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Black Money in Indian Economy

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Black money has long plagued India's economic landscape, posing significant challenges to its growth and development. The prevalence of black money in India's economy continues to pose hurdles to its progress. Black money refers to undisclosed income that evades taxation and regulatory authorities. Its generation occurs through various means, including tax evasion, corruption, money laundering, and illicit activities. India's vast informal sector and cash-based transactions have been instrumental in the generation and circulation of black money.

The presence of black money in the Indian economy has severe repercussions. Firstly, the black money economy exacerbates income inequality, as unaccounted wealth is concentrated in the hands of a few individuals. This wealth disparity hampers social and economic progress, contributing to social unrest. Secondly, black money leads to reduced tax revenues, constraining the government's ability to invest in public services and infrastructure. Moreover, it fuels corruption, erodes trust in institutions, and distorts market mechanisms, impeding economic growth and deterring foreign investments.

Recognizing the gravity of the issue, the Indian government has implemented several measures to combat black money. One notable step was the demonetization drive in 2016, aimed at curbing the circulation of unaccounted cash and black money generation. The introduction of the Goods and Services Tax (GST) has streamlined the tax system, enhancing transparency and reducing tax evasion. Additionally, the government has taken initiatives such as the Benami Transactions Act to target those holding properties through illegal means. These efforts reflect a commitment to tackling the black money economy and promoting a more equitable and transparent economic environment.

Addressing the black money challenge requires a comprehensive approach. Strengthening tax administration and increasing the use of technology to track financial transactions can help reduce its generation. Estimating the exact black money percentage in India is challenging due to its clandestine nature. However, studies suggest a range of 20% to 50%, representing a significant portion of the country's GDP. Encouraging digital payments and promoting financial literacy can incentivize people to opt for legitimate channels. Simplifying tax structures and reducing excessive tax burdens can also discourage tax evasion. Stricter penalties for those involved in money laundering and tax evasion can act as effective deterrents. Furthermore, promoting transparency in political funding, strengthening anti-corruption measures, and improving governance practices are vital for eradicating the root causes that fuel the black money economy.

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