Whitening black money, and the provision in the proposed budget for this, remains very controversial. While this editorial does not address the issue itself, it is clear that the proposed methodology to “whiten” this money is not very well thought out, and will likely do more harm than good.
As per the finance minister’s budget, black money can be invested in the real estate sector, given this sector’s recent downturn.
Unfortunately, the government has ignored the economic effects that this will likely cause; this will only benefit those who probably already own a home, and it will lead to inflation in the price of real estate, pushing it further out of the reach of the general public.
Instead, the government could put forth a scheme where instead of using costly savings tools to recapitalise state-run banks, they could just sell bonds to black money holders, and use this to recapitalise banks.
Upon maturity of the bonds, those who purchased them would only receive face value (with no interest paid out at any point), but with the benefit that the money would now be documented, and no longer illegal. The only cost to them is the opportunity cost involved with having illiquid assets for a period of time.
This means that state-run banks are re-capitalised at no cost to the government and could offer loans to sectors that need it, at extremely competitive rates, thus increasing capital through interest earned on these loans.
This means that everyone wins – state-run banks, sectors in need of financing and those who currently harbour black money.