An Analysis of Corruption in India

What makes India’s property market the biggest sink of black money in the country? The Adarsh Housing Society scam threatens to topple ministers, politicians and military top brass, but that’s unlikely to slow property transactions in Mumbai, Delhi or anywhere else in the country. Some of these, according to anecdotal evidence, could involve as much as 60% to 70% of the payment in hard cash.

“Real estate is where most of the cash generated in the economy flows,” admits a finance ministry official, who doesn’t want to be identified.

He should know. In December, the ministry compiled the results from income tax investigations across the country: of the relatively modest Rs 4,500 crore uncovered, nearly half Rs 2,000 crorewas unearthed from real estate. About a quarter of the total was traced to manufacturing and a tenth to bullion.

We don’t notice it often, but despite its success in modern technology and services, India largely remains a cash economy. We pay the cabbie cash; we hand over banknotes to the family help and despite the growth of organized retail, we do most of our shopping at the local kirana store where the gentleman has a sign that reads, “In god we trust, rest only cash.

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One such store we visited claimed to service 300 households in the neighbourhood, supplying everything from soap and shampoos to cooking oil, flour, butter, biscuits and even plastic utensils. The owner refused to talk about sales and earnings, but the math wasn’t hard. Let’s say a household spends Rs 15,000 per month on essentials.

This store’s takings would be Rs 45 lakh per month.

Retail margins vary widely, from as little as 5% for soap and shampoo to as much as 50% to 100% for food and baltis. Even so, an average margin of say,a third, would leave the store owner with a profit of Rs 15 lakh a month. That’s Rs 1.8 crore a year. And it’s all cash.