Ace economist Kaushik Basu opines on how black money actually helped avert a crisis for India

It turns out that India came quite close to having its own version of the subprime mortgage crisis, but didn’t. Economist Kaushik Basu shone a spotlight on the main reason why it didn’t, while delivering the 23rd Lalit Doshi memorial lecture in Mumbai recently: black money. His remarks on the subject came with a disclaimer that he expected the “intelligent audience” to understand what he was saying and not misinterpret it.

“Black money saved India from having subprime crisis. In India, when people buy a house, they will show the value of the house as half its real value because that’s what’s shown on paper. So the bank loan that you are taking is on 40-45 per cent of the full value of the house. So even if that part (repayment of loan) goes wrong, the solid, real asset backing this up is valued much higher,” he explained. It “really annoys” him when people ask if this means that Basu thinks black money is good.

“It’s like saying, on the way to the airport, I had a small car accident, so I was so lucky because the plane then had a crash. You are not saying that the car accident is a good thing. You are saying it’s a bad thing which had one good consequence. So it is in that spirit,” Basu said.