Question by Sweet Pinki: What will happen if all black money in India is allowed to be deposited in banks?
Without asking for source or legal or tax implications if this money becomes white , how the economy will get affected ?
Answer by small
In my opinion, a sizable part of it is in foreign currency. The release of local money into the mainstream banking would bring inflation down since interest rates in black are higher than those in the mainstream money market; a good part of it hoarded as gold or real estate may not still surface even at zero tax because of subsequent wealth tax issues and also the fact that these two types of hoardings seem reasonably risk-free coupled with high returns through appreciation of value. On the other hand, the release of funds in foreign currency would mean massive inflows into the country which would put such a lot of pressure on the economy both through exports due to higher value of the Rupee and inflation in the domestic market, that there is a good possibility of this negative element completely overtaking the positive impact from local money getting legalised and thus creating a major monetary as well as economic crisis in the country. This is why a 40% payment of tax was the condition for the Govt’s earlier attempts to release black money accumulated in our economy which failed due to two reasons…… disbelief that the legal hassles would ease up and of course the high cost in terms of 44% Tax including Surcharge.
Above all, the ethical dimension of allowing without legal and tax implications is insurmountable in my opinion!!
However, if the new Tax Code is implemented properly, the generation of black money through evasion of tax will be curtailed to quite an extent, although this would continue to be hampered by a few factors….. such as….the illegal activities like drug trafficking and fake currency rackets, corruption and speed money and not to forget the ‘habit’ and ‘psyche’ syndrome of the big tax-payers, corporates and businessmen.
Well, no simple and painless solutions are available which is why the issue remains sore forever!
What do you think? Answer below!