Economic transformation is usually a gradual and painful process and no finance minister wields a magic wand to rid the economy of all its ills. The task is rendered all the more difficult in a single budget if the political consensus, especially in a minority government of assorted groups, is lacking. The task before P Chidambaram was thus unenviable yet he tried to bring about changes in areas which fell well within his domain. Lowering tax rates and widening tax net was one such area keeping in view the objective of meeting higher revenue needs of the government together with greater socio-economic equity. VDIS among others, was one such step in that direction.Understandably, the central budget did not make any revenue projections from this scheme as it was a hazardous task to do so considering how similar schemes announced in the past and fared. Further, while substantially reducing personal and corporate income tax rates as well as rationalising and reducing excise and customs duties, there seem to bea lurking suspicion in the mind of the finance minister about the possibility of revenue projections going amiss and VDIS was expected to readily fill the gap. It appears that finance minister P Chidambaram has been proved right on both these counts. VDIS, which was launched with well orchestrated public awareness advertisement campaign, has served its limited purpose by raising revenue of Rs 10,050 crore from 4,66,033 declarants, thus broadening and deepening the tax base.Any meaningful plan of tackling black economy must launch a two-pronged attack. First, it should tap the existing black money effectively and bring it into the tax net and second, it should take steps to prevent further generation of black money by rationalisation of tax structure wherever possible, simplification of procedures for tax compliance, removal of unnecessary licenses and controls, inculcation of spirit of service in all cadres of government in order to prevent pilferages in revenue and expenditure, introduction of greater transparency in corporate accounts and donations to political parties, reduction in stamp duty to affordable levels to encourage full disclosure of value in property deals, strict enforcement of tax and other laws, severe punishment for illegal economic activities, and expeditious administration of justice. All these measures require a strong political will and a sea change in the mindset of people.For an appropriate assessment of the black money economy in India, of the several estimates made by various committees and experts from time to time, mention may be made of the study (1985) conducted by the National Institute of Public Finance and Policy (NIPFP), under the direction of Raja J Chelliah, which estimated black money or unaccounted income at 18 to 21 per cent of gross domestic product (GDP) at market prices in 1983-84. It took into account only six sources of generation of black income. These included under-reporting of output or sales or over-reporting of costs or misclassification of personal expenses by manufacturing and trading companies by 10 per cent, sale of property on an average at 40 per cent undervaluation, investment in construction and or plant and machinery in the public sector with leakage of 5 per cent, kickbacks from suppliers and contractors in the private sector to the extent of 10 to 15 per cent,under-invoicing of exports and over-invoicing of imports by 10 to 15 per cent and sale of import licenses at 25 per cent premium. The study excluded unaccounted incomes generated by imports of machinery by public sector and by illegal activities such as smuggling, black marketing, kickbacks in the public sector and bribes. Therefore, NIPFP's estimate of black money in the economy was considered a gross underestimate.Among the other estimates of black money in India, Suraj B Gupta's study (1992) placed it at 50.7 per cent of GDP in 1987-88. It was based on his estimates of corporate tax evasion by 30 per cent, excise duty evasion by 40 per cent, customs duty evasion by 30 per cent, in addition to 47 per cent evasion in the three major sources of states' tax revenue viz: sales tax, state excise duty and entertainment tax and 30 per cent evasion in the remaining taxes levied by states. On the government expenditure side, leakage was estimated at 20 per cent, which went up to 30 per cent in respect of states' development expenditure. He also took into account kickbacks from contractors and suppliers in the private corporate sector (15 per cent), under-invoicing of exports and over-invoicing of imports, smuggling and associated hawala transactions. Since various studies have thrown sufficient light on different aspects of black money generation, it is desirable to plug the sources and treat the economic malady at the symptomatic stage itself. This could well form a part of the agenda for the next government provided there is political will.
