Share Link:

How is the black economy impacting the country and all of us?


The existence of a parallel economy
There has been a steady increase of black money in India over the years leading to the existence of a dual economic growth called a Parallel economy (black money economy) that operates along with the the Official or Reported economy of the country. It represents about one fifth of the economic transactions. There is a subtle exchange of currency between the reported and unaccounted activities and hence it is not easy to identify black money from the white money economy. The existence of a Parallel Economy will disrupt the economic growth and development of India.

In India, sources of such income are from illegal and multifarious activities rising out of corruption. Smugglers, hoarders ruling the black market, criminals,gamblers,tax evaders, corrupt businessmen and corporations all indulge in such nefarious activities. They accumulate black money and get away from detection and the law due to the laws being loose and strict punishments not meted out to them. Their crimes, even if detected go unpunished. They get away by bribing corrupt officials. Offenders get away scot-free.

Companies in India are ridden by corrupt practices such as transfer mispricing due to under-billing of their exports and over-billing their imports from tax haven countries such as some Asian and Middle East countries.Such money gets parked in some countries such as Swiss bank accounts and places like Mauritius etc. and pumped back into the economy after being laundered, as foreign investments.

Such money is used largely for personal consumption or pumped back into the market after money laundering. Sometimes they even find their way into the banks and converted to white money for savings. Such activities happen due to un-detection by banks and loose knit regulations and non-adherence to banking rules.

Economic analysts give different opinions and perspectives on the size of this shadow economy. It is agreed that irrespective of the size of this underground economic activity, the fact that it exists and operates in this country means that it impacts to a large extent the gross domestic product (GDP) figures and other key economic statistics and metrics such as unemployment in a country.

Black economy and its impact on India’s GDP

Calculations of GDP is usually done based on the total of four components: personal spending, business spending, government spending and net exports. GDP is thus impacted as very often personal spending and business spending transactions go primarily unaccounted and unreported.

So, what are some evil effects of black money?

A. Tax evasion: Loss of revenue to the government resulting in difficulty in planning and executing economic and fiscal policies and programs.

B. Education– It has a huge cascading effect as it impacts every aspect of a citizen’s life – e.g. for Education – schools become unaffordable to large sections of Indian society when the government cannot spend on education. Illiteracy is a major private hurdle in development.

C. Health– government hospitals are not sufficient to provide healthcare to India’s millions. There is a resultant increase in hospital bills, doctors’ fees, laboratory expenses etc.

D. Social injustice– It is against the very concept of social justice as undisclosed income results in the government increasing taxes on existing taxpayers, and legitimate activities. Also, black money hoarders can enjoy the benefits of government spending such as on roads, water, electricity etc. without making their due contributions in taxes.

E. Inequitable wealth in society– Widens the gap between the rich and the poor.

F. Inflation– Results in spiraling inflation as black money holders tend to splurge and can afford to pay over-the-market prices on scarce commodities.

G. Real estate price rise– Inflates the prices of land and gold unrealistically as black money is parked in these assets.

Conclusion: Black money affects every aspect of life with the rich getting richer, the poor getting poorer and inequitable distribution of all resources. When resources are siphoned off, it is difficult for India as a nation, to achieve world standard in anything, whether in sports or technology, research, etc. It gives birth to a morally depleted nation with no standards of living an ethical life. It is an evil that needs to be stopped so that the nation can progress as a true welfare state.

What is the government doing to curb it?

Prime Minister Narendra Modi’s step to withdraw ₹500 and ₹1000 banknotes from the financial system was part of a crackdown on corruption and black money. The intention was to intended to choke tax evaders and hoarders of undeclared wealth or black money. As a result, the number of income tax returns filed for 2016–17 grew by 25 per cent to 2.82 crores (compared to growth rate of 9.9% in the previous year), and the advance tax collections during that period rose 41.8% over the one-year period, as more individuals filed their tax returns after demonetization.

The Government should continue to impose laws and steps to curb black money at every stage and every field. Bringing robust institutional framework to curb money laundering, taking necessary measures to prevent outflow of unaccounted wealth out of the country, severe punishment for corrupt officials and rewards schemes to tap information regarding corruption and corrupt officials, fixing area rates for real estate deals, stricter disclosure norms for election funding and a lot more smart recommendations suggested to the government by different thinking tanks from the country could definitely help if implemented.

Share Link: