Where Were You When The Lights Came On? : Who Had His Pants Down On 9/11?



For starters, those who habitually lived in the brothel, i.e. the traders who have all their lives dealt in cash. This is the $500 bn ‘black economy’ (about 20-25% of the $ 2.2 trn regular economy, whose members don’t even know where their Bank is. At roughly 6% of GDP, profits would range in the region of $30 bn per year on average, whose saved tax collections would be, say, $ 6bn per annum.

Declaimer: This article was originally in November 2016, and some of the data points may be outdated

If Flow to Wealth

If “flow” to “wealth” is estimated at 10 years’ income, these people would have about $300 bn in Black Money wealth, now invested across Swiss banks, have dollars, real estate, and gold, besides those who got caught holding the parcel when the music stopped.

Then, anecdotally, I saw around me the businessmen, who were holding cash to give as bribes. These are all ‘casual cash’ holders, some 1.5% of their net worth. The big holders must be on the other side, the habitual bribe-takers, who were holding up to 30-80% of their worth in cash, mostly under the mattress.

The ‘clean’ part of the economy is you and me. Anecdotally, I was holding less than 0.001% of Net Worth, but had to take a bus home on 8th Nov, because I had to survive in Mumbai with Rs.470 in my wallet. If I extrapolate my ratios to the broader ‘white economy”, the casual ‘transactional holdings’ of the white $2.2 trn economy, would work out to just Rs.147 cr. Ok, I might be super-clean, being in the knowledge economy and a mostly digital-cash person. So let’s put a multiplier to that, say, 100 times that ratio, so about Rs.15,000 cr. Add the cash-to-GDP ratio of the agriculture sector, 25% of 14% (share of GDP) and you get 3.5% of GDP, say, $70 bn. So the ‘innocent’ holdings of the high-denomination notes would be, say, Rs.4.5 lakh cr. That leaves Rs.10 lakh cr, out of the total holdings of Rs.14.5 lakh cr.

Most of this would be ‘culpable’, stretching from habitual offenders like the real estate/jewelers/ traders to the casual stork-among-the-cranes, the people who have just sold a property, for example. The lenders in the hundi market were people with savings from unorganized sector employment who were investing in the informal hundi/ chit fund market. The beggars at the Vasant Vihar red light, some of whom might be holding more than a crore under their mattress. Truck drivers, and dhaba owners, some of whom had only cash holdings.

I noticed, for example, that my driver, who owns a Rs.7.5 lakh house in the village, had no ‘cash’ problem. His bank account has some Rs.50,000, and the rest seems pretty safe (his mother’s gold jewelry, maybe). This is again anecdotal, but this rather large unorganized sector employee would add up to, say, Rs.1 lakh crore worth of holdings. This too will be absorbed under the Rs.2.5 lakh scheme, leaving a handful of prominent communities in the net.

the purveyors of power and authority in India

The first suspect is the politician-power peddlers, the purveyors of power and authority in India, the ‘dacoits’ who trade power for money. These will include the political parties, the criminal gangs, the terror chains, the hafta collectors, the police, and tax officials themselves. Right at the heart of the problem, where up to 30-80% of the worth would be in cash. I get gooseflesh at the thought of the IAS officer, now 57 years of age, who has ‘parked’ some Rs.200 cr in hundreds in the Kolkata market, looking forward to a debauched retirement, now unable to even scream….how many of them did Modi catch, literally with their pants down, is the question. Since hospital records will only mention a heart attack, we will never find out. That soundless scream can be heard across political parties, the police & bureaucracy, both sitting and retired….but this part will never be known.

The visible part is the other side of the transaction, which is measurable and amenable to econometrics. The ‘entry market’ and the costs prevailing…..the last I heard is that rates had collapsed from a high of 60% to 40%, the cost of ‘converting’ cash in the myriad schemes that our CA community took just days to figure out. The steep spike in the $: Re over these last 2 days, must be the hawala money going out, although what will happen to the cash given out, I don’t understand just now. But anybody who has access to, say, 500 workers, is paying advance salaries, networks of autorickshaw drivers are suddenly valuable, you get the idea…?! This is a measurable number, and the Income Tax department (and the forensic guys who will be watching the Banking flows) will be able to figure this out. A ratio I would use is the ratio of ‘cash deposited’ after Nov 8, to tax paid in the last 2 years, to get a ‘Cleanliness Index’ for a particular assessee.

If I were Modi, I wouldn’t go after the old taxpayers’ base, looking for partial concealment of income. I would go after the non-taxpayers, and look at them and their relatives, to see how many are now claiming to have ‘zero expenditure’ in the last 3 years. The list of this ‘creative accounting’ stratagems is very large…..I got someone asking me whether a cheque given 3 years back, was declared to the Income Tax as expense. When I said it was drawings, I think he decided to show it as cash in hand from the drawal of that cheque. In effect, he will claim that he has had no expenses these last 3 years. These are the hardened criminals, a recalcitrant lot who will not come to heel until the country goes cashless.

So one side of this audit trail is very visible, you will see the trader/SME on one side of the transaction. Those with past bribes have gotten away (for the moment) if they were in anything except cash, i.e. real estate, gold, and hawala. But those who were in cash/ hundi, have died a screamless death. Putting a number to all this is very difficult, but assume that 50% of the stock of black (cash) money will ‘leak’ out from somewhere or the other…..temple trusts who will launder the money, companies with large retail sales in cash, etc. Watch those who show a very buoyant current year income, and mark them out for the coming years…..a leopard doesn’t change his spots.

A rating system for a tax assessment world

A ‘rating system’ for a tax assessment would be a good way to record all this. Like a “CR” or a Cibil rating, it tries to predict future behavior based on past patterns. Such a rating could be displayed publicly, which would be a support to commercial activity, much like the Cibil rating. I am sure I would love to know the tax compliance records of my clients or my counter-parties. And be happy to let them know mine.

Eventually, Mr. Modi’s body language suggests that he is going to consolidate these gains, it is the first of many salvos to come. Most will lead to the digitization of the Indian economy, in the sense of taking it cashless, a long way away from the current nearly 80% of transactions that have cash on one side of the transactions. Some of these will be painful for large communities of otherwise poor people, but the general culture of tax (non)-compliance seems to be uniform in India, and rising incomes do NOT seem to lead to rising tax compliance. Indians will need to be driven, kicking and screaming, to the milking machine…. cashlessness will be a very big milestone.

With the data that is being captured in the payment banks and credit card expenses, you can collate the ‘bump up’ in an individual’s credit card usage, to get an estimate of his earlier normal cash burn rate, then see whether it fits into his normal income disclosure. It will be a huge job, but algorithms can be designed to ferret out the right patterns. More power to you, sir!!!



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