Corruption and black money are two sides of the same coin. When illegal gratification is earned through corruption or payment of bribes the income so generated is black. This is one of the means of generation of black money. Black money is also generated when taxes are evaded and unaccounted income is generated which cannot be shown in legal books of account.
Black money is also generated through under invoicing or over invoicing of imports and exports and parking such illegal money in foreign banks which is sometimes brought back to the country through the hawala route or the medium of participatory notes and so on.
Money or income which is black cannot be shown in legal books of account and cannot be used for investments that are legal and are not reflected in the national income accounts of the country. Black money cannot be deposited in banks and therefore has to be kept in the form of cash, gold, property, physical assets and so on.
Such money or income is usually channelized into illegal activities such as funding of elections and other political activities, funding of terrorist activities and also in production activities which cannot be revealed in books of account. Any income generated through such production activities is illegal and therefore cannot be taxed and becomes part of the underground economy.
One of the factors that lead to the generation of black money is corruption. One way of reducing corruption is by stipulating that all government services will be provided on a first come first served basis. Today, usually when we require a work to be done in a government office we first try to find out who is known to us in the office.
Then we try to approach the dealing hand in the office through a recommendation from the person known to us. This type of culture or behavior is at the root of a great deal of corruption in the country. If it is made known that your work in a government office will be attended to within a specified time period or on a first come first served basis, a great deal of corruption in government will disappear.
Another factor which facilitates corruption and black money generation is the complexities of rules and regulations that are prevalent in the country. When rules and regulations in government are complex they become subject to various types of interpretations and the government officials get discretionary powers to interpret the rule.
This becomes a source of corruption and the government officer takes bribe to interpret the rules in favour of a particular client. If rules and regulations in government are simple and straight forward and not subject to multitude of interpretations it will be another means of reducing corruption in government departments.
The license-permit raj is another vehicle that breeds corruption. When a license is required from government to start an industry, the prospective industrialist tries to get over the rules by giving a bribe to the license granting authority. Dr Manmohan Singh, when he was finance minister brought in a number of economic reforms which led to reduction in the severity of the license-permit raj operating in the country. Thus the economic reforms undertaken in the 1990s became a medium for fighting corruption and black money in the country.
The inspection raj which is in operation is also a source of corruption. Industries operating in the country are subject to inspection by a multitude of government agencies which come to inspect whether the industrialists are complying with mandatory rules, regulations and procedures. What happens in our country is that such violation of regulations goes on taking place but the industrialist can get over the crime he commits by giving a bribe to the inspector who comes to inspect his factory. For instance a factory may be employing child labour but when the inspector from the labour department comes for inspection he is given a bribe to silence him and the menace of child labour continues to thrive in the country.
Tax laws in the country are complex and cumbersome and the tax officials earn a large income many times their stipulated salaries by harassing the tax payers. Income tax officials whose duty it is to check generation of black money are themselves thriving on the black money they earn by harassing their clients. There is a premium enjoyed by tax officials in the matrimonial market because their sources of income are sometimes many times the salaries they earn.
Another category of government employees who enjoy a premium in the matrimonial market are members of the police force and all other types of inspectors who are party to the implementation of the inspection-raj we talked about earlier. Whether you are an inspector in railways or in the environment department or in the drugs or civil supplies department you are the privileged son-in-law of the government which has empowered you to harass the public and earn illegal gratification.
Even the lokpal legislation that has been envisaged can tackle only a small proportion of the corruption that takes place in the country. We need more economic reforms and liberalization and simplification of laws and regulations in the government sector if corruption is to be eradicated. We have seen that laws against rape has done virtually very little to prevent rapes against women. So also a lokpal legislation will only be a small step in our fight against the evil of corruption.