A little more than a year ago, Indian Prime Minister Narendra Modi announced that 500 and 1000 rupee notes would be removed from circulation as a step to flushing out all the black money in the country.
He made the announcement on TV in prime time on 8 November 2016 and gave people four hours time to be ready for the change!
But judging by the amounts which cricketers were bought for in the Indian Premier League Twenty20 auction last week, there is more black money than ever in the country.
Else, sums like US$1.5 million would not be available for the Kolkata Knight Riders to buy a cricketer like Mitchell Starc. This is black money being flushed out and made ready to be used as legal tender, the main reason why the Indian Government turns a blind eye to the process.
Former Indian spin king Bishen Singh Bedi accused the IPL of being a centre for money-laundering and he may not be far off the mark.
A little history will help explain India’s black money problem: Back in 1967, the then Indian finance minister Morarji Desai had the brilliant idea of raising taxes well beyond their existing level; the maximum marginal tax rate was raised as high as 97.75 percent.
Desai, who was better known for drinking his own urine, reasoned that people would pay up and that India’s budgetary problems would become more manageable.
Instead, the reverse happened. India has always had a problem with undeclared wealth, a kind of parallel economy. The amount of black money increased by leaps and bounds after Desai’s ridiculous laws were promulgated.
Seven years later, in 1974, the new finance minister Y.B. Chavan brought down rates by some 20 percentage points, but by then the damage had been done. The amount of black money in India today is estimated to be anything from 30 to 100 times the national budget.
The IPL attracts the best cricketers from around the world because of the money on offer. The amounts that are bid are paid for three years, and the player has to play for two months every year, with some additional promotional activity also involved.
So, despite all the platitudes from Modi, don’t expect anything to change in India as far as black money is concerned. If anything, the amount will increase now that people know that these kinds of measures will be announced at the drop of a hat. They will be ready the next time Modi or anyone else comes up with some crazy initiative like this.