Large chunk of parallel economy out of tax net: Think tanks

3 entities entrusted with job submit reports on black money estimation

The finance ministry is set to be ready with the official figures of Indian unaccounted money by the end of this month.

The three think tanks entrusted with the job of estimating black money have given their reports.

The ministry is studying the reports of of the National Institute of Public Finance and Policy (NIPFP), the National Council of Applied Economic Research and the National Institute of Financial Management.

An official said a critical finding in the study was that large chunk of the parallel economy in India was black but it might not be evading taxes.

“They are just out of the tax net,” he said, adding the latter needed to be widened and deepening it through steps like taxing the rich might not help in garnering any significant additional revenue. The official said various estimates of black money had been projected by the think tanks, taking into consideration different parameters.

NIPFP has given its report to the ministry and is waiting for its comments.

The institute will study the comments and if there was any requirement for modification, it will be done but the basic recommendations of the report would remain the same, said a source.

An expert associated with the process said the estimate of black money didn’t matter much and what was more important was the method to tackle it.

After the hue and cry over black money in 2011, the ministry had asked these three organisations to estimate black money held by Indians, both in the country and abroad, by September 2012. The deadline was extended to December 31, after the institutes reported problems in gathering data.

As estimates of black money held by Indians varied sharply, the government had decided to engage the three entities for an official estimate. The Central Board of Direct Taxes had signed up the three institutes in March 2011 for conducting the study, aimed at helping the government frame policies to tackle the problem.

According to the agreement signed with the government, the three institutes had to assess unaccounted wealth of Indians and profile activities that led to black money and money laundering.

They were also to look at how unaccounted money was converted and suggest ways to detect and prevent creation of black money and bring this into the fold of the official economy.

Among the estimates on black money made so far, there is no uniformity, unanimity or consensus about the best methodology or approach for this purpose.

There have been wide variations in the figures reported. With the official estimation and the help of findings of the three institutes, the government is expected to devise ways to curb generation of black money.