NEW DELHI: In India, people prefer money that isn’t counted.

“Black” money — untaxed and unrecorded -has grown to such proportions that officials and economists say that they have no way of finding out how much is circulating in a country where tens of millions of people fight a daily battle for survival.

Officials admit it is this cash, undiluted by the taxman, which oils the country’s political machine. In most cities it is standard real estate practice to pay half the price of a property in black or “number two” money.

“It is a serious problem in the sense that as far as the Income Tax Department is concerned it reduces our tax collection,” said Gyanendra Nath Gupta, chairman of the central board of direct taxes.

Like other officials, Gupta would not offer an estimate on the size of the parallel economy which deprives the government of such a large chunk of income, but said many businessmen felt they could not do without it.

“They have to have black money because many people will not accept white money,” Gupta said. A colleague in the tax department ‘was unable to buy a house recently because the seller, a lawyer, insisted that part of the sales price not be declared to the tax authorities.

The incentive for tax evasion had been strong in the late 1960’s when the tax rate was as high as 97 per cent, but it is now down to 50 percent foreign incomes above 200,000 rupees (14,000 dollars) Amish Bagchi, head of the independent national institute of public finance, said it was common for businessmen in India to show personal expenses in their accounts as business expenses to avoid tax.

“There is a tendency to try to gain at the cost of others without thinking of social consequences. It is not peculiar to India but enforcement of laws is stricter in other countries, ”Bagchi said.

He believes a 50 percent maximum tax rate on high incomes is reasonable considering the deductions allowed under the law.

But tax evasion is widespread even at lower income levels. Many companies pay part of their employees’ salaries in cash and show them in the books as expenses incurred on behalf of the company.

The phenomenal growth of unaccounted income has given rise to what officials describe as conspicuous consumption.

The commonest way of spending black money is on holidays or celebrations in five-star hotels, where a glass of imported whisky costs 150 rupees (11 dollars).

Almost the entire film industry in Bombay, the Financial HUB of the country, is based on financing through unaccounted cash.

“By and large I agree they are all crooks,” said Gupta.

Bagchi says black money is also responsible for lopsided development of the economy.

We find cement is being used for building luxury houses rather than on power and irrigation projects. We need more public hospitals and transport but the growth is in private transportation and hospitals,” he added.

Gupta said one reason for the fairly high taxes was that so few people paid them. Less than one per cent of India’s 800 million people pay income tax and then only 6.7 billion rupees (about 470 million dollars) a year.

There is no way of telling how many people should be paying.

Occasionally, people do get caught making false declarations, Gupta spoke of one man who owed his department 270 million rupees (about 19 million dollars).

The largest tax owed by a single company is 120 million dollars.

In 1985, economist Shankar Acharya did a special study on the growth of black money in India. The result was a mud age book.

A government appointed committee estimated the volume of black money in 1976-77 at 45 billion rupees or a little over three billion dollars.

But Acharya said one private estimate two years later put the figure more than 10 times higher at 468 billion rupees (33 billion dollars) or nearly half the country’s gross national product.

Acharya, who now works as economic adviser to the government, declined to hazard a guess at what it was now.

Article extracted from this publication >> August 26, 1988