BLACK MONEY :Another Face of Corruption

BLACK MONEY :Another Face of Corruption

-Awadhesh Pathak*

If the “Parallel economy” passes a serious threat to stability and growth of the official economy, surely it stems from the fact that the magnitude of “black-money” is large and rugged deals are gro wing in volume and comp lexit y at an alarming rate. Apart from the wide ramifications of the “parallel economy”, one might also the alive to the fact that “black incomes” are accentuating the inequalities in income and wealth and breeding a new class of “black” rich in a society which is already harshly stratified.

– D.K. Rangnekar

The Indian black economy is immense, lucrative, widespread, and has grown significantly sinceIndependence. The black economy has grown from about 3% in the mid-50s to 20% by 1980, to 35% by 1990, and 40% by 1995.As a percentage of GDPand almost $1 trillion in absolute terms, theblack economy is largerthan both the industrialand agricultural sectors. Corruption is pervasive from thelowest to the highest levels of public administration, public enterprise, bureaucracy, judiciary, law enforcement, and elected officials. According to Transparency International’s GlobalCorruption Barometer 2007 report, 25% of survey respondents had to pay a bribe to obtain Government services, over four-out-of-five believe that politicalparties arecorrupt, and more than 70% expect the level of corruption to increase in the coming three years.

The history of corruption in India can be traced to late 18th century British East India company rule. The first Governor-Generalof India, Warren Hastings was notably impeached on accounts ofcorruption in 1787. Though he was acquitted in 1795, his lengthy trialbrought various aspects of illegitimatecompany activity to light.The EastIndia Company laid the foundations of both a corrupt bureaucracy and a parallel economy.At the time ofWorld War-II, when large quantities of products and resources were allocated to the war effort, the general public experienced acute shortages ofdaily necessities. Scarcity, Government controls, and private hoarding stimulated the growth of the parallel economy. Even though in both periods the black economy made up only a small fraction of its present size, the institutional and social practices that would facilitate its rise were developed then.

Themost significantgrowth in the black economy occurred during and after the 1960s. Until this time, Gandhian and Nehruvian politicians who had been part of the Independence struggle and who had largely administered the Government were retired. As their careers ended, officials who lacked their idealism, and were more likely to engage in corruption and rent-seeking practices, entered the Government.

Some of the most prominent causes of corruption have been patron- client relationships and communalism in the democracy, excessive bureaucratic administration and low wages at thebottom rung of public sector employment, ineffective punitive and combative measures, and a social environment conducive to corrupt practices.

Since sixties, a new brand of electoral politics has seen leaders who succeeded in specific regional, caste, religious orlinguistic communities as wellas various private lobbies. In order to get re-elected in a divisive environment, officials hand out benefits to private supporters and client communities. Nepotism in the allocation of Government contracts and the siphoning-off of public sector funds occuron alarge scale viz. public sector ,realestate are taken over by individualpoliticians, they sell them at preferential rates to family members, campaign contributors, and other supporters in a process that is called “writing down”. Democratic corruption is further compounded by rampant electoral malpractice, which undermines the legitimacy of the participatory process. Vote buying and voter coercion, political thuggery and warlordism are common place. Corruption pervades the politicalrealm from the local District level, to the State level, to the National level.

During the sixties the development of a second factor also impacted corruption. Private sectorwages and relative socialprestige, particularly at the lower levels, grew faster than those of the public sector, creating incentive for corruption. It is common for well-off individuals to buy their way out of arrest. Additionally, the coloniallegacy ofan extensive administrative network facilitated the spread of corrupt activity in the bureaucracy, judiciary, and law enforcement. The British had designed this legal system to strengthen a regulatory colonial administration…It has built in provisions for delays, prolonged litigation, and evasion. Its provisions are ideally suited to the promotion of corruption at all levels.

Many bureaucrats see their salaries as pocket money, while their actual incomes aredetermined by illegitimate means. Even in prestigious civil services likethe IndianAdministrative Service(IAS) and Indian Revenue Service(IRS) thatrequire entranceexaminations, salaries are significantly lower than private sector alternatives. Income collected by unfair means is often taken into account when bright individuals choose the civil services over the private sector.

Looking at the problem from a broader perspective, pervasive corruption has generated socialattitudes thatno longerview it as morally wrong, but it is sanskratized now. High degrees of corruption in the police and judicialsystem coupled with widespread corruption among elected officials, have contributed a collective disregard for the rule of law in society. In Government offices people often searches for near and dear ones for favors. A vicious cycle has been created where corruption has social acceptance and hence corruption increases manifolds.

The economic impact of corruption is powerful because illegal assets find safe havens in foreign countries.According to reports, around US $ 450 billion to $ 1.7 trillion of Indian money has been salted away in undeclared bank accounts. Various economists suggested that if the integrity and efficiency of bureaucracy in developing countries were to be improved, their investment and GDP growth rates should rise significantly.For to controlGDPper capita, corruptGovernments spend less on education, and itresulted in less capitalformation , if corruption in India was reduced to Scandinavian (Norway,finland,Denmark) levels, investment would rise by 12% annually and GDP would grow at an additional 1.5%.

In India, the black economy has resulted in an immense loss of tax revenue. According to the BBC (2010), only 3 million peoplepay taxes, it accounted for only 2% of population. The Government therefore suffers a perennialshortage offunds and public service languishes. Due to corruption, public sector enterprises appear to be inefficient and making huge loss.Although, Government is taking steps to improve public sector enterprises in the form of declaring them as miniratnas , navratnas, and maharatnas to profit making public enterprises. Black or paralleleconomy is the under cover economy, an open secret. The black economy is not only rooted in smuggling rather it encompasses allsorts ofpilferage, adulteration and evasion.Theunderground economy refers to both legalactivities, such as often found in construction and service industries where taxes are not withheld and paid, and illegal activities, such as drug dealingand prostitution.

Few negative effects are:

• Affects public revenue

• Delimits nationalproductivity

• Distorts the equity and equality concepts ofeconomic distribution

• It helps in increasing the rate of inflation

• It upsets the accuracy of economic forecasts

Few positive effects also come out of it :

• Black money is liquid and fast

• It injects much needed foreign exchange

• It employs a lot of people.

The Government has already developed a number of agencies to deal with the problem of corruption such as the Prevention of Corruption Act (1947), Central Bureau of Investigation (CBI), Administrative Vigilance Division (AVD), and CentralVigilance Comission (CVC). I believe that a carrot and stick(i.e incentives and punishment are based on performance) approach must be used to combat corruption. Corruption has lead to a vicious cycle where it keeps tax revenue low, thus keeps public sector wages low, and therefore perpetuates itself. The Government must bear the initial cost and incur a deficit to raise public sector wages and make them more comparable to the private sector, whilestrengthening anti-corruption bodies. Theoretically,a higher salary should make an employee content and the increased probability of prosecution should deter their corrupt practices.

Electoralreform is also necessary to restorefaith in democratic process. Instituting stricterpollmonitoringpolicies and replacing theinkblot voting technique with new technology would better safeguard against malpractices.Allocating afixed election budget can also bevery effective measure .

The media and civilsociety are important entities that should also be urged to expose corrupt practices. In the past, the media has exposed numerous profile cases, such as the Tehelka scandal,Aadarsh housing society,2G,Commonwealth games etc.

In the corruption perception index 2010 score, India ranked 87th out of the list of 178 countries. For meeting the challenge of corruption, Government need to integrate anti-corruption measures in all spheres, from their responses to the financial crisis and climate change to commitments by the international community to eradicate poverty. Transparency International advocates stricter implementation of UN convention against corruption, the only global initiative that provides frame work for putting an end to corruption.

The primary obstacle in implementing stricter controlover corruption is the socialmilieu. Ifsociety continuesto acceptthe normality of corruption, politicians will not be pressed to implement counter-measures. The corruption can be fundamentally controlled through the democratic process.Voting againstcorrupt politicians will ensure that thosein power will reduce their own illegal practices. Some effective legislative and administrative reforms have been started in our political and administrative system viz. successful implementation of RTI and the debateis stillgoing on, on LokpalBill etc.But Iwould like to emphasize on the most important aspect that, corruption cannot exist in society without our consent i.e. somewhere the society is also responsible for corruption. Former Presidentof IndiaDr.A.P.J.AbdulKalam suggested that moraland ethicaleducation should also be provided to the children so that they can become the responsible citizen of our country. In nutshell, change in socialattitude is must to implement thereforms and to deal with the gigantic problem of corruption and black money.