The consequences of black money in India include a decrease in tax revenue for the government, hindrance to economic growth, and a distortion in the distribution of wealth. It also contributes to corruption, as illicit funds are often used to bribe officials and engage in illegal activities.
Black money is a pervasive issue in India with severe consequences that go far beyond mere financial implications. Not only does it result in a decrease in tax revenue for the government, hindrance to economic growth, and a distortion in the distribution of wealth, but it also perpetuates corruption and illegal activities.
One of the most significant consequences of black money is its adverse impact on tax revenue. When individuals and companies engage in illicit practices to conceal their income, they evade paying taxes, leading to a substantial loss for the government. This, in turn, hampers the government’s ability to invest in public welfare programs, infrastructure development, and other essential services that benefit the nation as a whole. Renowned economist Kaushik Basu once stated, “India has the unenviable distinction of being one of the biggest underground economies in the world.”
The hindered economic growth is another profound consequence of black money. Black money operates outside the formal economy, depriving the government of data necessary for effective economic planning. This lack of reliable information makes it difficult for policymakers to formulate appropriate fiscal and monetary policies, which ultimately hamper economic growth. Additionally, the underground economy fueled by black money creates unfair competition for legitimate businesses, hindering their expansion and job creation potential.
Black money also contributes to a distortion in the distribution of wealth. Those who possess huge amounts of black money enjoy a disproportionate share of resources and opportunities, exacerbating income inequality in the country. As economist Thomas Piketty highlighted, “India’s rising inequality is particularly extreme.” The concentration of wealth in the hands of a few not only undermines social cohesion but also limits social mobility and perpetuates poverty.
Furthermore, the presence of black money fuels corruption and illegal activities. Illicit funds are often utilized to bribe officials, influence decisions, and facilitate illegal transactions. This further erodes trust in institutions, undermines the rule of law, and perpetuates a culture of dishonesty. The reliance on black money for such activities creates a vicious cycle that becomes increasingly difficult to break without concrete measures.
While the consequences of black money are dire, efforts have been made to combat this issue. The Indian government has launched initiatives like demonetization and implementation of the Goods and Services Tax (GST) to curb black money generation and circulation. International cooperation, such as exchanging financial information under the Common Reporting Standard (CRS), is also being leveraged to combat cross-border tax evasion.
In summary, black money in India has far-reaching consequences that impact various aspects of society and the economy. From diminishing tax revenue and hindering economic growth to distorting wealth distribution and fostering corruption, this issue requires concerted efforts and effective policies to curb its detrimental effects on the nation’s progress.
Interesting Facts:
- It is estimated that black money accounts for about 20-25% of India’s GDP.
- Various sectors, including real estate, jewelry, and politics, are known to be prone to black money transactions.
- The use of offshore tax havens to stash black money is a significant challenge in curbing its flow.
- Black money is often involved in financing illicit activities, including terrorism and drug trafficking.
Table:
Consequences of Black Money in India
| Consequence | Description |
|---|---|
| Decreased tax revenue | Black money leads to substantial loss of tax revenue for the government, impacting public welfare programs, infrastructure development, etc. |
| Hindrance to economic growth | Lack of reliable data from black money activity makes it difficult to formulate effective economic policies, hindering overall economic growth. |
| Distortion in wealth distribution | Concentration of black money in the hands of a few exacerbates income inequality, limiting social mobility and perpetuating poverty. |
| Contributing to corruption | Illicit funds are frequently used to bribe officials, engage in illegal activities, and undermine trust in institutions. |
Response to your question in video format
India’s black money problem accounts for approximately 28% of its GDP, amounting to $900 billion, with political funding being a major contributor. The black money economy is complicated, but it can be categorized into domestically generated black money and offshore black money. Switzerland is the primary destination for offshore deposits, with estimates for the amount sent there amounting to $11 trillion. Black money also funds elections, which the Election Commission of India is now seeking to control through strict cash donation limits. Despite the impact of demonetization on India’s cash economy, cash circulation has increased, and the introduction of Central Bank digital currency (CBDC) may not solve the black money problem.
There are several ways to resolve your query
Black money causes financial leakage, as unreported income that is not taxed causes the government to lose revenue. In addition, these funds rarely enter the banking system. As a result, it can be more difficult for legitimate small businesses and entrepreneurs to obtain loans.
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Also people ask
What is the corruption money in India?
The black money is accumulated by the criminals, smugglers, and tax-evaders. Around ₹22,000 crores are supposed to have been accumulated by the criminals for vested interests, though writ petitions in the supreme court estimate this to be even larger, at ₹900 lakh crores.
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Is black money taxable in India?
In reply to that: Black money refers to income that has not been reported to tax authorities or earned through illegal means, and it is generally subject to taxation under the law. Rate of tax: Tax @ 30% in respect of his undisclosed foreign income and asset of the previous year.
How much black money returned to India?
Response to this: NEW DELHI: Union Minister Ashwini Vaishnaw on Monday said that around Rs 1.25 lakh crore of black money have been recovered by the Government so far and disproportionate assets worth Rs 4,600 crore have been attached.
What is the black money law in India?
The reply will be: The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (BMA), which came into force from July 1, 2015, aims to tax hidden wealth of Indians stashed in tax havens, banks, properties and other assets through individual names, closely-held companies and discretionary trusts and foundations.
What are the effects of black money on Indian economy?
In reply to that: It is not always the government organizations which are corrupt and are the banks for black money but Non-Governmental Organizations (NGOs) are also reported to be corrupt and fraud. Consequences of black money will have an adverse impact on the Indian economy. Along with the economic effects, black money also has social consequences.
What is India’s black money law?
India ’s Black Money law, the statute that arms the tax office to go after citizens with secret foreign bank accounts and assets, will be tested before the Swiss courts this year.
Is black money bad money?
There is a perception that black money is bad money; bad for the nation and bad for the economy. Not really. In the first place, we need to understand the meaning of black money. Black money is explained as money earned on which no income tax is paid to the government.
How much black money is accumulated outside India?
The response is: (ii) The National Council of Applied Economic Research (NCAER) – concluded that the total amount of illicit wealth or black money, accumulated outside India between the years 1980 and 2010 was in the range of $384 billion (approximately Rs. 27 lakh crore at the exchange rate) to $490 billion.
What are the effects of black money on Indian economy?
Answer: It is not always the government organizations which are corrupt and are the banks for black money but Non-Governmental Organizations (NGOs) are also reported to be corrupt and fraud. Consequences of black money will have an adverse impact on the Indian economy. Along with the economic effects, black money also has social consequences.
What is India’s black money law?
As an answer to this: India ’s Black Money law, the statute that arms the tax office to go after citizens with secret foreign bank accounts and assets, will be tested before the Swiss courts this year.
Is black money bad money?
The reply will be: There is a perception that black money is bad money; bad for the nation and bad for the economy. Not really. In the first place, we need to understand the meaning of black money. Black money is explained as money earned on which no income tax is paid to the government.
How much black money is accumulated outside India?
(ii) The National Council of Applied Economic Research (NCAER) – concluded that the total amount of illicit wealth or black money, accumulated outside India between the years 1980 and 2010 was in the range of $384 billion (approximately Rs. 27 lakh crore at the exchange rate) to $490 billion.