When the world around us ponders over the corruption and black money, it is important to note why our money becomes black and why, instead of rising asset prices in India, we are not facing an asset bubble in our face.
Well, when Mr. Babu took money from the contractor, he could eventually not deposit it in a bank account. So, he thought to buy a house instead in the name of his wife. The govt. norms would not allow him to buy a house (an asset) quite costly vis-a-vis his income. So he told the seller that I will pay you half black and the rest white. Obviously, the owner was happy. Now, India does not have practice of issuing loans as per the market rate. The Indian Property law is not market driven, as the law should never be. The law can be based on some parameters but it should not be dynamically driven by it. The Indian lawmakers probably saved the day for India.
When the world was having a turmoil, 50-60% of our GDP was finding ways to be spent since the only thing stopping it was the archaic Law of India. If it would have been the other way around, Mr. Babu could have shown a stock purchase, inflated his profits therby making it legitimate and then, on the books, bought the house for an x amount registered in the banks. Bank also knows that Mr. Babu's home costs a lot more than he has shown in papers and in case of a scrutiny, the same can be highlighted.
The transparency would have made the market hands on thereby making the fall more steep. In India, housing price is a localized and customized phenomenon. This saves the day when everything is falling down, because the actual cost is always higher than that in the books. So, all in all, black money becomes a savior when macro-economic situation is not looking fine. And that would not have been possible without the old and beautiful Indian law.
