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Where the corrupt hide their money
Fighting corruption is not as easy as we wish. However, if we make ill-gotten money difficult to hide, it may dissuade a great number of corrupt from generating black money from unfair means...

THERE MAY be “strong divergence” of views between members of the government and the civil society about the first draft of the Jan Lokpal Bill. But the primary motive for both should be to ensure accountability of governance and to bring the corrupt to book.
An effective measure in this direction could be identification of methods by which the corrupt hide their ill-gotten money. Once we identify these methods, we can successfully close these loopholes in the system and dissuade the corrupt from indulging in their malpractices.
Baba Ramdev raised the issue of black money stashed abroad and unsuccessfully tried to arm-twist the government into bringing that wealth back home. The money stashed abroad may be a big chunk of the total corruption money in the country but that money certainly does not belong to every small official of the government machinery. That money belongs to a very high echelon of the government, corporate or social hierarchy.
The methods by which that money has been generated does not directly affect the common man just as 2G scam did not affect the common man (on the contrary, as suggested by Dr Manmohan Singh, 2G spectrum auction rather benefited the common man by offering them cheaper communication facilities). So if a film or sports personality, or a politician or government official stashes away hordes of ill-gotten money abroad, they basically steal from the government by way of taxes and do not directly steal from the public.
However, there is a huge class of government employees who directly steal from the public, hamper development efforts, affect social causes and deny public service and quality of life to the entire nation. And what’s more, these employees hoard their ill-gotten money within India with impunity. It’s time to identify these modes of hiding black money and successfully plug them so that at least this class of government employees could be prevented from holding the Indian public and the nation to ransom.
The best way to stash away black money in India is by buying gold. In India, you need to submit an identity proof to buy a SIM card and submit your PAN data, address proof, bank details to invest even Rs 1,000 in a mutual fund. However, if you need to buy 10 lakhs worth of gold or gold jewelry, you would be given a king’s treat at any jewelry house in India and would be welcome to pay the entire amount in cash and get away with your priceless possession.
India has the dubious distinction of being one of the world’s most corrupt countries and the world’s biggest importer of gold. From the year 2000 onwards, gold import by India have been between 400-750 tons per annum. In 2009, it was 559 tons and around a whopping 800 tons in 2010. According to World Gold Council estimates, all these figures are likely to be surpassed in the current year.
India’s gold import bill amounted to Rs 4,2870 crores in 2007-08 and Rs 7,8881 crores in 2008-09 and second only to crude oil and oil products. If it could be possible to measure the amount of black money generated in India, it is highly likely that figures related to India’s gold import would surely match with its numbers.
Why PAN cannot be made mandatory for all purchases of gold, gold jewelry or other precious ornaments? Why cannot statutory details such as identity proof and address proof be made mandatory for any purchase above Rs 50,000 or so? If service tax can be levied on such innocuous services such as beauty parlours and health and fitness centers, why cannot it be levied on jewelry or ornament making?
All these measures would effectively regulate this massive industry that has become the safe haven of the corrupt in the country. Effective measures to curb easy use of gold in shady deals can also help in tracking terror finance trail in the country that could perhaps be using the lax regulatory system for bullion for its own nefarious purposes.
The twin savings schemes Kisan Vikas Patra (KVP) and National Savings Certificate (NSC) are the other vehicles for money laundering. Purportedly introduced for promoting small savings, the twin schemes come with such primitive rules that these are easily and blatantly used for hiding black money. For example, these small savings scheme do not enforce strict Know Your Customer norms. Often some investors make bulk purchases of these instruments and later on transfer them to others, making it difficult to trail the money and leaving the field open to money laundering.
The continued popularity of both KVP and NSC among the urban population suggests that these are not bought for any investment objective but as an incentive to avoid tax. These two most popular savings schemes account for nearly half of the total small savings corpus as on March 2010. KVP is more popular of the two as it acts like a bearer bond and can be cashed by anyone submitting it over the counter at any post-office. This renders the possibility of its misuse very high. A panel headed by Reserve Bank of India deputy governor Shyamala Gopinath had recently recommended an end of the KVP scheme to prevent its misuse.
Another grey area in Indian economy that acts as a safe haven for tax-evaders and money-launderers is the real estate sector. Everybody, except the government and the income-tax department, knows that black money is used in purchasing real estate. What’s more, you need not buy a house or commercial property in your own name, if you feel uneasy. You can easily buy it in the name of your spouse or relative, and nobody will bother to check where the money came from. If by any chance anybody in the income tax department feels dubious of your deal, you can get away easily by greasing a few palms.
One way to prevent such benami property deals is to digitise all land records. In this era of satellite imagery, it is not difficult to match titling with survey records. If Goa can do it, so can other states if they have the will to do so. Different states have already started work on computerisation of land records and survey maps, but the work as usual is going on at snail’s pace and is unlikely to get completed over the next 5-10 years. Another measure to prevent use of black money in real estate could be stringent scrutiny or audit of all accounts involving purchase of property worth Rs 25 lacs or above. This can easily bring these culprits under the tax dragnet and also drive fear into the minds of the corrupt.
No matter how much Anna Hazare or Baba Ramdev and other less vociferous members of the civil society may wish, corruption cannot go at one stroke. But if we make corruption money difficult to hide, it will certainly dissuade a lot many people from generating loads of black money.
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