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Mainstream, VOL L, No 24, June 2, 2012

Some Aspects of the Black Economy: Inputs for Policy Debates

Friday 8 June 2012, by Kamal Nayan Kabra


It is paradoxical that despite so much ferment on the question of black economy, cronyism and corruption, some critical considerations which must be taken into account in the debates over the policy alternatives for curbing the black economy rarely receive the attention they deserve, in any case without the discourse itself getting infected by the virus of the black economy. This is so especially from the point of view of the need to articulate the policies which are much more than mere window-dressing attempted, it seems, for popular consumption in order to create the impression that the Establishment is serious about dealing some hard blows against the forces and processes that are at the root of the black economy and its depredations. While these kind of traits underline the great hurdles faced by any serious exercise of disciplining the black economy, they highlight the need for upfronting such features. This is a consideration that deserves some attention also because the popular sentiment and strong feelings against these major perversions of our democratic polity and development efforts have come to suffer the consequences of some high-voltage media attention devoted to certain apparently anti-black economy and corruption campaigns which may well be more diversionary than really intended to be or capable of producing some positive desirable effects of cleansing our system.

It is certainly a sign of the changed times that the neo-liberal Western media, usually gung-ho over the post-1990 Indian liberalisation and growth story, is expressing its strong disapproval of “the combination of fantastic wealth creation and weak governance” leading to the discomfiture of our “once-celebrated billionaire oligarchs” along with their political protégés or mentors who have been sent to jail or are hauled up by the criminal investigation agencies. What remains unsaid in these stories is the tremendous popular suffering and heavy short- and long-term costs imposed on the common people. Also little visible is the angst and anger of the masses over the perversions perpetrated by the highest and mightiest from the organised corporate economy, elected governments and legislatures and the administrators supposed to be selected on the basis of either popular mandate or their merit, including the bulk of the media that is essentially a crony arm of the private corporate power.

True, some of the top corporate bosses too have spoken up against the degeneration manifested as cronyism, something in which it has become a bit too difficult to be able to determine who is not a player of these games! Similarly, there are some political outfits and their leading lights presently in the Opposition who ruled exactly the way the present incumbents are ruling but find it prudent and convenient to make a lot of hue and cry over the great harm caused to the people at large by the black economy’s fruits getting deposited in foreign banks and other financial institutions. They are out organising gimmicks and raising misleading issues, throwing up gigantic figures (whose authenticity or even credibility remains unverified) about the size of these ill-gotten and hidden fruits of the illegality-immorality that has gripped our system. In order to apparently enhance the popular appeal of their ranting they show some arithmetic about welfare and similar good steps these sums can help adopt if they can be unearthed, taken over, and used for the most neglected but equally greatly needed popular purposes. A very prominent place among such juicy stories making the rounds is that relating to the back wealth that has found safe refuge in various tax havens and in the process diverting attention from the many times more illegal-immoral wealth stocked up and circulating within the country and multiplying itself. It seems the way Hindutva, divorced from even the elementary tenets of Hinduism, has been utilised as an emotional political weapon to beat the opponents and exploit the people’s sentiments, the illegal wealth outside the country, no doubt a universally condemned villain of the piece, is likewise being sought to be used for political mobilisation.

In this process attention is diverted away from the primary source of the illegitimate economy, that is, the domestic economic and political spheres and their joint or collusive (mis-) behaviour. Also implicit in the almost exclusive focus on the stockpiling of the accumulated black wealth in the secret and camouflaged off-shore financial sector are two palpable factors: one, the neglect of the domestic business practices and motivation pattern, and two, the role of the respective home governments to tolerate, if not quite encourage, both the generation and out-flows of black incomes. This may well be owing to the fact that the political class itself has joined hands with the black economy operators in a fairly ongoing manner as some sort of joint stake-holders in the illegal economy. The uncomfortable fact is that the black economy is no longer involved directly or indirectly in most major economic and financial deals, social occasions, political activities and so on as a marginal, deviant occurrence but is something that is a vital, close and often not even so secret part of all these goings-on. What is implied by the excessive focus on the external aspects of the black economy in the form of externally-held funds and properties amounts to an implicit neglect and downplaying of the aspects which are the outcomes of domestic political economic and administrative processes. Thus the prevalent practice of barking up the wrong tree may well be a diversionary tactic jointly mounted by the political class and its hidden financiers who have a hand in setting the agenda as also the tactics used for upfronting it.

The hollowness and hypocrisy of the loud tirade exclusively against the stashed away funds without touching the main sources and most sizeable concentration within the national frontiers and their playground in the domestic economy are self-evident. And yet the battle-cry and call for priority public policy action is directed against an offshoot of the primary disease while leaving out the main areas of concern, the sources of the dirty money in the domestic economy, out of the field of mobilisation as though they are inconsequential or that once the external outflow source is plugged and the accumulated funds are somehow brought back into the domestic economy the scourge of the black phenomenon would cease to exist!

Clearly it is a sham movement and mobilisation and wittingly or unwittingly seems to divert attention from the basic malaise. One can speculate about the real motives or the game-plan, but whatever hypothesis one may uphold, one thing seems self-evident: none of such attempts by the self-appointed political crusaders or those who project themselves as spiritual and religious gurus taking up the task of mobilisation against the black phenomena can be taken seriously on this issue unless the first and foremost target of their mobilisation is the real black economy as it contaminates the internal aspects of the Indian economy and society. For instance, the gurus are in a strong position to carry out the vulgar display and use of the black wealth at religious and ceremonial family functions. The links between these vulgarities in the name of godly and traditional family get-togethers on occasions like marriages, birth and death-related functions and other myriad social functions—which surely must include various Yagnas, Havans, Katha-Wachan functions—and the black economy are quite strong.

Similar extravaganzas are also frequently seen at the annual and other political functions. These five-star counter-cultural practices are strictly under the control of the political leadership who seem to have forgotten the culture of austerity. Many of the so-called religious and spiritual activities are flourishing by making use of the wealth stocked by the Indian black money holders residing abroad and acting as fronts for the facilitation of externally-held black wealth and other operations such as buying real estate abroad or enabling the Babas and self-proclaimed Sants to carry on their spiritual and Yoga businesses. These activities are simply extensions of the organised non-material services, the so-called religious and spiritual activities, with umbilical links to the economic health of some non-resident Indians (NRIs). The main point is: most of all the black activities that generate the black wealth is taking place inside the country; and within the jurisdiction of our government and before we go and seek co-operation from the foreign governments we have to put our own act together with sincerity and determination to stamp out the black economy and its associated black-money-financed politics best revealed in the course of the ongoing and expanding economic, political and so-called cultural and spiritual activities under many names and garbs.

The unreal issues-based mobilisation amounts in effect to be an attempt to jump the popular bandwagon of mass dismay and abhorrence against the near ubiquitous black business, including in the private corporate sectors. The corporate sector represents essentially a kind of group property mobilised by a small core group for managing on behalf of the associated public in the form of a fiduciary relationship. Hence the shenanigans in its functioning are definitely matters in the public domain: there is hardly anything of the variety of personal property and affairs that can be allowed to escape public scrutiny and imposition of the norms of probity. Many of these features also apply to the public trusts floated under the law of the land in order to pursue some common, broader societal or non-personal enrichment related activities. These organisations are set up for non-personal purposes by the big participants in the economic, political and so-called religious activities under the banner of various trusts and Ashrams, not excluding the voluntary sector organisations in various social arenas. These have tended to become fronts for concealing the private weal, turning the black into white by fictitious accounting and outright fraud. True, the use of these funds is left to the discretion of the people who set up and run these outfits, almost in the same way as purely personal resources; though many accounting frauds are used to conceal the real character of the activities, these funds become instruments of tax planning, tax evasion and generating an environment in which the black wealth can avoid detection.

What needs to be noted is that the big-time scandals, in which the big corporate bosses are complaining loudly against the ‘culture’ of corruption, cronyism and some sort of policy paralysis following the disclosures and public wrath against the black phenomenon, are setting the tone and tenor of the really operating economic and political system. (It needs to be realised that the legal individuals representing the company act through the persons of ordinary flesh and blood and are actually their alter egos with the legal fiction of a distinct entity.). Hence petty corruption too becomes endemic and systemic: the small fish in government is subject to innumerable pressures to follow in the footsteps of the superiors and becomes a cog in the wheel of the great Indian iron, or rather the easily malleable aluminum, frame that has been reduced over time to a complex machinery of babudom driven by corruption, favouritism and unabashed self-seeking at every turn. Even a great national act of high-voltage showmanship (premature embodiment of perverse priorities), the Commonwealth Games, hosted by India, was turned into a golden opportunity for loot and pilferage by the political class and babudom with active connivance of the fly-by-night breed of builders, contractors, suppliers and all sorts of fixers and intermediaries.

Anyone familiar with the ways and mores of the Indian bureaucracy, the political outfits and their endemic corruptor, the big corporate entities, know how the lower levels have to keep the higher order happy by kowtowing to their dictates and in the process share the crumbs. In our economy, that is so drastically short of employment opportunities and objective processes of selection, placements and promotions, there can hardly be any dearth of the underlings who go more than the whole hog to carry out the bidding of their superior bosses, particularly when this promises a share in the loot. In fact, the process of co-opting the functionaries begins right from the stage of recruitment, or to be realistic, even before as the process of preparing for a shrinking and favouritism-ridden market for jobs takes roots when the parents think of sending the child to school. Simple verbal and demeaning behavioural flattery are not the only means, these have to be supported in concrete material terms too. Thus we get the far more distressing, dense and numerically incomparable large, frequent and damaging-in-socio-economic-terms phenomenon of petty corruption as a kind of side-show of the big games that are worked out in the corporate chambers and secretariat corridors or the sprawling bungalows which dot the landscape around the Raisina Hill and our dozens of State Secretariats.

The big-ticket corruption at the top seems to have acquired a big hand in the processes that determine the policies, procedures, the so-called policies-based openly-carried-out budgetary allocations and so on. In many of such cases the element of collusive corruption seems to be detectable as they do not seem justified in terms of the openly declared social commitments, let alone being inimical to inclusive growth, and on the contrary, go on to strengthen the processes of social exclusion and perversion of national priorities. The latest example of it seems to be in the making in the form of the decision to gift over Rs 5000 crores to the airlines by throwing out the public oil companies from the import of aviation turbine fuels. It is the latest case and a small illustration of the tax expenditure of nearly half of the Union Budget, a whopping sum amounting to almost Rs 6 lakh crores that the corporate sector and big organised capital is allowed to save from their tax liabilities. Little wonder that to this day not even a retrospective justification for incurring such a massive loss of public revenue has been provided, especially in terms of the foregone opportunities entailed by these kinds of tax expenditures.

Clearly the corporate sector-led growth that is sought to be accelerated by such tax expenditure as a priority is based on a totally false notion of treating economic growth as though it is a growth which is shared by the whole nation as a Hindu undivided family sharing the millions of goods and services that enter the national income. It is a safe game for the big fish insofar as the manner in which they destroy livelihoods and basic human rights is not captured by the growth but impinges on the common citizens in regard to their inescapable interaction with the public agencies as regulators, protectors and promoters for overcoming a small part of the intense and endemic social exclusion of their interests. While the huge piles of money that change hands in the course of the top-level management of the national economic growth is simply undetectable as it takes such forms as tax-exempt contributions to party coffers and voluntary, tax-exempt contributions to the NGOs associated with the kith and kin or the parties led by the political persons who really matter the most. The corruption element gets buried even deeper as both the major parties and many smaller outfits too are propitiated by making such immediately rewarding profitable invest-ment in the political class. The manner in which the corporate and government agencies coalesce to jointly manage the economic policy processes as an open activity that the tag of clandestine corruption can hardly stick to these systemic features. Then the art and craft of making the payments for sharing the rents of authority and rewards for successful lobbying have been so perfected that the normal processes of investi-gation and jurisprudence can hardly catch up with these practices. Such a new political economy makes the distinction between business and government a fiction residing in law books only. Thus the party, making illegal and under-the-table payments, builds up long-term cozy relationships obviating the need to violate the laws as the laws themselves get framed, especially in the form of delegated decision-making, according to the needs of strengthening the profit-making avenues. A few glimpses of how these processes operate can be had in the recent book by Hamish McDonald. Some additional support can be garnered from the Vohra Committee Report as also from some recent judgments on the telecom sector scam cases, the Radia Tapes and the Wikileak disclosures. However, with a policy that pampers a small, wealthy, wealth-creating (real or artificial), tiny part of the nation cannot win the political support of the numerically large part of the people unless some money-based political gimmicks, tricks and manipulations for winning the elections by dubious but effective means are perfected.

What has been shown above is simply the tip of the iceberg that is moving to torpedo our democracy. Since the inability of the neo-liberal-‘reforms’ to live up to the sectarian expectations it aroused is writ large on the Indian economic, political and social landscape, it is becoming evident every day that the time has come to give up the obsession with the neo-liberal restructuring that was undertaken during the last two decades. True, the perennial urge of the neo-liberal votaries for some more after every dose of the neo-liberal medicines is simply insatiable. But far more formidable seem to be the contradictions and negativities flowing from these policies of the corporates, for the corporates and by the corporates. India is not a corporation and can never be corporatised, whatever the preferences and predilections of the freaky power-balance that has come to prevail presently. Hence no systematic policy formulation process can be based on the make-believe world created by the Chicago School votaries as it edits out the most significant aspects of the reality that is the present-day India.

The author is a Professor, Malcolm S. Adiseshiah Chair, Economic Development and Decentralised Planning, Institute of Social Sciences, New Delhi.

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