A lot of people, especially people who voted for Narendra Modi, do not have a clear idea, or even the basic idea of what is meant by Black Money. So here is the actual explanation of what it is. And, once you understand the problem, hopefully would also understand the right or wrong of Demonetization of the 500 and 1000 Rupee notes.
First and foremost, people think that it is the ‘others’ – a loosely defined bunch of others – are the ones who generate Black Money, and they themselves are pure as snow. As I questioned in an earlier FB post, if you had ever cooked up medical reimbursement, pocketed travel reimbursement, paid donation or capitation fee to get into a better school or college, scalped IPL, movie, concert tickets – you are also one who had generated Black Money.
That defined, let us see the various (for the want of better word) sectors, where, how, and which way cash flows in India. They are the Accounted, Unaccounted, Informal, and Illegitimate sectors, all within the Indian economy. And I would even split the Unaccounted into Micro-unaccounted, and Professional-Institutional-unaccounted to understand the complexity better.
Accounted Sector is where the money (like salaries) are directly paid into bank accounts, and all the taxes are paid on it – both direct taxes like Income & Property Taxes and indirect taxes like VAT, Service Tax etc., when it is spent, through the digital, cashless transactions, & cheque payments. This is the so called transparent sector.
But it is fallacy to think that this accounted money stays on as accounted money. A sizeable part of it oozes out into unaccounted and informal sectors – when we buy from hawkers, pay auto-fares, engage a plumber, consult a doctor or lawyer, or any other transaction which is OTC.
There are other ways the accounted cash is transformed into unaccounted cash, even in honest households. Indian women usually keep a ‘secret’ stash, the slowly accumulated savings from household expenditure – the popular cookie jar money – only this cookie jar is ‘hidden’ from menfolk.
Another form is the emergency money, usually a few thousands, always held in households with children or old people. Even in homes without young children or old, natural disasters like the Chennai Floods & the resultant ATM chaos had made people to hold on some cash reserve.
I would estimate this Accounted money sector to be just above 10% of GDP, perhaps with this demonetisation push toward band deposits, has even inched upwards to the 15% mark.
(TBC in Part 2)
First and foremost, people think that it is the ‘others’ – a loosely defined bunch of others – are the ones who generate Black Money, and they themselves are pure as snow. As I questioned in an earlier FB post, if you had ever cooked up medical reimbursement, pocketed travel reimbursement, paid donation or capitation fee to get into a better school or college, scalped IPL, movie, concert tickets – you are also one who had generated Black Money.
That defined, let us see the various (for the want of better word) sectors, where, how, and which way cash flows in India. They are the Accounted, Unaccounted, Informal, and Illegitimate sectors, all within the Indian economy. And I would even split the Unaccounted into Micro-unaccounted, and Professional-Institutional-unaccounted to understand the complexity better.
Accounted Sector is where the money (like salaries) are directly paid into bank accounts, and all the taxes are paid on it – both direct taxes like Income & Property Taxes and indirect taxes like VAT, Service Tax etc., when it is spent, through the digital, cashless transactions, & cheque payments. This is the so called transparent sector.
But it is fallacy to think that this accounted money stays on as accounted money. A sizeable part of it oozes out into unaccounted and informal sectors – when we buy from hawkers, pay auto-fares, engage a plumber, consult a doctor or lawyer, or any other transaction which is OTC.
There are other ways the accounted cash is transformed into unaccounted cash, even in honest households. Indian women usually keep a ‘secret’ stash, the slowly accumulated savings from household expenditure – the popular cookie jar money – only this cookie jar is ‘hidden’ from menfolk.
Another form is the emergency money, usually a few thousands, always held in households with children or old people. Even in homes without young children or old, natural disasters like the Chennai Floods & the resultant ATM chaos had made people to hold on some cash reserve.
I would estimate this Accounted money sector to be just above 10% of GDP, perhaps with this demonetisation push toward band deposits, has even inched upwards to the 15% mark.
(TBC in Part 2)
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