John McGill of Minnesota doesn’t think twice now a days before going fishing!! The economics is very simple. For $6 he gets a bucketful of bait which lasts him for a whole day. In comparison, it costs atleast $ 80 for skiing !!! Whew, the effect of recession in the developed world!!! People are rightsizing life style and avoiding expensive holidays, mall splurges and costly dinners!!!
But in Mumbai, malls are still crowded- though not sure, how much of buying is happening! From the sidewalk Vada-Pav joints to the Zodiac Grill at the Taj Mahal Hotel or Celini at the Grand Hyatt, it is difficult to find an empty table on a weekend, if one hasn't planned the outing atleast a week in advance. If my belief that one can not jaywalk around these places is true, then it has to be serious business there. What differentiates markets in India from those in the western world?? Why hasn’t the meltdown affected India so badly as the US or the UK? Free flow of black money here and the lack of it in the west?
I think so… While it is not untrue to state that the ‘white’ i.e the cheque or credit card purchases in India too have dwindled certainly, the 'cash' market is still doing well. Take a look at the real estate market which is considered to be the barometer for unaccounted money availability. While it is not doing well in the metro segments where purchase is largely facilitated by bank financing, the mostly self-funded smaller town segments is not much affected. Same is the case with gold. Move on to manufaturing, Hero Honda and Maruti small cars have recorded good sales primarily due to its aggressive growth in the semi-urban and rural markets and these companies swear by the undiminished spending capacities of these markets.
Black money in India is estimated to be approximately 40% of its economy-approximately USD 350 bn, assuming a GDP of USD 900bn- which is stashed in undisclosed accounts and probably freezing somewhere in Basle. Give a guaranteed and genuine tax amnesty to the hoarders and these monies will start flowing into India. Imagine its capacity to pump the much needed liquidity in the Indian market!! Will it not dwarf most economic stimulus packages offered so far??Certainly, will.
Spain experienced its fiercest spending boom since the 1980s as people rushed to offload undeclared pesetas before the arrival of euro on 1 January 2002. In black money economy, Spain is a speck compared to India the galaxy
I hope the Government of India is listening and will do something to unlock the black money of Indian economy so that whilst Mr.McGill goes fishing my friend Rama Reddy from Guntur will be scuba diving in Maldives!!
posted by Ramesh Panicker @ 9:32 AM
4 Comments:
It's very interesting!Well written and insightful =)
Always thought that our saving habbits helped us to sustain, never thought of black money. well thought and written. Is experience spaeaking?
the above comments are frm meera gopakumar
Ramesh you are bang on target and have made valid points on the subject. As always here are my two cents …
India is not alone, the black economy exists globally (eg . in Italy this exceeds 30 % of GNP ,in Germany it accounts for 27 per cent and in UK its estimated close to 15 per cent ) but the way we differentiate ourselves is that we convert even white money into black money. The reason why this happens is that investment made from black money has been more productive than white investment, leading to a relatively larger multiplier effect. And this is because of low returns in the white sector due to government controls on bank deposit rates and the practice of administering interest rates. The other reason is the amnesty schemes that governments announce from time to time. While I have every reason to believe that the collection from the scheme adds to current year’s revenue, I am not sure why the administration does not think of have implications the scheme has in terms of future revenue generation, future tax base and taxpayer behaviour. It is this expectation of future amnesty scheme that leads to continued tax evasion and generation of black money. The schemes are unfair to honest taxpayers who bear relatively greater tax burden. If we need to bring down the unaccounted money circulating in the system these scheme have to be scrapped immediately!
Imagine ,if the growth of the black income forms roughly 40% of GDP, tapping even 25% of this income through better tax compliance will fetch the government almost two per cent of GDP in these difficult years. Will the new government wake up to this, one needs to wait and watch !!
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