Black Money and Inflation :

I note with some concern that Kaushik Basu in his article on inﬂation (“Understanding Inﬂation and Controlling It”, EPW, 8 October 2011) has not seen it ﬁt to discuss the possible role that black money may be playing in fuelling inﬂation. Though he does mention the massive leakages that are taking place in the public distribution system, he does not elaborate on what the black money generated from such leakages might be doing to drive inﬂation.

I note with some concern that Kaushik Basu in his article on inﬂation (“Understanding Inﬂation and Controlling It”, EPW, 8 October 2011) has not seen it ﬁt to discuss the possible role that black money may be playing in fuelling inﬂation. Though he does mention the massive leakages that are taking place in the public distribution system, he does not elaborate on what the black money generated from such leakages might be doing to drive inﬂation. Similarly, the leakages taking place from the Mahatma Gandhi National Rural Employment Guarantee Scheme are also increasing the generation of black money, while the real creation of assets is not taking place.

Though black money has been a constant phenomenon in the Indian economy, it is possible that its availability and use may have gone up substantially from 2008 onwards in the wake of the global ﬁnancial meltdown. There is a strong possibility that the black money parked outside India may have been brought back to the country in the wake of the meltdown and invested in real estate and agricultural commodity trading where a substantial amount of dealing is traditionally done off the record.