Tuesday, November 16, 2010
Black Money : Making India Uncompetitive
Indian economy is over a trillion dollar economy but lot of economist says that the parallel economy (in the form of black money or undisclosed transactions ) is as big as the real economy. Billions of rupees are never shown to the tax man to avoid tax . This black money is really bad for India. It is making India uncompetitive in business at a very fast pace . How ?
Black money usually goes into the investments where it is hard to detect. Usually people keep the black money in cash but it is hard to carry it every where and there is no return on it. Real Estate is the prime investment destination for it as the prices paid in white are abysmal and a very high amount to black money is involved to evade tax. Very high proportion of black money is chasing very few investment destination of real estate. The real estate prices are shooting over the roof. Now when the land prices are abnormally high due to vested interest of people some of the speculators bring in even more money in the real estate market which increases the costs even further. In a nut shell the black money is creating a bubble in the real estate market.
Now land and real estate are essential part of the infrastructure required for industries. Due to soaring cost of infrastructure the industry is finding it tough to be profitable. The entry barriers for small size co-operations are even higher. If you want to have even a small office in rime locations the money which is charged to you is as high as one in developed economies like USA or Europe with the pricing of products and services nowhere close to it. How will the industry in India survive in long term if the real estate price goes on increasing.
A Passing thought: It is good that lot of Indian black money is parked in the Swiss Banks as it will only worsen the condition of property markets in India.