HIDAYATULLAH NATIONAL

LAW UNIVERSITY

A Political science project on

The problem of black money
deposited outside India: policies
and strategies
PROJECT SUBMITTED TO Dr. Avinash Samal

PROJECT SUBMITTED BY AMIT KUMAR KAYAL

6 th
SEMESTER
ROLL NO 18
SECTION A
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DATE OF SUBMISSION 18.02.2015

ACKNOWLEDGEMENTS
First & foremost, I take this opportunity to thank Dr. Avinash Samal, Faculty, Political
Science, HNLU, for allotting me this topic to work on. He has been very kind in providing
inputs for this work, by way of suggestions.
I would also like to thank my parents, dear colleagues and friends in the University, who
have helped me with ideas about this work. I would also like to thank all the authors,
writers, columnists and social thinkers whose ideas and works have been made use of in the
completion of this project. Last, but not the least I thank the University Administration for
equipping the University with such good library and I.T. facilities, without which, no doubt
this work would not have taken this shape in correct time.

Amit Kumar kayal

Semester-VI, B.A. LL.B. (Hons.)
Roll no-18

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CONTENTS

Acknowledgements
Contents
Introduction
Objectives
Research Methodology

1
2
3
4
5

Subject index

1.

Chapter 1: Understanding the problem of black money in India.............6

1.1 Definitions
6
1.2. Meaning of black money..................................................................................7
1.3. Factors leading to generation of black money............................................... ..8
2. Chapter 2: The estimates of black money.............................................................. 9
2.1. Black money in India9
2.2. Black money of India in Swiss accounts 10
3. Chapter 3: effects and future challenges of black money
11
3.1. Impact of black money on Indian economy......................................................11
3.2. Future challenges of black money....................................................................12
4. Tackling the menace of black money the framework 14

5.

Recommendations

and

suggestions19
6. Conclusion

20

7. Bibliography

21

INTRODUCTION
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The money that is earned and hoarded by dishonest and unfair means and kept in secret to
evade taxes is called black-money. It becomes black because no taxes are paid on it. No taxes
are paid on it because it is earned by dishonest and unfair means. Money turned to be black if
taxes due thereon are evaded. The massive amount of black money in our country has created
a parallel economy.
Continuing generation and accumulation of black money poses a grave threat to our economy
and is likely to threaten the very security and survival of the country. It is the source and at
the same times cause of graft, corruption and the debasing of social and moral values. There
are various factors responsible for the origin, existence and flourishing state of the parallel
economy of black money. It originates with the combination of money and power.
One of the sources of black money generation in developing countries like India is through
commission or kick backs obtained for arranging government deals and purchase. Foreign
multinationals and cartels make heavy pay off to supply their weapons, technology and
knowhow. Agents and middlemen pocket considerable sums as their share of commission in
the payoff to influence political decision. Other factors for generation of black money include
(i) high rates of taxation under direct taxes which encourages tax evasion, (ii) controls,
permits and licenses (iii) price control without adequate machinery for effective distribution
(iv) donations to political parties for elections (vi) corrupt business practices, (vii) smuggling
and other illegal anti-social activities.
In recent years black money generation has been growing at a very fast rate in our country. So
much so that it is difficult to isolate a single sector of economy or administration that moves
without the use of black money. Most economist are unanimous in their view that black
money generation has become a major factor for galloping inflation because it not only
misallocates resources, but also shifts them from investment to consumption. The National
Institute of Public Policy has roughly estimated the amount of black money in our economy
at around Rs 37,000 Crores. This is a little over one-fifth of the gross domestic product
(GDP). 1

1 Available on: http://www.publishyourarticles.net/eng/articles/an-articleessay-on-black-money-andits-disastrous-influence-on-indian-economy.htm l(Last visited on February 7,2015).

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OBJECTIVES
1. To understand the various facets and dimensions of black money.
2. To examine the the framework, policy options, and strategies that the Government of
India has been pursuing to tackle this issue, especially recent initiatives and
development.
3. To suggest various ways to overcome from the problem of black money.

RESEARCH METHODOLOGY
The present study is based on Analytical and Descriptive research. It has focused on
qualitative methods of research. Secondary and published documented data has been
collected through various sources and analyzed accordingly. It is based on historical
research methodology along with case study method.
To make the study more meaningful and policy oriented, available literature and studies
have been consulted and reviewed apart from this field observations and open ended
discussion have also been equally considered and incorporated in the present study. The
filled in questionnaires were thoroughly scrutinized and processed in computer for drawing
out inferences, patterns, trends and conclusions.
Various documents have been collected through different websites, and different books
have been analyzed accordingly, so as to reach to a particular conclusion.

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Chapter 1: understanding the problem of black money in

India
Black money is tax-evaded income. It can be earned both through legal and illegal means. Its
legitimate source is that the income-earners do not reveal their whole income for tax
purposes. For example, government doctors earning money by private practice even when
they get non-practising allowance; teachers earning money through tuitions, examinations
and book royalty and not including it in income-tax returns; advocates charging much higher
fee than shown in their account books, and so forth.
Its illegitimate source is bribe, smuggling, black-marketing, selling commodities at prices
higher than the controlled prices, taking pugree for house, shop, etc., selling house at a high
premium price but showing it at much lower price in the account books, and so on.
It is possible to convert black money into white money and vice versa. For example, when a
person manages to get the receipt from the shopkeeper by paying sales-tax for a commodity
but does not purchase it actually, he generates black money as reimbursement is made to him
against the receipt.
The money not actually paid is the black money in this case. In such case, the shopkeeper
sells the same commodity to another person without giving him any receipt for it. On the
other hand, if a person purchases second-hand car and pays Rs. 90,000 for it out of white
money but gets a receipt of only Rs. 60,000, the balance of Rs. 30,000 becomes black money
for the seller. In this case, white money becomes black money.

1.1. DEFINITIONS:
There is no uniform definition of black money in the literature or economic theory. In fact,
several terms with similar connotations have been in vogue, including unaccounted income,
black income, dirty money, black wealth, underground wealth, black economy,
parallel economy, shadow economy, and underground or unofficial economy. All these
terms usually refer to any income on which the taxes imposed by government or public
authorities have not been paid. Such wealth may consist of income generated from legitimate
activities or activities which are illegitimate per se, like smuggling, illicit trade in banned
substances, counterfeit currency, arms trafficking, terrorism, and corruption. For the purpose
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of this document, black money can be defined as assets or resources that have neither been
reported to the public authorities at the time of their generation nor disclosed at any point of
time during their possession
This definition of black money is in consonance with the definition used by the National
Institute of Public Finance and Policy (NIPFP). In its 1985 report on Aspects of Black
Economy, the NIPFP defined black income as the aggregates of incomes which are taxable
but not reported to the tax authorities. Further, black incomes or unaccounted incomes are
the extent to which estimates of national income and output are biased downwards because
of deliberate, false reporting of incomes, output and transactions for reasons of tax evasion,
flouting of other economic controls and relative motive.
Thus, in addition to wealth earned through illegal means, the term black money would also
include legal income that is concealed from public authorities:

To evade payment of taxes (income tax, excise duty, sales tax, stamp duty, etc); > to

evade payment of other statutory contributions;

To evade compliance with the provisions of industrial laws such as the Industrial
Dispute Act 1947, Minimum Wages Act 1948, Payment of Bonus Act 1936,
Factories Act 1948, and Contract Labour (Regulation and Abolition) Act 1970; and /

or
To evade compliance with other laws and administrative procedures.

1.2. MEANING OF BLACK MONEY:

Black money is both an economic and a social problem. In the latter context, it is perceived
as a problem with adverse sociological effects on society, like social inequalities, social
deprivations, etc.; in the former context, it is perceived as a parallel economy, an underground
economy or an unofficial economy that is the consequence of the economic policies of the
government and has damaging effects on countrys economy and nations planning
development.
While a problem like poverty affects those who are poor, unemployment affects those who
are unemployed, alcoholism and drug abuse affect those who consume them, black money is
a problem which does not affect those who have black money but it affects the common man
in society. No wonder, it has been described as a problem with a difference.

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1.3. FACTORS LEADING TO GENERATION OF BLACK MONEY:

Black money arising from illegal activities such as crime and corruption has an underlying
antisocial element. The criminal component of black money may include proceeds from a
range of activities including racketeering, trafficking in counterfeit and contraband goods,
smuggling, production and trade of narcotics, forgery, illegal mining, illegal felling of forests,
illicit liquor trade, robbery, kidnapping, human trafficking, sexual exploitation and
prostitution, cheating and financial fraud, embezzlement, drug money, bank frauds, and
illegal trade in arms. Some of these offences are included in the schedule of the Prevention of
Money Laundering Act 2002. The corrupt component of such money could stem from
bribery and theft by those holding public office such as by grant of business, leakages from
government social spending programmes, speed money to circumvent or fast-track
procedures, black marketing of price-controlled services, and altering land use regularizing
unauthorized construction. 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. Factors
leading to their generation are both social and administrative.
These illegal activities are punishable under various Acts of the central and state governments
which are administered by various law enforcement agencies. Effective implementation of
these Acts is the responsibility of both state and central governments.
Significant amount of black money, however, is generated through legally permissible
economic activities, which are not accounted for and disclosed or reported to the public
authorities as per the law or regulations, thereby converting such income into black money.
The failure to report or disclose such activities or income may be with the objective of
evading taxes or avoiding the cost of compliance related to such reporting or disclosure. It
may also be the result of non-compliance with some other law. For example, a factory owner
may under-report production on account of theft of electricity which in turn leads to evasion
of taxes. Generally, a high burden of taxation, either actual or perceived, provides a strong
temptation to evade taxes and generate black money. Sometimes the procedural regulations
can be such that complying with them may increase the probability of further scrutiny and
thereby the incidence of the burden of compliance, creating a perverse incentive not to report
at all and remain outside the reported and accounted proportion of the economy. Culture and
social practices may also play a vital role in deciding the preferences of citizens between tax
compliance and black money generation. In a society where tax evasion and under-reporting
of activities and income is perceived to be very common or the norm, such activities may be
considered acceptable and honest tax compliance and paying ones due share to the public
fund may not be considered a virtue. Studies indicate that countries with relatively poor
implementation of regulations tend to have a higher share of unaccounted economy, whereas
countries with properly implemented regulations and sound deterrence have smaller black
economies. Thus the fight against generation and accumulation of black money is likely to be
far more complex, requiring stronger intervention of the state, in developing countries like
India than in developed countries. It needs a stronger legal framework, commensurate
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administrative measures, and a very strong resolve to fight the menace. It also calls for
political consensus as well as patience and perseverance.

CHAPTER 2: ESTIMATES OF BLACK MONEY

2.1. BLACK MONEY IN INDIA

According to a report released by Global Financial Integrity (GFI) in December 2012, India
is among the top 10 developing countries in the world with a black money outflow of $1.6
billion ( Rs.8,720 crore) in 2010. Total outflow of black money from India since
independence until 2010 was $232 billion, generally in the form of corruption, bribery and
kickbacks. The cumulative value of illicit assets held by Indians during the same period is
estimated to be $487 billion. The BJP, in a 2011 report, had estimated Indias black economy
being worth around $500 billion and $1.4 trillion or about between Rs. 27.5 lakh crore and
Rs. 74 lakh crore, while US think-tank Global Financial Integrity had estimated India had lost
$123 billion (Rs. 6.76 lakh crore) in black money in 2001-10. This is money that is earned
and transferred illegally abroad in tax havens, such as the Cayman Islands, typically to avoid
taxes. In the post-reform period of 1991-2008, deregulation and liberalization accelerated the
outflow of illicit money from the Indian economy. About a third of Indias black money
transactions are believed to be in real estate, followed by manufacturing and shopping for
gold and consumer goods. If hidden incomes of Rs. 25 lakh crore were to be disclosed and
taxed at 30%, it would generate Rs. 8.5 lakh crore, enough to build a 2,000-bed superspecialty hospital in each of Indias 626 districts.

2.2 BLACK MONEY OF INDIA IN SWISS ACCOUNTS

A chain Email, which first started circulating on the Internet in early 2009, states that Indians
have more money in the Swiss banks than all other countries combined. It claims that as per a
Swiss Banking Association report in 2006, bank deposits in the territory of Switzerland by
nationals of a few countries are as under: India, US$1456 billion, Russia, US $470 billion,
UK, US$390 billion, Ukraine, US$100 billion, China, US$96 billion.
India has slipped to 70th position in terms of foreign money lying with Swiss banks and
accounts for a meager 0.10 per cent of total global wealth held in the countrys banking
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system. An article in the reputed newspaper The Hindu in 2010 revealed that unofficial
estimates indicate that Indians had over US$1456 billion in black money stored in Swiss
banks (approximately USD 1.4 trillion). While some news reports claimed that data provided
by the Swiss Banking Association Report (2006) showed India has more black money than
the rest of the world combined, a more recent report quoted the SBAs Head of International
Communications as saying that no such official Swiss Banking Association statistics exist.
Another report said that Indian-owned Swiss bank account assets are worth 13 times the
countrys national debt. These allegations have been denied by the Swiss Bankers
Association. James Nason of Swiss Bankers Association in an interview about alleged black
money from India holds that The (black money) figures were rapidly picked up in the Indian
media and in Indian opposition circles, and circulated as gospel truth. However, this story
was a complete fabrication. The Swiss Bankers Association never published such a report.
Anyone claiming to have such figures (for India) should be forced to identify their source and
explain the methodology used to produce them.
In a separate study by Global Financial Integrity concludes, Media reports circulating in
India that Indian nationals held around US$1.4 trillion in illicit external assets are widely off
the mark compared to the estimates found by their study. The report claims that the amounts
are significantly smaller, only about 1.5% of Indias GDP on average per annum basis,
between 19482008. This includes corruption, criminal activities bribery and kickbacks, ,
trade mispricing and efforts to shelter wealth by Indians from Indias tax authorities. According to a report, published in May 2012, Swiss National Bank estimates that the total
amount of deposits in all Swiss banks, at the end of 2010, by citizens of India were CHF 1.95
billion (INR 92.95 billion, US$ 2.1 billion). The Swiss Ministry of External Affairs has
confirmed these figures upon request for information by the Indian Ministry of External
Affairs. This amount is about 700 fold less than the alleged $1.4 trillion in some media
reports. The report also provided a comparison of the deposits held by Indians and by citizens
of other nations in Swiss banks. Total deposits held by citizens of India constitute only 0.13
per cent of the total bank deposits of citizens of all countries. Further, the share of Indians in
the total bank deposits of citizens of all countries in Swiss banks has reduced from 0.29 per
cent in 2006 to 0.13 per cent in 2010. In 2011, according to the data provided by Swiss Bank,
India is topping the list almost $1500 billion of its black money deposited with them,
followed by Russia $470 billion. The amount of black money is increasing day by day at very
rapid speed.

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CHAPTER 3: EFFECTS AND FUTURE CHALLENGES OF

BLACK MONEY

3.1. IMPACT OF BLACK MONEY ON INDIAN ECONOMY

The flow of black money can seriously affect the entire economic system of India. Some
important impacts are discussed here:
1. Less Tax for the GovernmentMany times, the Indian Government has failed to collect
the estimated amount of tax from the people of our country and for this, credit has to go to the
black money driven underground economy. Recently, a report was submitted to the Finance
Ministry of India that divides the spread of black money in different sectors like real estate,
mining, telecom etc. The study, headed by NIPFP chief P.Kavita Rao, explains how illicit
wealth is likely to exceed 10% of GDP.
2. Uncontrollable Inflation-When black money is out in the market, the amount of money in
the system is higher than the Government expects. This causes the prices of commodities to
increase to a level beyond normal. This is a direct result of people having more money
offering more money on specific items. Even if the Government tries to control the credit
flow in the market by taking necessary measures, the amount of black money present upsets
the move, resulting in some sort of pressure on the economy.
3. Leads to Mass PovertyThe distribution of wealth and income in our country has been
severely affected by the growth of underground economy. The common people get affected
indirectly in so many ways. The tax evaders are keeping the money away from the deserved.
If all the black money in the tax havens is recovered and used by the Indian government, all
the outstanding liabilities of the country could be paid off and money would still be left for
spending.
4. Lack of TechnologyDue to the existence of black money, India is facing the problem of
shortage of capital. This has the direct impact on the upgradation of technology in all sectors.
The major reason behind such backwardness is the parallel economy.
5. Impact on Growth by moving investments on Gold, Stones and JewelleryPeople who
are looking to turn black money into white money are largely investing in precious metals
like Gold and other jewellery. There are people who believe that almost 70% of the total gold
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investment in our country is black money. One reason for people to invest in gold is that it is
hard to trace. People in black market may buy gold bars, coins, jewelleries etc because one
can buy gold easily and can be converted back to money anytime. This flow of underground
money has caused Indian economy to stall on its growth. It is estimated that if all the money
in the underground economy could be diverted to our main economy, our economy would
grow by more than thrice in no time.
6. Corruption-While corruption creates black money in the economy, it can also be a result
of the growing underground market. People with black money are able to bribe the administrators and politicians to get what they want. By doing this, they are able to get what they
want and others are pushed down the stack.
7. Inflated Real Estate When people with deep pockets are ready to pay more for a piece of
land, the price of surrounding land also tends to increase; thus artificially inflating the prices
of an entire area. Generally, people involved in black money market are always ready to pay
more for a piece of land as this helps in converting their colored money to legal money.
8. Transfer of Indian Funds Abroad to Safe HeavensThe black money generated in India
is kept in foreign tax havens. For this, money has to be transferred from India to other countries through secret channels. Under-invoicing of exports and over-invoicing of imports are
two of the main methods used by black money holders for transferring money overseas.
9. Encourages Anti-Social ActivityIt is no doubt that black money is a curse to any
country. Black money is always promoting anti-social activities in the society. Bribery, mentioned earlier, is only one example. The anti-social effects of black money include activities
like terrorism, a huge threat already to our country.

3.2. FUTURE CHALLENGES OF BLACK MONEY

It is not possible to curb, control and finally prevent the generation of black money in near
future as well as repatriation of black money. It is possible only if a comprehensive mix of
well defined strategies and policies is pursued with patience and perseverance by the central
and state government and put into practice in a very co-ordinated manner. There are some
challenges which might be faced by the government as explained below:1. To control criminal activities -In country like India there are many illegal activities and
crimes that lead to generation of significant amount of black money incomes. It includes
counter fiet currency, drug trafficking etc. Each of them is a major source of unaccounted or

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black money. So to control them is one of the greatest challenges before the society as well as
for the govt... Therefore, it requires all agencies of both central and state government to
actively make strategies to bring them to a halt.
2. Repatriation of black money stashed abroad:- I think it is the one of the biggest
challenge of our government of India to bring back money from abroad .However; it is a goal
that cannot be achieved by government action alone as it requires coordination and cooperation of other countries as well as authorities to achieve this. So, government needs to
evolve an environment & create legal mechanism through global consensus, co-ordination &
by making specific bilateral treaties.
3. Special Investigation Teams - In order to control and curb prevalence of black money in
India, govt. has makes a team which is known as Special Investigation Teams to investigate
on the issue of black money. So, at present in India, it works under the chairmanship of
retired SC Judge B. P. Jeevan Reddy. But its success depends upon the team members of
committee as it requires a significant effort to work on this issue. So, government must take
quick action in setting SITs, then potential black money holder will definitely reduce.
4. Less formation of Committees: The biggest challenges which are going to be faced by
Indian govt. to form fewer committees. i.e. Ministers in Indian Political System are just focus
on setting up new committees even for a very small issue in order to rot the issues i.e. our
politicians only know how to delay the process of action and thereafter, making lame excuses
rather than providing solutions for a problem i.e. Corruption and black money. So, we can say
that the Indian Government is just forming committees to make fool of the people of India
and not for the sake of the nation. So, its a very big challenge for our Government to
properly form committees and run them in a very efficient & effective manner.
5. To control corruption: one major reason behind the generation of black money is
corruption. It is perceived as one of the biggest challenges faced by our country which is
almost impossible to counter. As we study above all the factor that leads to generation of
black money are directly related to corruption. So to control black money .it is essential to
curb and control corruption which requires multipronged strategies with assigned the
responsibility to prevent it. For this the government has introduced the Public Procurement
Bill 2012 which intends to regulate public procurement by all Ministries and Central
Government Departments. This bill aims to ensure transparency, fair and equitable treatment
of bidders, promoting competition, and enhancing efficiency and economy in the public
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procurement process. Therefore at last, I want to say that if govt. really wants to control
corruption, then there should be proper implementation of Public Procurement Bill 2012.

CHAPTER 4: TACKLING THE MENACE OF BLACK MONEYTHE FRAMEWORK

Over the past 50 years, the government has at various times announced several schemes
offering opportunities to bring black money overboard. Some of these schemes are:
introducing the scheme of special Bearer Bonds, demonetizing high denomination currency
notes, stringent raids, and scheme of voluntary disclosures. In July 1991, the Union Finance
Minister proposed a new schemeNational Housing Bank Schemeto woo black money
back into the legitimate operations of the national economy. The scheme offered possessors
of unaccounted money an opportunity to deposit any amount of money (with a minimum
limit of Rs. 10,000) with NHB without disclosing the source of funds.
The offer remained open for seven months and closed on January 31, 1992. It permitted the
account holders facility to withdraw 60 per cent of their deposits from the account while the
remaining 40 per cent were impounded to be used for projects such as slum clearance and
housing for the poor.
The withdrawals were to be made after stating the purpose for which the money was
proposed to be used. These people were taxed at the rate of 40 per cent while the balance
amount was channelled back into the open economy. In 1997-98 budget, amnesty was
proposed for legitimizing black money by payment of 30 per cent as tax.
Some scholars have maintained that all these measures have touched only the tip of the
iceberg. All the schemes have hardly fetched Rs. 5,000 crore over a period of fifty years. The
main drawback in these schemes is that they touch the problem of black money already
created but they do not go into the root cause of generation of black money and that is why a
person is prepared to take the risk of keeping black money despite so many problems.
Unless this problem is tackled, the menace of black money will continue to increase. It has
been suggested that the problem of black money and parallel economy can be contained by
reducing taxes in some areas, giving incentives for voluntary disclosure of income, overhauling the economic intelligence unit, curbing administrative corruption at various levels,
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exempting tax op money spent on house construction, doing away with control policies, and
so forth. Isolated attempts may not yield much but a package of mutually reinforcing
measures, along with a strong political will and the commitment of political elite may prove
to be successful to a large extent.
In the wake of such dramatic transformation of the factors that lead to the generation of black
money and the globalized development that facilitates them, the Government of India has
resorted to a five-pronged strategy, which consists of the following:
1) Joining the Global cause against Black Money through the G20 - India has been a
strong proponent of transparency and exchange of information for tax purposes and has
pushed the G20 forum to exert pressures on countries that do not conform to the international
standards of transparency. It was on India's initiative in November 2010 at the Seoul Summit
that the G20 gave a call for concluding the TIEA. Prior to this, some countries were not
willing to enter into TIEAs and were insisting on entering into DTAAs. Both the DTAA as
well as TIEA are effective tax information exchange mechanisms. Since negotiation of a
DTAA takes time, which can delay development of the mechanism for effective exchange,
India has taken the plea that a country cannot refuse signing a TIEA if it has been requested
by other countries. It was again at India's initiative that this position was accepted and now
global consensus has emerged that a country cannot insist on a DTAA and must conclude a
TIEA if requested by other countries. After this development, many countries that were
earlier insisting on DTAAs, have now agreed to conclude TIEAs with India as well other
countries of the world.
India has also been raising the issue of automatic exchange of tax information, i.e. sharing of
information without a request, between countries. The DTAAs and TIEAs so far provide for
automatic exchange of information only on voluntary basis. India believes that automatic
exchange of information is essential for promoting voluntary compliance and achieving
transparency. The Indian Prime Minister and Finance Minister have repeatedly raised this
issue. Indian efforts have contributed to the Cannes declaration that encourages countries to
exchange information automatically. India is committed to working with other countries to
evolve global consensus on this issue in order to achieve complete transparency even with
respect to past banking information.

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2) Multilateral Convention on Mutual Administrative Assistance in Tax Matters -The

Multilateral Convention on Mutual Administrative Assistance in Tax Matters was developed
jointly by the Council of Europe and the OECD and was opened for signature by the member
states of both organizations on 25 January 1998. This multilateral instrument, which was
initially signed by 15 countries, provides for all possible forms of administrative cooperation
between states in the assessment and collection of taxes, in particular with a view to
combating tax avoidance and evasion. In response to the April 2009 call by the G20 for a
global instrument to fight international tax evasion and avoidance, the Convention has been
brought up to the internationally agreed standard on information exchange for tax purposes,
in particular by requiring the exchange of bank information on request through an amending
Protocol, which entered into force on 1 June 2011. The amended Protocol also provides for
the opening of the Convention to all countries. India signed the Convention on 26 January
2012 and ratified it on 2 February 2012, thus becoming the first country outside the OECD
and European countries to join it. There are at present 33 signatories to the Convention and
13 of them have ratified it. This Convention provides many advantages. As more countries
sign it, the task of information exchange will get increasingly facilitated. It is likely to be an
important instrument for cooperation in the area of assistance in tax collection.
3) Financial Action Task Force -India, having met the strict evaluation norms of
the FATF, was granted full-fledged membership (34th Member) in June 2010. Further, in
recognition of India's efforts in this regard, the Asia Pacific Group (APG) on Money
Laundering and Terrorist Funding chose India as Co-chair of the Group at its annual meeting
in Singapore in July 2010. For furtherance of the objectives of joining the global efforts
against money laundering and bolstering the national programme, India successfully hosted
the annual meeting of the APG between 18 and 22 July 2011 at Kochi, Kerala. India is fully
committed to following the FATF norms of KYC and customer due diligence, illegal transfer
of funds and their recovery, and international cooperation.
4) United Nations Convention against Corruption - On 9 May, 2011 India became the 152nd
country to ratify the United Nations Convention against Corruption, which was signed on 9 December
2005. The purposes of this Convention are: (a) to promote and strengthen measures for preventing and
combating corruption more efficiently and effectively; (b) to promote, facilitate, and support
international cooperation and technical assistance in the prevention of and fight against corruption
including in asset recovery; (c) to promote integrity, accountability measures, and the criminalisation
of the most prevalent forms of corruption in both public and private sectors.
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5) Creating an appropriate legislative framework - a number of proactive

steps have recently been taken in order to create an appropriate legislative framework for
preventing the generation of black money and for its detection. A number of significant
changes were brought about through the Finance Act 2011 to check the menace of black
money and in line with our joining the global crusade. A new section 94A was introduced in
the Income Tax Act to discourage transactions between residents and persons located in
jurisdictions which do not effectively exchange information with India (non-cooperative
jurisdictions) and to facilitate prompt collection of information on requests received from tax
authorities outside India under the provisions of DTAAs/TIEAs, the powers under section
131 and 133A of income tax authorities have been extended.
General Anti Avoidance Rules (GAAR) have been introduced with effect from 1 April 2014
to check aggressive tax planning with the use of sophisticated structures. With adequate
safeguards to prevent the misuse of the provisions, it will ensure that the real substance of
transactions will be taken into account for determining tax consequences.
The Prevention of Money Laundering Act 2002 was enacted to prevent money laundering
and provide for confiscation of property derived from, or involved in, money laundering and
for matters connected therewith or incidental thereto. The Act also addressed international
obligations under the Political Declaration and Global Programme of Action adopted by the
General Assembly of the United Nations to prevent money laundering.
One of the important initiatives taken by the Government is the introduction of the Benami
Transaction (Prohibition) Bill 2011. This comprehensive legislation was introduced in the
Lok Sabha on 18 August 2011 and is currently being examined by the Standing Committee
on Finance. This Bill provides the procedure for enquiry and determination of benami
property and its consequences as well as the authorities empowered to act for this purpose,
including the appellate authorities.
The Lokpal and Lokayukta Bill 2011, which after being passed by the Lok Sabha is now
under consideration of the Rajya Sabha, provides for the establishment of the institution of
Lokpal to inquire into allegations of corruption against certain public functionaries and for
matters connected therewith or incidental thereto. The Bill envisages setting up of the
institution of Lokpal consisting of a Chairperson and eight Members with the stipulation that
half of the Members shall be Judicial Members. It shall have its own Investigation Wing and
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Prosecution Wing with such officers and staff as are necessary to carry out its functions. The
Lokpal shall inquire into allegations of corruption made in respect of the Prime Minister after
he has demitted office; a Minister of the union; a Member of Parliament; any Group 'A'
officer or equivalent; Chairperson or member or officer equivalent to Group 'A' in any body/
board/ corporation/ authority/ company/ society/ trust/ autonomous body established by an
Act of Parliament or wholly or partly financed or controlled by the central government; and
any director, manager, secretary or other officer of a society or association of persons or trust
wholly or partly financed or aided by the government or in receipt of any donations from the
public and whose annual income exceeds such amount as the central government may by
notification specify. However, organisations created for religious purposes and receiving
public donations shall be outside the purview of the Lokpal. The Lokpal shall not require
sanction or approval under Section 197 of the Code of Criminal Procedure 1973 or Section
19 of the Prevention of Corruption Act 1988 in cases where prosecution is proposed. The
Lokpal shall also have powers to attach the property of corrupt public servants acquired
through corrupt means.
The Public Interest Disclosure and Protection to Persons Making the Disclosure Bill 2010,
(commonly known as the Whistleblowers' Bill) was passed by the Lok Sabha and is under
consideration of the Rajya Sabha. The Bill seeks to provide 'adequate protection to persons
reporting corruption or wilful misuse of discretion which causes demonstrable loss to the
government or commission of a criminal offence by a public servant'. While the measure sets
out the procedure to inquire into disclosures and provides adequate safeguards against
victimisation of the whistleblower, it also seeks to provide punishment for false or frivolous
complaints.
As announced by the Finance Minister in his Budget speech, enrolments into the Aadhaar
system have crossed 20 crore and the Aadhaar numbers generated up to date 14 crore.
Adequate funds have been allocated for completing another 40 crore enrolments starting from
1 April 2012. The Aadhaar platform will facilitate payments under the Mahatma Gandhi
National Rural Employment Guarantee Act (MG-NREGA); old age, widow and disability
pensions; and scholarships to be made directly into beneficiary accounts in selected areas.
This initiative will cut down corruption and the generation of black money in India.

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RECOMMENDATIONS & SUGGESTIONS

After studying the concept of black money & its various sources of generation in our country,
its time for some Recommendations & Suggestions that may help to control black money in
India. These are as follows:
Our Government should make its foremost objective to control black money in our
country.
E-Governance should be started by the Government i.e. the use of technology be
made as far as possible like E-Registration with Revenue Authorities, E-Filing of
Returns, etc. because more the involvement of human beings, more is involvement of
corruption, ultimately generating Black Money

Black money revolves around in cash only so the Government should put restriction
on cash transactions wherever possible and instead should increase the use of Plastic
Money like Debit Cards, Credit Cards, etc. and by other such means.

Agriculture income should be taxed for those who have both the agricultural as well
as non-agricultural income.

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 The Government should not give absolute power of work to any one person as it
creates monopoly and instead should segregate the work among many persons.

CONCLUSION

Black money or the illegal money circulating in the parallel economy is a big menace for the
Indian economy. It is also an originator of big loss in the tax-revenues for the government of
India. Because of the existence of the black money in Indian economy, the per capita income
of the people has not been growing in line with the other advanced countries despite the
liberal measures taken by the government of India since early 1990s. Even after several
decades of economic planning and push in the right direction, India still continues in the same
state as an underdeveloped economy in terms of per capita income and the reason behind it is
the existence of black money. The elimination of black money from Indian economy is
needed and it will benefit the economy in more than one way. It will also help in creating
more revenues for the government
There is no doubt that existence of black money has a significant impact on social, economic
and political levels of our lives which has a significant effect on the institutions of
governance and conduct of public policy in the country.
So we cant say that India is a poor nation. Infact, India is
amongst the Richest Nations if Stashed Black Money is brought
back & converted to White Money and fresh generation of Black
Money is put to an end.
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BIBLIOGRAPHY

Books referred:
1. Company law and practice by A.K. Majumdar and Dr. G.K. Kapoor
Websites Referred:
1. http://www.preservearticles.com/201104085051/brief-note-on-the-appointment-andremoval-of-director-of-a-company-in-india.html
2. http://www.icsi.edu/Portals/0/APPOINTMENT%20AND
%20QUALIFICATIONS.pdf

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