Firstly, all black money is not held as hoarded cash. At best it constitutes 6% of the black money. Bulk of it is spirited away in Tax free havens like Switzerland and Panama from there it is invested through mail box corporations in equity, real estate and bullion all over the world. It is a matter of utmost irony that a number of the celebrities who endorsed the demonetization scheme figure in the list of names of people who used the illegal offshore accounts in places like Panama.
Moreover, elaborate tax frauds are committed by corporate giants in squeaky clean cashless financial environment. As I explained in my article Inside the Spiders Web: Tax havens and Dirty Money"In an elaborate charade called transfer pricing, corporations with their army of accountants and lawyers create a maze of shell companies (i.e. companies which have no real business activity) in Tax Havens which have secrecy laws concealing the ownership and the source of the funds. [iii] The tax strategy is fairly simple: book the profits in shell companies located in tax havens having low or nil rates of tax and show reduced or better still zero earnings in countries which have higher rates of tax."
Then there is another game called capital round tripping played by big corporate businesses which bring back their black money through bogus companies which have no real business. These funds are invested in the economy as Foreign Direct Investment. There have been no efforts by the Government to clamp down on these activities. At the Mahesh Buch Memorial Lecture at Bhopal on October 5, 2016 former Reserve Bank of India governor Y.V. Reddy said "there is a subsisting interest in influential policy circles to keep a window for round tripping open.."[iv]
The Indian stock market is also rigged through the route called the Participatory note where the black money from Indian origin is parked in Mauritius in a shell company from which there is flow back of black money as investment in the stock market causing inflated share prices. It is no secret that demonetization is a wrong policy instrument to handle such sophisticated chicaneries. It is like slicing a loaf of bread with a hammer.
Secondly, the engines of black money are left intact especially election campaign contributions are often accepted in cash and unaccounted for. The BJP which is now on a moral crusade of eradicating black money has been guilty of accepting large sums of unaccounted money as campaign contributions. Moreover, bribes of government officials and the political class would continue unabated even after demonetization. There are already reports that government officials are taking bribes in freshly printed notes! It was reported in the state of Gujarat where Mr Modi hails from government officials demanded bribes in freshly printed 2000 rupee notes.
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