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Date: Wed, 9 May 2007 08:33:44 +0530
Subject: [asom] Rising corruption, black money
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ARTICLE
Rising corruption, black money
Govt policies will fuel inflation
by S. S. Johl
THE World Bank has estimated cross-border flow of proceeds from
criminal activities, corruption and tax evasion between $1 trillion
and $1.6 trillion per year, half of which is from developing and
transition economies. The corruption money along with the bribes
received by public officials in these economies is estimated between
$20 billion and $40 billion per year.
Alarmed by the huge volume of annual generation of black money and
its cross-border outflow, the bank has developed a strategy for the
recovery of these assets parked in foreign banks through "Stolen
Asset Recovery (STAR) initiative". The initiative is a
well-intentioned and highly needed one. Although the World Bank is
taking up this initiative in a collaborative mode with other
agencies concerned and believes that the recovery of even a portion
of these assets can go a long way in boosting the development of
these economies, its success will depend upon the willingness of the
international banks to open up and the national governments'
sincerity and will power to seek such information.
Whatever it is, the bank has highlighted the menacing problem of the
parallel economy, specially in the developing countries. Unless this
unaccounted money stacked illegally and in circulation is brought
out, no economy can proceed on its optimal growth and development
path.
It is extremely difficult to estimate this money accurately. This is
why the bank has estimated it within a very broad range. Yet, even
the lowest estimate is an exasperating figure. The extent of this
cancerous menace in India, stalling the inclusive growth and
development of the economy, can be easily put at double the level of
the white economy. The evidence is simple. Today not only in
metropolitan and major towns of the country, but also almost
throughout the country no property like a residential building and a
commercial site is registered through legal deeds at more than 30
per cent of its real value. It is an open secret and in the full
knowledge of political rulers and the administrative set-up of the
country.
Buying a house in major cities and towns has gone out of the reach
of the honest middle class people. Yet, property prices of all kinds
have sky-rocketed and are still showing an uptrend. Builders are
mushrooming everywhere. Foreign firms are finding India a green
pasture in this respect. No one can today sell or purchase any
property in India in white money alone! Then, who is buying these
properties?
It is the corruption money which is running a parallel economy and
fuelling an exclusive growth. India can very well plan for achieving
even double-digit growth, yet the inclusive growth, as is being
adumbrated to be the central theme of the Eleventh Five Year Plan,
cannot be achieved in the presence of monstrous amounts of black
money in the hands of not more than one-fifth of the population of
the country.
It will remain a pipedream of the planners and policy-makers. With
the fast increasing population of the country, particularly of the
poorer segments of society, and their incapacity to provide
purposeful education to their wards that would enable them to have
gainful employment opportunities, the divide between the unduly rich
and the poor is increasing at an exponential rate. Fast coming-up
palatial mansions, mind-boggling conspicuous expenditure on
marriages and other social ceremonies, and luxurious possessions in
the face of at least one-third of the population not having one full
meal a day is an indelible evidence of acutely skewed distribution
of incomes in society. It is this skewed distribution of incomes and
more than two-thirds share of the black money in the hands of 20 per
cent rich population that is responsible for the high rate of
inflation, upsetting the budgets of the poor and middle class
segments.
Thus, the so-called inclusive growth and development is bypassing
the large majority of the population and they are getting squeezed
under the weight of inadequate incomes and fast-rising prices. The
government action for taming inflation under these circumstance can
succeed to a limited extent only. The Reserve Bank of India's
monetary policy aimed at reducing liquidity in the economy affects
only about one-third of the money in circulation - white money.
Two-thirds money in circulation - the black money - is not affected
by these monetary policies. These measures, such as increasing the
cash reserve ratio, the statutory liquidity ratio or the bank rate
hurt the honest earners, white transactions and genuine borrowers.
Black money liquidity, which has a higher income multiplier, is not
affected by these measures. As a result, genuine borrowers and
investors suffer without much relief from inflationary pressures.
Liberalisation of imports can help tame inflation only when the
prices of the commodities imported from the international market are
lower than the domestic prices. For instance, the government policy
of allowing duty-free imports of wheat on government account and by
private agencies in the post-harvest period of a bumper crop will
have a counter-affect because the world market prices are much
higher than domestic prices. This would encourage withholding of the
produce by bigger growers and stocking of the commodity by traders
and grain handlers.
Further, the policy of banning exports and "futures trading" in
wheat would hinder the process of genuine price discovery in the
international market and the reference price in the domestic market.
Such a segmented domestic market goes against the interest of the
growers, and scuttles the process of risk management and rational
production and marketing decisions by producer-sellers. Yet, it
would not tame inflation; rather it can further fuel inflation in
the economy through high-priced imports and misplaced sentiments of
scarcity created by such imports. This would adversely affect the
efforts at promoting inclusive socio-economic development of the
country.
Thus, the government policies aimed at moderating the rate of
inflation, promoting domestic and foreign investment, improving the
rate of growth and ensuring inclusive development are bound to hit
the rock because of increasing population, extremely skewed
distribution of incomes, gainful employment opportunities bypassing
the large majority of the population, rampant corruption, constantly
rising level of black money and an expanding parallel economy day by
day.
Unfortunately, our political governance, the mindset of
policy-makers and the administrative system have adopted an
indifferent attitude towards effectively responding to these basic
constraints and negativities that are vitiating the development
environment and telling heavily upon the availability of financial
resources.
The question is: if the World Bank and other international
development agencies have expressed their serious concern at the
volume and growth of crime with bribe and corruption money getting
stashed outside the developing and transition economies, and are in
action mode in the form of "Stolen Assets Recovery initiative", will
India also wake up and tackle this problem stalling the economy from
moving on to higher inclusive growth and development path?
<http://www.tribuneindia.com/2007/20070509/edit.htm#4>http://www.tribuneindia.com/2007/20070509/edit.htm#4
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