Q.Money laundering poses a serious threat to country’s economic sovereignty. What is its significance for India and what steps are required to be taken to control this menace?
How to approach: Identify every sub-question in the prompt, allocate dedicated sub-headings to each part, substantiate points with examples/data, and conclude with a forward-looking Way Forward.
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Money laundering is the process of converting illegal proceeds into legitimate assets, posing a significant threat to a country’s economic sovereignty. According to government data, the Enforcement Directorate (ED) has registered more than 5,200 money-laundering cases since 2014. In India, money laundering is not only linked to tax evasion and corruption but also to the financing of terrorism and organized crime, making it a critical issue for the country’s financial security and governance.
Body
Significance of Money Laundering for India
- Destabilization of Financial Systems: Illicit money entering the banking system undermines the financial sector. According to the Reserve Bank of India (RBI), banks reported nearly ₹150 billion in suspicious transactions between 2018 and 2023, highlighting the destabilizing impact of unregulated funds entering the system.
- Threat to National Security: Money laundering channels are often used for terrorism financing. For instance, in 2019, Indian authorities uncovered a large hawala network that funded terrorist activities in Jammu & Kashmir, underlining the connection between money laundering and national security threats.
- Economic and Revenue Losses: The Tax Justice Network estimates that India loses more than ₹3 trillion annually due to tax evasion linked to money laundering. This deprives the government of essential resources for public infrastructure and welfare schemes.
- Corruption and Black Money: A significant portion of India’s black money, estimated to be over ₹30 lakh crore, is funneled into offshore accounts or laundered through real estate, gold, and other assets. This has been a major hurdle in curbing corruption and enhancing governance.
- Impact on International Relations: India’s ranking in the Basel AML Index 2023, which assesses countries’ anti-money laundering risk, stood at 51 out of 152 countries. This raises concerns about India’s global standing in terms of financial transparency and its ability to attract foreign investment.
Steps Required to Control Money Laundering
- Strengthening Legal Framework: India’s Prevention of Money Laundering Act (PMLA), 2002 has been instrumental in combating money laundering, but enforcement needs to be more stringent. In 2021, only about 4% of cases registered under the PMLA resulted in convictions. Tougher penalties and faster legal proceedings are essential for more effective deterrence.
- Enhancing Coordination Between Agencies: Better coordination is needed between agencies like the Enforcement Directorate (ED), Financial Intelligence Unit (FIU-IND), and Income Tax Department. In 2020, the ED seized assets worth ₹1,984 crore in cases related to money laundering, showcasing the need for continuous cross-agency cooperation.
- Tightening the Financial Sector’s Monitoring: Financial institutions must be more vigilant in identifying and reporting suspicious activities. According to the Financial Intelligence Unit (FIU), Indian banks filed over 1.8 million Suspicious Transaction Reports (STRs) in 2020, highlighting the importance of enforcing Know Your Customer (KYC) and Anti-Money Laundering (AML) norms.
- International Cooperation: As money laundering often involves cross-border transactions, India must strengthen international cooperation. In 2022, India joined the Egmont Group, an international body of 167 countries focused on combating money laundering, to share information and resources for combating cross-border financial crimes more effectively.
- Public Awareness and Reporting Mechanisms: Building public awareness through campaigns and creating a safe environment for whistleblowers is crucial. The Whistle Blowers Protection Act, 2014, if fully implemented, can provide greater protection to individuals who expose money laundering schemes, boosting transparency.
Conclusion
Money laundering poses a significant threat to India’s economic sovereignty, with serious repercussions for its financial system, governance, and national security. The solution lies in enhancing legal frameworks, improving coordination among agencies, enforcing stricter monitoring in the financial sector, and expanding international cooperation. By taking these steps, India can curb the menace of money laundering and strengthen its financial and economic integrity, ensuring a more secure future for the nation.
Question Specifications, Marking Rubric & Syllabus Mapping
| Examination & Year | UPSC Civil Services Mains Examination 2013 (Question 1) |
|---|---|
| Paper & Syllabus Topic | General Studies Paper III — Economy, Environment, S&T & Security → Internal Security, Cyber & Border Management |
| Marks, Word Limit & Ideal Time | 10 Marks • 150 Words • Ideal Writing Time: 7–8 Minutes |
| Directive Word & Core Demand | Analytical / Multi-Dimensional: Address all explicit sub-parts of the question with balanced arguments, factual illustrations, and a solution-oriented conclusion. |
| Recommended Structure Split | Intro: ~20–25 Words • Body: ~100 Words (3–4 dimensions) • Conclusion: ~20–25 Words |
| AI Practice & Evaluation Tools | Upload Handwritten Answer for 3-Min Vision AI Evaluation | Generate Custom Answer & Mind Map |
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Frequently Asked Questions — UPSC Mains 2013 GS3 (Internal Security)
How should I structure the answer for this UPSC Mains 2013 GS Paper III question on Internal Security?
This 2013 GS Paper III question carries 10 marks with a 150-word limit and uses the "Analytical / Multi-Dimensional" directive. Identify every sub-question in the prompt, allocate dedicated sub-headings to each part, substantiate points with examples/data, and conclude with a forward-looking Way Forward. Follow the ideal word split (Intro: ~20–25 Words • Body: ~100 Words (3–4 dimensions) • Conclusion: ~20–25 Words) and aim to finish within 7–8 Minutes.
Which UPSC Mains syllabus topic does this 2013 question belong to?
This question is part of General Studies Paper III — Economy, Environment, S&T & Security under the syllabus module "Internal Security, Cyber & Border Management". You can explore all repeated questions from Internal Security in Acme AI's 3D PYQ Realm or filter all Internal Security PYQs on the Mains PYQ Directory.
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