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Black Money- Stain on the Indian Economy

Posted in Finance Articles, Total Reads: 1399 , Published on October 01, 2015

Money is a channel of transaction in any civilized societies all over the world. It is available today in the present world in two forms- apparent and hidden. The apparent form is legalised money by law and person holding it can used as per his preference and it is open for taxation, while hidden money usually referred as black money is illegalised money and the person holding it can used it as per his preference but is not open for taxation as there is no record of this black money available with the government.

When people generally think of black money they consider it as evaded, unaccepted money or illegally acquired assets or wealth made through accepting bribes and other acts which are morally depraved. But it is not limited to this only; it can be in any form like shares, bonds, real estate, shops, plot, cars, gold, silver etc. According to Global financial integrity (GFI), Russia is at the pinnacle with black money around 8 lakh crore, followed by China while India ranks third with 6 lakh crore in terms of total amount of black money moving out of country for year 2012. While as per 2014 GFI’s annual report on illicit financial flow, the cumulative illicit outflow from developing country for the last decade from year 2003 to 2012 stands at around 430 lakh crore. In these ten years, the illicit money which has moved out of India is around 28 lakh crore which positioned it at fourth place and accounts for nearly 10 percent of total black money of developing countries, after china with 82 lakh crore, Russia with 64 lakh crore and Mexico with around 34 lakh crore.

Image: pixabay

If we consider the present scenario of India, the purchasing power of rupees has dropped considerably, in other words there is all around price rise. Many factors are responsible for this, black money can be considered as one of the factors. Black money does this by creating a parallel economy, which directly helps the growth of massive personal taxation, in terms of different taxes. Now, if we consider a business then what usually the businessman do that they never show there actually earning, they either maintain a false record of their earning or do not maintain any record, as a result actual tax is never paid by them, which helps them to fill their own pocket and as a time passes so much money gets accumulated with them that it is impossible for them to show where the money has come or what is source of money. This money is the black money.

While shopping we never realise what is the consequence of not asking bill to the shopkeeper which results in thousands of crores of money of sales tax being unpaid by shopkeeper merely due to absence of bill receipt. To avoid this government has introduced Value added tax (VAT) where the sellers are taxed for the value added. But still the dealers’ shows much less sales what actually is, thereby resulting in black money. While exporting it is believed that on an average of 20 percent the bill is inflated by dealers. This 20 percent share directly comes into the account of the dealers on which he pays no tax which together amounts for hundreds of crores of rupees every year. The other means of black money is illegal trading which includes smuggling of precious stones, gold, silver, brown sugar, narcotics and other valuable goods. The cost of these commodities are usually very high in domestic as well as international market and the dealing are illegal, hence it comes under black money category and all these smuggling are carried out or handled by international rackets. And usually this type of trading is carried out at borders despite having tight border securities.

In India, politicians which are popularly known for corruption have an assets worth crores of rupees of black money which is much more than there known income. These politicians while in power collect money mainly from big businessman for allotment of petrol pump, license for doing particular business like liquor shop, setting up SEZ etc. Cases are pending in courts against them due to these illegal activities but this yields no results and they move as free and respected person in the society, still aware of what illegal activities they are involved in. If we talk about the executive class which includes bureaucrats and other class of people out of which many of them are involved in illegal activities like bribery etc., also comes under the category of black money holder.

Black money is illegally acquired money whose sole purpose is saving tax. The government due to this every year loses around thousands of crores of rupees which can be used in any project or development which can benefit society as well as people. This black money can be used by the government to build new hospitals, schools, college which can lead to the development of the country. India being a democratic country which upholds the values of fairness and quality, such favouritism and pick and choose for bribery and gratification is against the principle of democracy

As a consequence, government of India is trying to bring back the black money and also dig out the names of the person who are involved in such heinous act. The supreme court of India (SC) has appointed special investigation team (SIT) to act as watch dog and monitor investigation in relation to black money, and this body would directly report to SC. This SIT team is trying hard to bring back Black money, but there are many hindrances in the path sometimes there are opposition from the government, sometimes the person holding the account is a renowned person and many other. So only Future can tell what will be the result, India will be able to bring back the black money or not until then we can just hope for the best.

This article has been authored by Swapnil Zunke from IIM Kashipur




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