Kajal Basu. Editorial.XI.XI.XVI
'SHOCK AND AWE'
By Kajal Basu
Two upheavals have booted the world’s two largest democracies up their rumps this week: Indian Prime Minister Narendra Modi's last-minute televised announcement at 8:00 pm on Tuesday, 8 November, that denominations INR 500 and INR 1,000 currency notes would be legless currency past midnight; and Donald 'Pussy-Grabber' Trump's election to the White House on Wednesday, 9 November.
The preliminary figures show that both leaders were led by considérations minoritaires: While Trump won the electoral college by 279: 228, it is likely that he collected fewer actual votes than did Hillary Clinton; and Modi tossed 86 percent (or 14 lakh crore, or $217 billion) of the value of the Indian currency in extant circulation down an unclimbable hole in order to restrain black money generation and flow, an estimated <18 percent of the economy.
In the US, the votes are still being tallied and the numeric analytics being carved. On Wednesday morning, Associated Press figures had Clinton pegged at 59.16 million votes nationally, and Trump at 59 million votes. At voting's end, Clinton had 47.7 percent (59,923,027) of the actual votes, while Trump had 47.5 percent (59,692,974). In short, Trump won by 51 electoral college seats while totting up 230,053 (0.39 percent) fewer votes than Hillary Clinton.
There are no firm statistics on the black money component in the Indian economy, but economists hold on to a conservative ballpark percentage of <18 percent of the GDP, an estimate built on previous estimates. Estimates of black money: 1975-76: INR 9,958-11,870-cr - 15-18% of GDP, 1980-81: INR 20,362-23,678-cr - 18-21% of GDP, 1983-84: INR 31,584-36,784-cr - 19-21% of GD
Prof. Nicholas Kaldor in his report on Indian Tax Reform had assessed the black money component at INR 600 crore (1953-54), or about 6.0 per cent of the GNP. The Direct Taxes Enquiry Committee (Wanchoo Committee) had estimated it at INR 811 crore in 1961-62, INR 1,000 crore in 1965-66, and INR 1,800-crore in 1968-69.
However, Dr. D.K. Rangnekar, dissenting from the Wanchoo Committee report, estimated black money at INR 1,150 crore (1961-62), INR 2,350 crore (1964-65), INR 2,833 crore (1968-69), and INR 3,080 crore (1969-70). The OP Chopra Committee estimated black money in 1960-61 at INR 916-crore (6.1 percent of the GNP), which shot up to Rs. 8,098 crore in 1976-77 (10.5 percent of the GNP).
A peep into certain past figures denoting black money intrusions makes sense here. Poonam Gupta and Sanjeev Gupta from Estimates of the Unreported Economy in India considered an increase in black money amount from Rs 3,034 crore (9.5 per cent of the GNP) in 1967-68 to Rs 46,487 crore (48.8 per cent of the GNP) in 1978-79. While noted jurist Nani Palkhiwala, in The Illustrated Weekly of India (25 October 1981), estimated INR 12,000-crore worth of black money each year.
A 1995 study by the National Institute of Public Finance and Policy (under Dr. S. Acharya) estimated the black Money at around INR 100,000 crore (roughly 20 per cent of the national income). The Planning Commission, however, estimated it at INR 70,000 crore. Hindustan Times (20 January 1997) estimated black money in 1996 at more than INR 400,000 crore. In 1999, Prof. Arun Kumar of the Centre for Economic Studies, Jawaharlal Nehru University, Delhi estimated the Indian black economy at equivalent to 40 per cent of the 1995-96 GDP.
Prof. Arun Kumar thought that 32 percent of the black money in circulation was produced by the legal sectors (corporates, film-stars, etc) and 8 percent by the illegal sectors (narcotics, hooch, smuggling, etc). Other scholars insist that 26 percent of the black economy comprises of tax-evaded income. Yet others hold that in India, 80 percent of black money is from legal sources (more-or-less similar to the US, where about 75 of black money is generated by the legal sector).
Basically, though, nobody has a clue, fiscal experts are riding a whirlygig, and falling off when numerical vertigo begins to make mush of the brain. The cash proportion of the Indian economy (currency in circulation) is INR 12,766-crore (2014). This much is more or less undebatable.
But an equal or greater quantum comprises the demand deposit component - the money deposited in banks, which can be withdrawn using cheques, withdrawal forms, and ATMs. The DDC links up with plastic money - debit/credit card transactions - which itself segues into the vast, unplumbable ocean of notional money - digital money, dots-and-dashes, dits-and-dahs, 0s and 1s.
In effect, there is no firm grasp of what component of black money is in the form of currency in circulation, and what part in notional money. (Fiscal experts think that because notional money is mostly digitised money, it can be easily tracked. But tax sleuths are often flummoxed by the sheer speed and dexterity with which notional money can move across timezones.)
Therefore, what is debatable is the wisdom of the government’s current move demonetising more than 8/10ths of the circulating currency in one fell swoop in headlong pursuit of the black economy - black legal tender plus fake money, neither of which quantum anybody has been able to get a fix on for half-a-century.
According to India’s Ministry of Finance's 2012 report, Black Money White Paper: "There are no reliable estimates of black money generation or accumulation, neither is there an accurate and well-accepted methodology for making such estimation. By its very definition, black money is not accounted for, thus all attempts at its estimation depend upon the underlying assumptions made and the sophistication of adjustments incorporated. Among the estimates made so far, there is no uniformity, unanimity, or consensus about the best methodology or approach to be used for this purpose. There have also been wide variations in the figures reported, which further serves to highlight the limitations of the different methods adopted."
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