Effects of Black Money on Economy

Black money is generated due to the following reasons:

  1. The people do not pay their taxes. Even if they pay taxes, they are not in correct proportions to their incomes. The tax evasions by corporate and industrial houses are to the tune of billions of rupees. These firms are able to make clever usage of the income tax rules and hence, they save taxes. This tax evasion leads to the generation of black money.
  2. The black money is earned by gifts, hawala transactions and illegal foreign exchange deals. These deals are not scrutinized by the government simply because these are without any documentary evidences.
  3. The procedures of over billing or under billing and exaggeration of expenses lead to the generation of black money. The sale and purchase of assets also lead to the generation of black money. The value of the property is shown to be very low in the documents whereas it has a very high value in the actual transaction. The businesses are conducted in other sectors of economy in the same manner and non-billed amounts are retained by the individuals and the firms as black money.

Black money is harming our national economy and we have achieved an economic growth rate of five percent per annum whereas the economy should have grown at the rate of eight percent in order to make up for the rising population pressures and infrastructural development requirements. Black money is the chief inhibiting factor in the process of national economic development.

The menace of black money has also increased the rich poor divide. The poor families are unable to afford even the square meals whereas the rich and the neo-rich are enjoying the luxuries of life. The Indian society has become poorer. Only the few sections of the society, which account for fifteen percent of the total population, have been able to enjoy the highest standards of living in this subcontinent. Therefore, the real poverty has increased and not decreased over a period of fifty years. The black money menace started during the seventies and it is now at its peak and the masses have suffered due to rising prices, inflation in business, poor exports and industrial recession. The rich few, however, have not felt the heat and continue to lead luxurious lives at the cost of their poor countrymen. It has connotation for which you have to exercise care and caution by utilizing your brain for converting a portion of black money or the entire money by converting into white money on a piece meal basis. In this form, you will be able to avoid the rigors of economic measures including taxation.

Black money could be curbed only through the strict efforts of the state and this is for the benefit of the masses as well. We should disclose our real incomes and must pay taxes regularly. We should avoid unhealthy means of making money. The nation must get out of the evil net of black money.

Problems of Black Money

Even after 70 years of independence, our country is faced with poverty and numerous economic ills. Even though socialistic pattern of society has been accepted in the constitution, our country is far away from socialism and her economy is in the grip of private enterprises. In fact, India has unlicensed economy which has given birth to corruption, inflation and black money. The concept of mixed economy has been harmful to both private and public enterprises. It has jeopardized our economy and hit the common man below the belt. The poor man has been becoming poorer and rich richer just because of the economic ills like inflation and black money. Black money which runs a parallel currency in wealth which is made overnight in violation of the rules and provisions stipulated by the state and a collusion with the state officials does not go unchecked. This kind of money is earned setting aside all human and moral values.

There are many sources of black money. Chief among these areas follows:

  • Import licenses.
  • Selling of cement licenses, steel and iron.
  • Transactions in heavy industries.
  • Transaction in public sector.
  • Release of industrial licenses.
  • Government and commercial transactions.
  • Forged and face currency.

Today the making of black money has become factor in our society because palatial houses, and cars, and in arranging cocktail parties and recreations in big hotels. Moreover, it helps a person getting everything done in time and to his best satisfaction.

There are many causes of converting genuine profit into black money. The chief among them are:

  • Inflation.
  • General and mid-term election.
  • Tax evasion.

The government itself is responsible for the creation of black money. The exorbitant rates of taxation on income, sales, wealth production and revenue inevitably lead to tax-evasion. The taxes on income and wealth are so high that an honest person will be left with little after he pays his due taxes. Many taxes on income and wealth are so high that an honest person will be left are encouraged by the government’s taxation policy to look for loopholes in order to refrain from reporting their income. Thus, the money earned as profit remains unaccounted for an unreported and is converted into white money by investing it in big houses, luxury items, gold ornaments, and showy marriages. The government has full knowledge about the quantum of black money which is pumped into our economy every year, but the government measures to check the growth and increase of unaccounted wealth has been ineffective. The missing element has been the will to strike at the root of the evil. That has been the sad story all these years. The customary ritual of declaring war on tax evasion at conferences of income-tax commissioners is faithfully performed every year. The public is told as usual that black money will be unearthed and evaders duly punished. Some operations of the income-tax department get wide popularity. The income-tax officials put themselves on news when the flat of a film star is auctioned or legal action taken against an industrial tycoon. But the problem of black money cannot be solved in this manner.

The political system itself breeds black money. The democratic system which means unlicensed freedom is largely responsible for the growth of corruption and black money. When political parties accept unaccounted money for election campaigns they not only heap generate black money but also protect the hoarders of ill-gotten wealth. It will be a major blow against the parallel economy, if it is made mandatory to audit the books of political parties. Such financing of elections could be also considered. The drive against the parallel economy will never be effective unless the nexus between politics and black money is broken.

The inflationary pressure also threatens our economy and gives birth to black money, which plays a decisive role in inflation and price responsible for inflation and black money. The inflation rate at present is above fifty percent of what has already taken place since twenty years back. In other words, we have become high cost economy with prices averaging fifty percent above what they had been in the country and the lowering of the common man. Unless some strict measures are taken to counter inflation and check high cost economy, the problem of black money cannot be solved. Black money, however, should be dealt with strict application of penal provisions and devaluation of our currency.

Thus, black money is growing unabated and it has become almost a parallel economy. People hoarding black money are trying to convert it into white money and thus causing inflationary pressure and high cost economy. One school of thought is of the view that the parallel economy has come to stay and it need not be disturbed because it plays a useful role. Condemnation of what is illegal goes against the grain of good administration and no government will be justified in pampering black marketers and tax evaders.

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