So, the citizens feel harassed all the time. They do not get electricity of correct voltage so that their equipment burns out or the water in taps maybe contaminated so that their family may fall sick and so on.
What is the impact of black economy on income and employmentIJ What can the Government do on this frontIJ
The black economy is additional to the white economy. The implication is that the actual economy consisting of the black and the white economies is larger than what the Government’s data suggests. However, the black economy lowers the output and employment compared to what the economy could potentially generate.
The reason is that the black economy results in massive inefficiencies and flight of capital. Due to the inefficiencies, the investment in the economy does not yield the output that could be potentially generated. A lot of investment from black funds either goes into unproductive assets like, real estate speculation or hoarding of gold or simply wastage of resources. Thus, it appears as if the economy lacks resources.
Consequently, we do not spend enough on say, education and health. Further, expenditures from the budget do not lead to commensurate outcomes. Thus, if the black economy had not existed then the rate of growth of the economy would be higher and standards of living would be much better. Clearly, the Government needs to tackle the black economy on a war footing since it will be a game changer and a positive sum game.
Will a check on tax evaders solve problems of black economiesIJ HowIJ
The black economy is a result of illegality committed by the elite sections of the population. One of the illegalities is not paying the taxes due. If illegality is tackled the problem of tax evasion would also get resolved. In India the issue of black economy is political and can only be resolved by making our politics accountable. People have to stop voting for their corrupt leaders and force parties to put up clean candidates. They have to force accountability on businesses, judiciary, bureaucracy and so on.
The general perception is that businessmen, bureaucrats, politicians and corporate honchos are corrupt and a step ahead of Government measures when it comes to curbing black economy. Is it trueIJ
In India we have many laws and regulations. Each one of them is violated to generate black incomes. This is only possible if the politician, the businessman and the executive consisting of the bureaucracy and the police are involved in the violation of the laws. So, it is not that the corrupt are a step ahead but they are a part of the system and not interested in checking illegality.
laws have evolved with time but remained ineffective. How can we check the efficiency of laws to eliminate this crisis and prevent scams such as the hawala or banking secrecy casesIJ
In India as laws are found to be circumvented, more laws have been brought on the stature books. This has brought about complexity. However, laws on paper differ from as they are implemented. A law is a law in letter and spirit. If the spirit is not willing, a law no matter how well drafted, can be circumvented. loopholes can be found or the enforcers of the laws can look the other way since they stand to gain from the violation of the law.
You have suggested several productive ways to handle the situation. What is the most effective in the context of India and whyIJ
I have suggested in the book that the steps to check the black economy have to be in the long, medium and short term. Unless the long term is set right the short term steps will also have limited validity. In the long term the most important measure is bringing about accountability in politics. In the short run, we can tackle hawala, check banking secrecy, strengthen RTI and whistle blowers bill, increase judicial accountability, simplify laws, increase transparency and so on.
How can we use technology to curb the menace of black economyIJ
Technology can only play a limited role. The human element behind technology is crucial. We have to see how to generate commitment of the citizens to society; today they are alienated and are aggrieved because they feel a lack of social justice. The richest and the poorest feel this way. Best of systems can be fouled up by lack of governance and commitment.
Will the layman, who is usually not familiar with the intricate nuances of how a black economy operates, understand this bookIJ
Yes, the attempt in the book is to explain the concepts in a very simple manner using day to day examples of harassment faced by the lay person. In brief, a lay person will feel that it is his/her life that is being discussed, described and explained in the book.