Politicians generate Black Money

Dr Bharat Jhunjhunwala

THE White Paper on Black Money released by the Ministry of Finance cites various ways in which black money is generated. These include running of a parallel economy by factories covering purchase, production and sales; under-invoicing of imports; undervaluation of real estate and conducting the trade in jewellery and bullion in cash. These facts are true. The question, however, is why the government is not able to contain these practices? Objective of the businessman is to make money. It is his natural tendency to evade taxes. It falls upon the government to control the evasion. The government has failed in discharging this duty. This has been admitted by the Finance Minister in as many words in the White Paper: “All these activities are illegal per se and a result of human greed combined with declining societal values and inability of the state to prevent them.” Question is what lies behind the government’s inability? On this, the Finance Minister is, unfortunately, entirely silent.
Truth is that the Ministers do not want to stop these illegal activities because they themselves are deeply involved in them. Officials are unwilling to take action because that steps on the toes of the Ministers. Saying is yatha raja tatha praja—“as the king, so the people.” I had an occasion to visit Kolkata when the Harshad Mehta matter was in the news. The taxi driver tried to overcharge me. When I protested, he replied, if the Prime Minister is making money from corruption then why not me?
List of complicity of Ministers in corruption is virtually unending. The story seems to get going during Indira Gandhi’s tenure. Till that time the politicians used to depend on people’s contribution for meeting their electoral expenses. I was running a small paper factory in UP. MLAs and Ministers would visit regularly and accept contributions as small as Rs 1000. This changed dramatically when Indira Gandhi found that she could get the money from Public Sector Undertakings. Contracts were given by the PSUs only when grease money was paid to the Ministers. This was easy and it no longer was necessary to seek money from the people for contesting elections.
The power and corruption of the Ministers continued to grow such that in the Voluntary Disclosure Scheme announced by the Vajpayee Government the maximum amount disclosed, as per my memory, was Rs 274 crores by a politician from Andhra Pradesh. It was established in the Bofors case that grease money had been paid. The alleged culprits, however, were let off on grounds that there was no solid evidence. The hawala case implicated many politicians. Again they were let off on grounds of lack of evidence. The Reddy brothers in Karnataka bled the government and small businessmen alike. A Chief Minister of UP would have a notification issued raising sales tax on a particular commodity. The notification was withdrawn promptly within a few days as soon as grease money was paid. The officials simply cannot take action against black money in the economy because that would imply acting against their politician bosses.
The problem has become worse because, additionally, the politicians have built an unholy alliance with select business houses. Hamish McDonald gives many instances of this in his book. A PFY plant of a business house came on stream in 1982. The Government imposed an additional anti-dumping import duty of Rs 15,000 per ton on PFY within three weeks of this. As a result domestic prices went up and the business house made a windfall profit on its production. McDonald reports that the “All-India Crimpers Association, representing about 150 small processors… took out a series of anguished newspaper advertisements headlined: ‘Should the country’s texturising industry be allowed to die?’ The crimpers said that the case of anti-dumping duty was ‘misleading, distorted and untruthful.’ The domestic output… still fell short of demand.” The pleas were ignored by the Government. At whose behest, if not the business house?
It came to the knowledge of Mumbai Stock Exchange during the Harshad Mehta scandal that a business house was issuing more than one script with the same share number. The business house admitted to its mistake and promptly issued fresh shares in lieu of the disputed ones. Owners of the business house were not punished for this serious offense, however. The Government allowed the matter to be ‘compounded.’ The Company paid a small fine and was let off.
An international scandal in Oil-for-Food programme of Iraq under the aegis of the United Nations broke out in 2005. A business house was the biggest purchaser of oil from Saddam Hussein. But “speaker after speaker from both the Congress-led government and the BJP opposition, including former adversaries of A business house, avoided even mentioning name of the business house as the largest Indian recipient of oil allocations from the Saddam Hussein regime, let alone trying to probe the political circumstances in which the oil concessions were won.” Obviously huge amounts of black money would have been paid to the ministers to secure their complicity in these shady deals. That is how generation of black money starts, Pranabda!
Unfortunately the Finance Ministry has not said a single word regarding the role of politicians in generation of black money. Fundamental problem is that when the Ministers are themselves deeply involved in generation and circulation of  black money, then who will put a stop to this? It is like expecting the thief to put a stop to thefts. Instead of focusing on the main cause of complicity of Ministers, the Finance Ministry has highlighted petty corruption by ordinary people. And the solutions proposed are entirely cosmetic. It is said, for example, that use of debit cards should be encouraged. It fails to dawn on the Finance Ministry that a person buying goods with black money will have the wisdom not to charge it to his bank account. In any event, debit cards are used by ordinary people for ordinary transactions. Another solution suggested is to deduct TDS on property registration. Indeed, this may help bring some of the benami deals into the open. But the major problem is that of undervaluation. Deduction of TDS will not track the huge amount of money making the rounds in the property markets.
Objective of the White Paper is to distract attention of the people from the deep seated corruption among the politicians. The Finance Ministry is focusing on the purchases of few thousands of rupees that are made by the common man in cash. It has nothing to say about the few thousands of crores of rupees of black money that is generated by the politicians by milking the Public Sector Undertakings and government contracts, issuing notifications that are designed to bring black money to the Ministers; and making policies that provide special benefits to specific business houses.