The Wife Speaks on Black Money

“Why are you such an idiot, so utterly simple-minded?”

Strong words even by the wife’s standards. Clearly she was frustrated that the PM had proved everyone wrong and taken such a bold step.

“I don’t understand why supporting a surgical strike against black money is idiotic or simple-minded,” I replied.

The wife looked at me with her habitual mix of desperation and disdain. “Because, it is not a surgical strike against black money. It is a silly branding exercise that shows that this government doesn’t give a fig about what happens to people.”

“Oh! Really? Can you please explain your brilliant theories, which clearly run counter to what all well-known economists are saying?” I asked, trying to bring as much sarcasm as I could to my voice.

“Well-known stooges you mean,” she snarled. “Let’s start with a simple fact, black money emerges out of white money. It comes from the banking system, which is the original source of all cash.”

“Every business needs to generate cash to pay bribes for getting tenders, winning contracts, getting clearances, paying hafta to local policemen and political goons, chanda to religious institutions.”

“How do they do it?”, the wife asked, looking at me. Clearly this was just a rhetorical question, because she continued without stopping.

“They over-report costs and under-report revenues. If something cost 80 rupees, they say it cost 100 rupees and if something was sold for 120 rupees, they say they got 110 rupees. So, a 40 rupee profit is reported as 10 rupees. Even the most honest businessman needs to do this, because the bribes they have to pay cannot be offset as expenses.”

The wife paused to take a dose of nourishment from her cup of coffee. “But, bribes are not the only reason businesses have to generate cash. Almost every business, however big, has to deal with the informal cash economy. Carpenters, plumbers, contractors, construction workers, casual labourers, truckers, raw material suppliers take cash. They are in the informal sector and the fact that they do not pay taxes is key to keeping their businesses competitive.”

“So, if you have been able to follow what I have said till now – and I know it is difficult for someone who has not had any real higher education,” the wife said, taking a dig at my MBA from Cornell, “then you will understand that cash has to be generated not only to fund corruption, but also to deal with the informal economy, which employs many more people than the formal organized sector.”

I was about to say something, but didn’t get a chance. “Now, let’s come to migrant labourers who work at construction sites, spend their nights there under makeshift shelters and then go back to their villages in time for sowing or harvesting season. Do they have bank accounts? Do they have credit cards? Do they use e-wallets?” Rhetorical question, don’t answer, I told myself.

“Such people can only be paid in cash. The payments are likely to be registered as wages, but again over-reported, so that the construction company or builder can generate cash. And that brings us to real estate, by necessity, the biggest generator of cash.” The words were becoming bigger, which means the wife was getting more passionate as she spoke.

“A real estate project starts with getting a plot of land, but even before you buy the plot, you have to pay a bribe to get information on where to buy it. Will there be a road coming near it soon? Is a metro station likely to come up there? Once you have paid cash for the information, you start paying cash to get clearances. You then pay cash to buy bricks and sand – both in the informal sector. You pay partly in cash to get cement and steel transported. You pay cash for municipal clearances and connection to utilities. And, you pay cash to the labourers who erect the buildings. So, even before you have sold a single house, you have to generate cash.”

Caffeine pause and then the onslaught continued.

“No wonder, real estate players take cash when they sell homes. No wonder that in the process of generating cash and paying bribes they become politically connected, and then those political connections help them get land, clearances and generate even more cash.”

The wife suddenly turned to me and asked, “are you telling me that from tomorrow, none of this will be required anymore? Are you telling me that from tomorrow every babu, every policewalla will suddenly become honest?”

I didn’t think she wanted an answer, but she was glaring at me, so I blurted out, “I-I don’t know.”

“Of course they won’t, you idiot,” she shouted. “Things will pause for a few days, maybe weeks, and then the button will be reset. Things will go right back to where they were.”

 “Now, let’s come to the stock of black money. Only people who need to transact in cash on a regular basis, keep large amounts of currency notes in stock. So, all small businesses, real estate agents, builders, traders, stockists, small shop owners, will always have a significant amount of cash, much of which would be unaccounted for.”

“Those who have black money as wealth, turn it into white very quickly,” the wife continued. “And, there are many methods of doing it. The easiest is to buy gold or jewellery and store it in your locker. Another method is to go to your friendly neighbourhood pandit, deposit all the cash into the temple hundi and then get it back after some time in white. There are also thousands of small companies, which give backdated certificates that you made equity investments in the past, the valuation increased and now you have sold your stake for a profit. For a small cost, the black money turns into white.”

“How do you know all this?” I asked smirking. There’s no harm in introducing a bit of levity. The wife glared at me, and continued her speech.

“People who have big black money, also convert it into foreign exchange and take it out of the country through hawala. There is also another method, where companies which have ‘cash in hand’ in their books but no real cash, take black money.”

“What do you mean by that?” I asked. Surely, the wife didn’t think she was not going to teach me about balance sheets.

“It’s simple. As I told you earlier, every business has to generate cash to pay bribes or deal with the informal sector. But, sometimes it is difficult for them to account for the cash payments and it turns up as ‘cash in hand’ on the books, even when there is actually no cash in their hands. This was not taught at Cornell, because real business isn’t taught there” Unkindest cut, I say.

 “So, it is easy for such businesses to deposit real cash into the banks, because they can account for it in their books. They take black money, deposit it into banks and turn it into white. Sometime later, a fake loan contract is worked out between the black money holder and the company. Over time, the loan is repaid, as white money, to the original holder of black money.”

“Then there are penny stocks, which are artificially boosted and over just a few days, their price goes up multiple times. This is then sold and shown as capital gains. A small short-term capital gains tax is paid on it and black is turned into white.”

“But, surely, all this can be caught if the trail is scrutinized closely?” I asked.

 “Of course, they can,” the wife said. “In fact, that is the only way to stop tax chori, by painstakingly scrutinizing tax returns and money trails. It can’t be done by suddenly banning currency notes and throwing things into chaos.”

“But, for that, you need to employ more people in the Income tax department. But, that is not going to happen, because, when it comes to generating employment, your beloved PM is a complete failure.”