Economy (by Reddy Sir)

BLACK MONEY

B K REDDY SIR NEXT IAS

Which one of the following effects of creation of black money in
India has been the main cause of worry to the Government of
India? 2021
A. Diversion of resources to the purchase of real estate and
investment in luxury housing
B. Investment in unproductive activities and purchase of
precious stones, jewellery, gold, etc.
C. Large donations to political parties and growth of
regionalism
D. Loss of revenue to the State Exchequer due to tax evasion
Black money
• Black money is money on which tax is not paid to
the government.
•The Paper defines black money as:

•‘assets or resources that have neither been

reported to the public authorities at the
time of their generation nor disclosed at
any point of time during their possession’.
• The total amount of black money deposited in
foreign banks by Indians is unknown.

• 2015 HSBC leaks

• 2016 Panama Papers leak

• Paradise papers
There is no uniform definition of black money in the literature
or economic theory.

In fact, several terms with similar connotations have been in

vogue, including
‘unaccounted income’, ‘black income’, ‘dirty
money’, ‘black wealth’, ‘underground
wealth’, ‘black economy’, ‘parallel economy’,
‘shadow economy’, and ‘underground’ or
‘unofficial’ economy.
Illegal Activity:

Money that is earned through illegal activity is obviously not reported to

the tax authorities, and so is black.

Legal but Unreported Activity:

The second category comprises income from legal activity that is not
reported to the tax authorities.
• Eg : A store that accepts cash for its merchandise and
does not issue receipts to its customers will be
transacting in black money, as it would not pay tax on
the unaccounted sales.

• Black money proceeds are usually received in cash

from underground economic activity.
Estimates of Black Money Generated in India
There are no reliable estimates of black money generation or
accumulation, neither is there an accurate well-accepted
methodology for making such estimation.

By its very definition, black money is not accounted for, thus all
attempts at its estimation depend upon the underlying
assumptions made and the sophistication of adjustments
incorporated.
• The total amount of black money deposited in
foreign banks by Indians is unknown.

• 2015 HSBC leaks

• 2016 Panama Papers leak

• Paradise papers
Institutions to Deal with Black Money

the CBDT and the Central Board of indirect and Customs (CBIC)
the Enforcement Directorate (ED)

Financial Intelligence Unit (FIU)

 Economic Offences Wing of the State Police,

Central Bureau of Investigation (CBI),

Serious Frauds Investigation Office (SFIO)

 Narcotics Control Bureau(NCB)

The ED was established in 1956 to administer the provisions of the
Foreign Exchange Regulation Act 1973 (FERA).

However, FERA was repealed on 31 May 2000 and replaced with the
Foreign Exchange Management Act 1999 (FEMA) which came into
force with effect from 1 June 2000.
The FIU-IND was established by the Government of India vide an
Office Memorandum dated 18 November 2004

for coordinating and strengthening efforts for national and

international intelligence by investigation and enforcement agencies
in combating money laundering and terrorist financing.
The NCB, which functions under the Ministry of Home Affairs,

was established on 17th March 1986

its functions include co-ordination of actions by various offices, state

governments, and other authorities under the Narcotics Drugs and
Psychotropic Substances (NDPS) Act 1985, Customs Act, Drugs and
Cosmetics Act, and any other law for the time being in force in
connection with the enforcement provisions of the NDPS Act.
The SFIO functions under the Ministry of Corporate Affairs

takes up for investigation complex cases having inter-

departmental and multidisciplinary ramifications and
substantial involvement of public interest, either in terms of
monetary misappropriation or in terms of persons affected.
Sources of BM
• High Tax Rate
• price control policy
• different excise duties
• High inflation
• real estate
• Corruption etc
Impact of black money on Indian economy:
Mass poverty:
The distribution of wealth and income in our country has
been severely affected by the growth of underground
economy.

Uncontrollable inflation:
When black money is out in the market, the amount of
money in the system is higher than the one Government
expects. This causes the prices of commodities to increase to
a level beyond normal.
Loss of revenue to the state exchequer:
Many times, the Indian Government has failed to collect the
estimated amount of tax439 from the people and for this,
credit has to go to the black money driven underground
economy.

Inflated real estate:

When people with deep pockets are ready to pay more for a
piece of land, the price of surrounding land also tends to
increase;
Underestimation of GDP:
Black income has been causing underestimation of GDP in India
as enormous volume of income is diverted to this unaccounted
sector resulting in growing continuation of parallel economy of
the country
Black money is always promoting anti-social activities
like Terrorism, Kidnapping, and Murder etc. in the
society
Major steps in fight against black money
1. Constitution of SIT on Black Money

2. Declaration of Black Money

3. Linking bank accounts with Aadhaar and PAN

4. Benami Transactions (Prohibition) Amendment Act, 2016

 Black Money and Imposition of Tax Act 2015

Information exchange agreement with

Switzerland.

Changes in Tax treaties with Mauritius, Cyprus and

Singapore
6 Double Tax Avoidance Agreement (DTAA)

7 GAAR

8 Action Against Shell Companies

9 Demonetization
Prevention of Money Laundering Act 2002

was enacted to prevent money laundering and provide for

confiscation of property derived from, or involved in, money
laundering and for matters connected therewith or incidental
thereto.
The Fugitive Economic Offenders Act, 2018

It seeks to confiscate properties of economic

offenders who have left the country to avoid
facing criminal prosecution or refuse to
return to the country to face prosecution.
Fugitive economic offender

A person against whom an arrest

warrant has been issued for committing
an offence listed in the Act and the value
of the offence is at least Rs. 100 crore.
The Black Money (Undisclosed Foreign Income
and Assets) and Imposition of Tax Act, 2015
Objectives of Demonetization

1. Corruption
2. Counterfeiting
3. The use of high demonetisation notes for
terrorist activities
4. Accumulation of Black Money generated by
income that has not been declared by the tax
authorities.
• This is not the first time that the country has demonetised its
currency.

• It was first recommended in 1970 by K.N. Wanchoo committee

which suggested demonetisation of 10,100 and higher denomination
to combat the scourgeof black money.

• There are 2 previous instances of Demonetization in 1946 and

1978 in India.
•The Direct Taxes Enquiry Committee
(Wanchoo Committee)
• Soil rate is the rate at which notes are considered to be too
damaged to use and have been returned to the central bank.

• High ---less soil rate

conclusion
• Prevention and control of black money is pre-requisite for
establishing an equitable, transparent and efficient economy.
As economy is the backbone of a country, black money will
paralyze the economy

• Relaxation in tax laws, simplification of tax laws, removal of

drawbacks in the tax system, proper processing of information
available can be the best tool for the betterment of Indian tax
compliance. Educating the people about the tax laws is vital as
it will create an atmosphere to perform their duties to the
nation.
•Elaborate the scope and significance of
the food processing industry in India.
(Answer in 150 words) 10
•Elaborate the policy taken by the Government of
India to meet the challenges in the food
processing sector? (2019)
IMPORTANT DRIVERS
• India is the world’s second–largest producer of fruits and
vegetables.

• India has second largest production of marine products, and meat

and poultry

• India is the single largest producer of milk in the world, with the
production estimated at 137.7 MT.
• Ministry of Food Processing Industries
(MoFPI), GoI
• India has the largest livestock population across the globe which is
equal to 512 million, including 119 million milch (in-milk and dry)
animals, 135 million goats and 65 million sheep.

• The segment contributes about 25 per cent to the country’s farm

Gross Domestic Product (GDP).
Key drivers for growth of food processing
sector(scope)
Rising disposable income
Increasing urbanization and higher consumer spending
Changing lifestyles and consumption pattern
Spread of modern retail sector
Improvement in back-end infrastructure (cold storages)
Growing popularity of processed food
Policy support etc
Food processing?
• As per Ministry of Food Processing of India (MOFPI),

• the term 'food processing' is mainly

defined as a process of value addition to
the agricultural or horticultural produce
by various methods like grading, sorting
and packaging.
• Food processing is a technique of manufacturing and preserving
food substances in an effective manner with a view to enhance
their shelf life; improve quality as well as make them
functionally more useful.

• Food processing sector is a sunrise sector in India.

• It provides many positives prospects as well as face many

challenges.
Major Segments in the Food Processing
Sector
•fruits and vegetables, dairy, edible oils, meat and
poultry, non-alcoholic beverages, grain-based
products, marine products, sugar and sugar based
products, alcoholic beverages, pulses, aerated
beverages, malted beverages, spices, and salt etc
Manufactured Processes:

• If any raw product of agriculture, animal

husbandry or fisheries is transformed through
a process [involving employees, power,
machines or money] in such a way that its
original physical properties undergo a change
and if the transformed product is edible and
has commercial value
Value-Added Processes:

• if there is significant value addition

(increased shelf life and ready for
consumption etc.)
Objectives of Food Processing
Preservation
Safety:
Quality:
 Availability:
Sustainability:
Health and Wellness:
Significance of Food Processing Industry

• Introduction

• The Food Processing Industry (FPI) is of enormous

significance as it provides vital linkages and synergies
that it promotes between the two pillars of the economy,
i.e. agriculture and industry.
• Food Processing industries Sector has been growing at an average
annual growth rate of around 11.18 per cent during the last 5 years
ending 2019-20.

9.8/ per cent of GVA in manufacturing in 2019-20 at 2011-12 prices.

FP/ sector contributed to 10.7 per cent of Indian exports in 2019-20.

As per the Annual Survey of Industries (ASI) 2018-19,
20.05 lakh persons were engaged in food processing sector.

the sector contributed the largest share of 11.22 per cent of the total
persons engaged in the registered manufacturing sector in the country.

Unregistered food processing sector supports employment to 51.11 lakh

workers as per the NSSO 73" Round, 2015-16

thus 14.18 per cent of employment in the unregistered manufacturing

sector.
20.2% % share of GVA of agriculture and allied sector to total
economy

11.6% Share in total employment

10.4% Share in India's exports

 Significant benefits

 Farmer – higher yield, better farm realization, lower risk

 Consumer – greater variety, lower prices, new products

 Companies – new business opportunities
 Economy/Government – Employment generation, reduced rural
migration
• Reduce food wastage: UN estimates that 40% of production is
wasted.

• Similarly, NITI Aayog estimated annual post-harvest losses of close to

Rs 90,000 crore.

• With greater thrust on proper sorting and grading close to the farm
gate, and diverting extra produce to FPI, this wastage could also be
reduced, leading to better price realisation for farmers.
•CHALLENGES AND STEPS NEEDED???
• At present most of the industries are in
unorganized sectors. So, numbers of
problems are arising from different
sections of the industries. Some of the
basic problems encountered by Indian food
industries at different levels are given
below.
Farm level problems
• Poor yield of farm produce and therefore low returns • Lack of
material resources necessary for development • Primitive methods of
farming
• No control on quality of inputs and lack of finance to manage.
• Vagaries of weather
• Unavailability of reliable handling and transportation system
• Lack of storage facilities at farm
Distributors problems

• Lack of modern transportation facilities and high cost

• Inadequate cold storage faculties
• Irregular quality of farm produce
Processing industries problem

• Financing
• Higher import duties • Higher cost of raw material and packaging
• Inadequate transport and cold storage facilities
• Infrequent availability of refrigerated containers
• Staggering advertising costs
• Limited domestic market
Consumer discontent

• Does not get value for money

• The price variation is a day to day affair
• Continued dependence on seasonal products
• Lack of variety of semi processed or prepared convenience
food at affordable prices.
Facility Required Available

Cold storage
35.1 31.8
(in million MT)

Pack-houses 70,080 249

Reefer vehicles 61,826 9,000

Ripening
9,131 812
chambers
Steps taken by GOVT
•FDI up to 100%, under the automatic
route is allowed in food processing
industries.
Sl Year FDI
No (April to March) (in USD million)
1 2016-17 727.22
2 2017-18 904.90
3 2018-19 628.24
4 2019-20 904.70
5 2020-21 393.41
6 2021-22 709.71
Grand Total 4,268.19
•Agro-Processing included in Priority
Sector Lending Loans
PM Kisan Sampada Yojana
• The objective of PMKSY is to supplement
agriculture, modernize processing and decrease
agri-waste.

• It is an umbrella scheme incorporating ongoing

schemes
following schemes are to be implemented.
• Mega Food Parks.
• Integrated Cold Chain, Value Addition and Preservation
Infrastructure.
• Creation/Expansion of Food Processing/Preservation
Capacities.
• Infrastructure for Agro Processing Clusters.
• Scheme for Creation of Backward and Forward Linkages.
• Food Safety & Quality Assurance Infrastructure.
• Human Resources and Institutions.
Mega Food Parks Scheme
• implemented since 2008

• aims to create a modern food processing

infrastructure for the processing units based on a
cluster approach

• The scheme intends to facilitate establishment of an

integrated value chain, with food processing at the
core and supported by requisite forward and backward
linkages.
• The Scheme of Mega Food Park aims at providing a
mechanism to link agricultural production to the market by
bringing together farmers, processors and retailers so as to
ensure maximizing value addition, minimizing wastage,
increasing farmers income and creating employment
opportunities particularly in rural sector.
• The Mega Food Park Scheme is based on “Cluster” approach
and envisages creation of state of art support infrastructure in
a well-defined agri / horticultural zone for setting up of
modern food processing units in the industrial plots provided
in the park with well-established supply chain.

• Mega food park typically consist of supply chain infrastructure

including collection centers, primary processing centers,
central processing centers, cold chain
With what purpose is the Government of India promoting the
concept of "Mega Food Parks”? (2011)

1 To provide good infrastructure facilities for the food processing

industry.
2 To increase the processing of perishable items and reduce wastage.
3 To provide emerging and eco-friendly food processing technologies
to entrepreneurs.

Select the correct answer using the codes given below:

a) 1 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2 and 3
• The Ministry of Food Processing Industries
announced a scheme for Human Resource
Development (HRD) in the food processing sector.
• The HRD scheme is being implemented through State
Governments under the National Mission on Food
Processing.
The scheme has the following four components:

• Creation of infrastructure facilities for degree/diploma

courses in food processing sector
• Entrepreneurship Development Programme (EDP)
• Food Processing Training Centres (FPTC)
• Training at recognised institutions at State/National level
Requirement of Cold Chain

Gaps in cold chain infrastructure (2014)

Source: Standing Committee on Agriculture 2018;

Food Testing Laboratories Assisted
During 2007-08 to 2018-19
OBJECTIVE:
to support the creation of global food manufacturing champions;

promote Indian brands of food products;

increase employment opportunities for off-farm jobs, ensure

remunerative prices of farm produce

higher income to farmers.

•to promote the creation of global food
manufacturing giants by utilizing Indian
resources and supporting Indian brands to
explore international markets.
• Production Linked Incentive Scheme for Food Processing Industry
(PLISFPI):

• The scheme came into existence on March 31, 2021, and aimed
• The PLISFI scheme will be implemented from FY22 to FY27 with a
total outlay of Rs. 10,900 crore (US$ 1.4 billion).
• Government of India (GOI) has approved a new Central
Sector Scheme - “Production Linked Incentive Scheme for
Food Processing Industry (PLISFPI)”

• 2021-22 to 2026-27 with an outlay of Rs. 10,900 crore.

• The scheme is being implemented by Ministry of Food

Processing Industries (MoFPI)
PM Formalization of Micro Food Processing
Enterprises Scheme (PMFME)

•for providing financial, technical, and

business support for the up-gradation of
existing micro food processing enterprises.
• Subsidy: Under the Pradhan Mantri Formalisation of Micro
Food Processing Enterprises (PMFME) Scheme with the
ODOP approach,

• a credit-linked capital subsidy comprising 35% of the eligible

project cost, up to Rs. 10 lakh (US$ 13,379.7) may be
provided.

• The beneficiary may need to contribute at least 10% of the

amount and the balance as a bank loan.
• The scheme adopts the One District One Product
(ODOP) approach to reap the benefit of scale in
terms of procurement of inputs, availing common
services and marketing of products.

• ODOP for the scheme will provide the framework for

value chain development and alignment of support
infrastructure.
• to realise every district's true potential, generate
employment, fuel economic growth and promote rural
entrepreneurship.

• The initiative would help achieve the Prime Minister's

vision of Atmanirbhar Bharat.
• Locational factors ---Food Processing Industries