Legality and
Illegality in India
Arun Kumar
CESP, SSS, JNU.
Published in German as: "Tatort
Arbeitsplatz". Grenzenlos Illegal – Transnationale organisierte
Kriminalität. Böll.Thema
The
black economy in India is estimated to be about 50% of GDP, in other words, it
adds to the GDP about $600 billion annually. Linked to this is the annual
flight of capital from the country with about 15% of the annual generation of
black incomes going out of the economy, that is, approximately $90 billion.
According to a recent report of Global Financial Integrity based in Washington , India
The
black economy is generated in both illegal (mafia, drug trafficking, crime and
so on) and legal activities. All incomes generated in illegal activities are by
definition black whether they are high profits that should pay taxes or wages
that are below the taxable limit. In the case of legal activities, incomes that
ought to have been declared and tax paid on them but are not declared are black
incomes. However, in the legal activities in India India
In
India, the black economy affects every economic activity (industry, finance,
agriculture and so on) in the country and all the elite sections of population
(politicians, businessmen, executive, teachers, doctors and so on) are involved
in it. For the generation of black incomes, some illegality has to be
committed, that is, rules have to be bent. For instance, businessmen do not
show the full income from their sales in their balance sheets and pay less of
the various taxes, like, VAT, income tax and corporation tax, applicable to
their production. Doctors do not reveal their full income from their practice
and take illegal cuts from the testing laboratories where they send patients
for tests or may sell organs illegally and so on. Teachers may increase the
marks of students or leak out question papers to help students for a
consideration. Policemen rather than check illegality collect a weekly payment
(called `hafta’) from those committing illegality so that crime proliferates.
Politicians bend policies for the favoured ones so as to give an advantage to them
over their rivals and charge a consideration (a bribe or a cut) for that.
In
brief, during the normal task of carrying out their daily economic activity,
elite sections indulge in illegality. In the scams exposed recently top judges,
top military men, top politicians, top businessmen and so on have been caught
misusing their powers to earn illegitimate incomes which amount to black
incomes.
The
dividing line between illegality and legality is indeed thin because illegality
is committed in the normal legal activities of people. Those earning black
incomes try to make out that they are carrying out their economic activity in
the routine way by masking their illegality. So a doctor who is supposed to
recommend diagnostic tests may prescribe unnecessary tests so as to get a
larger kickback from the testing laboratories. However, the patient can not
make out that the test is unnecessary and would not like to take the risk of
not going for the test lest something go wrong. The Obstetrician may go for a
C-section delivery even if the normal delivery is possible so as to make more
money for herself and the clinic/hospital. The patient going through the labour
pains is in no position to judge whether a normal delivery was feasible or not.
There
is a large amount of black income generation in the financial sector because of
the secrecy that operates in this sector. For instance, black incomes are
converted to white incomes and vice versa via the book entry method in the
stock markets. This is characterized as money laundering where dirty money is
cleaned and put into legitimate activities. Similarly, bank accounts maybe
opened and used for illegal funds transfer by circumventing the `know your
customer’ (KYC) provisions of banking sector. The managers of banks connive in
this because they are confident that they will not be caught given the secrecy.
They have the discretionary powers to bend rules and they can do so for a
consideration. Banks try to attract prized customers (big corporations and High
Net Worth Individuals) from whom they can get large amount of businesses. For
this they overlook the procedures and extend extra help which is often misused
by businesses.
For
the prized customers, the financial sector runs illegal services, like, helping
them with transfer of funds to tax havens. In the recent financial collapse in
2008, failing banks were found to have hundreds of subsidiaries in tax havens.
The only purpose of this could have been to help their clients to shift funds
around via shell companies to escape taxation in their home countries or to
launder their illegal funds. Thus, there is flight of capital from all
countries, developed and developing, but perhaps the scale of such leakages is
higher in the case of the developing countries and also they are net losers
while the developed countries are net gainers so that the developing countries
are characterized by flight of capital.
As
the Financial Action Task Force Report of 1996 said, the volume of transactions
in the financial system are huge so looking for the illegal transactions is
looking for a needle in the haystack. In spite of the best efforts of the
software experts, it has been impossible to trace the illegal transfers (a few
trillion dollars) out of the hundreds of trillions of dollars of annual global
transactions. This is an important aspect of the losing battle that national
governments have fought against flight of capital and havala transfers.
The
governments of tax haven countries are in league with the people trying to park
illegal funds in the financial institutions under their jurisdiction. This is
because it is a highly profitable business. Further, national governments in
developing countries often connive in these activities since the top people are
in league with those committing these illegalities. Why is that so?
For
the black economy to be 50% of GDP in India and to be affecting all economic
activities and to be prevalent amongst all the elite sections of society, it
has to be systematic and systemic with laws systematically violated. It can not
be ad-hoc or anecdotal, taking place some of the time and not at other times.
So, in Delhi
In
brief, there is an underlying triad which operates to allow systematic
illegality to take place. It has been suggested that the criminal has become a
part of the nexus in the last three decades. Either the politician or the
businessman is a criminal. Thus, a large number of politicians and elected
representatives have cases against them. This has led to the spread of
criminalization in society and resistance to illegality has weakened amongst
the people and also the official machinery. Regulatory agencies (say,
intelligence agencies, police men, inspectors and so on) have weakened due to
their involvement in illegality. They are used to put a cover on the
illegalities of their masters, the top businessmen, politicians and bureaucrats
and so they indulge in this in the routine way and also do some small
illegalities for lesser people.
Those
in power are the ones indulging in illegality under the garb of acting within
the law. Hence they are not interested in solving the problem of growing black
economy and illegality in society. They benefit from it and encourage it. They
have private information about how the black economy functions but are not
interested in tackling it since that would hurt their interest. They make a
pretence of solving the problem by changing rules and making new laws but all of
them are subverted to find new ways of making black incomes.
In
India, at least 40 Committees and Commissions have looked into the different
aspects of the black economy over the last sixty years and have made thousands
of suggestions and hundreds of them have been implemented but the black economy
continues to proliferate. Thus, it is not that the policy maker does not know
what should be done to tackle the problem but the political will is lacking
amongst the elite sections because of their self interest. In this sense, the
problem is a political one and one of weak democracy where those who are in
power are not accountable to the people of the country. That is why the Right
to Information is an important tool to fight illegality and black economy – it
undermines secrecy. In India
