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
