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Impacts of Black Money
Impacts of Black Money
Tags: Gig Economy Economy WTO WTO Public Stockholding MSP Economic Growth Masala Bond Environmental Performance Index Forecast of Economic Growth Functions of the Finance Commission
The Black Money definitionencompasses all funds that are earned through illegal activities and also incomes that are not reflected in the tax framework of a nation. Thus, the amount is hidden from government authorities and they are not accounted for in the national income or the Gross Domestic Product (GDP) of a country. It is also known as a parallel economy and the money is not exposed for scrutiny to public authorities at any point throughout the possession period. The amount is massive and most of it is stashed abroad through Hawala and other means to tax havens like Mauritius, Switzerland, etc. Also, they are rerouted to the country as white money in different ways so that their owners retrieve the amount back and a whole cycle goes on.
Several black money factors work towards its generation and they include embezzlement, corruption, under-reporting of imports, over-reporting of exports, smuggling, contraband drug trafficking, sexual offences and many other types of unlawful activities. Even some corporations are responsible for it through the manipulation of accounts, land and real estate transactions, etc. An increase in commodity prices like petrol can also be responsible for the creation of black money.
Due to the sheer volume, there can be substantial consequences of black money and the most important among them is related to the economic growth of the country. This type of money rarely enters the banking system and, as such, it causes financial leakage because untaxed and unreported income leads to lost revenue for the government. Over a period, it creates a perpetual growth of economic dualism and can ruin the entire economic development. The consumption pattern can be tilted toward the wealthy class and an overall rise in consumption will leave minimal resources for investment in priority sectors, leading to adverse effects on production.
Due to these consequences, the impact of black money on Indian economy can be quite horrible as there will be regressive income distribution within the society. With the concentration of wealth and income in just a few hands, it will further widen the gap between the rich and the poor. Moreover, it can be difficult for legitimate entrepreneurs and small businesses to obtain loans from banks which will be detrimental to overall economic growth. In the long run, it only undermines equity.