With 5 state polls, Rs 60k cr cash, blackmoney will find its way but there's a silver lining for economy - Firstpost
Firstpost

With 5 state polls, Rs 60k cr cash, blackmoney will find its way but there's a silver lining for economy

#automobiles   #BlackMoney   #Economy   #Raghuram Rajan   #State elections  


The Reserve Bank of India (RBI) governor Raghuram Rajan’s concern that about Rs 60,000 crore more cash is sloshing around in the economy now that elections are on in five states vis-à-vis normal times isn’t entirely misplaced. It has the potential to stoke inflation, with too-much-money-chasing-too-few-goods factor being at play. As a central banker Rajan indeed has to worry about the money in circulation especially the foot-loose cash.

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Rajan’s take on the issue however needs to be juxtaposed against the seemingly flippant and cynical remark made by the Aam Aadmi Party (AAP) leader Arvind Kejriwal during the hurly-burly of Delhi assembly elections----take cash from all political parties and thumb your nose at all of them. To be sure, he had only politics in mind but economics can be the upshot----the money going to the households would be spent, thus spurring demand for goods and services which is good for the economy.

A shrewd central banker, Rajan knows too much money need not always be inflationary especially if a substantial part of the cash goes in purchase of durables whose prices haven’t witnessed the kind of hike food prices had witnessed in the last couple of years. Be that as it may.

In fact, some economists are predicting a positive impact on the durables sector when the OROP money to the armed forces and the Pay Commission money to the babus, are released. I must however hasten to make it clear that the two are not strictly on all fours---pay arrears and hike is legit money whereas bulk of the election money is black. What we are discussing herein is the silver lining in the dark cloud of black money finding its way back into the mainstream completing its vicious cycle.

A brief elaboration is in order. Industrialists bankroll the political parties though it is widely known that parties in power make money from kickbacks from procurement contracts as well. The Companies Act does permit political donations upto 5% of profits but industrialists
by and large prefer the anonymity of cash donations for which they ask their companies to generate black money.

The political parties have mastered the art of breaking even large cash donations running into crores of rupees into micro units of Rs 20,000 each so as to duck the disclosure requirements under the income tax law. All these cash swells the bank accounts of the parties which do not fear the taxman unlike the lesser mortals who are grilled when they deposit more than Rs 10 lakh in a year in cash into their bank accounts. The taxman looks the other side similarly when huge cash is withdrawn for electioneering.

It is not as if all the electioneering expenses are to bribe the gullible if avaricious voters with cash---a substantial part of it goes into buying jeeps, cars and SUVs as well as in fuel to run them. To this extent, the real economy of which the automobile sector is a vital part, benefits. The brazen bribe while not always ending up buying the conscience of the voter, does lubricate the real economy with purchasing power improved.
In a way therefore elections and electioneering are money laundering tools---the money made on the sly finding its way back into the mainstream economy. This however does not mean we should condone generation of black money to the extent it is given away as political donations. Nor can it be a justification for the country being perpetually in an election mode and mood to break which Prime Minister Modi is suggesting in simultaneous elections for all elected bodies once in five years. The limited point is every dark cloud (read black money contextually) has a silver lining. Purists might turn around and say if greater purchasing power is what the silver lining accomplishes, it can equally be achieved by state funding of elections. True but it is another story for another time.

First Published On : Apr 7, 2016 17:38 IST

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