An Article/Essay on Black money and its disastrous influence on Indian economy


The money that is earned and hoarded by dishonest and unfair means and kept in secret to evade taxes is called black-money. It becomes black because no taxes are paid on it. No taxes are paid on it because it is earned by dishonest and unfair means. Money turned to be black if taxes due thereon are evaded. The massive amount of black money in our country has created a parallel economy.

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Continuing generation and accumulation of black money poses a grave threat to our economy and is likely to threaten the very security and survival of the country. It is the source and at the same times cause of graft, corruption and the debasing of social and moral values. There are various factors responsible for the origin, existence and flourishing state of the parallel economy of black money. It originates with the combination of money and power. With black money any one can be bought or bribed, essential commodities can be corned and hoarded, healthy competition can be driven out and honest men and public servants can be blackmailed.

One of the sources of black money generation in developing countries like India is through commission or kick backs obtained for arranging government deals and purchase. Foreign multinationals and cartels make heavy pay off to supply their weapons, technology and knowhow. Agents and middlemen pocket considerable sums as their share of commission in the payoff to influence political decisions. Favoritism and patronage by those in authority also lead to generation of black money. Other factors for generation of black money include (i) high rates of taxation under direct taxes which encourages tax evasion, (ii) controls, permits and licenses (iii) price control without adequate machinery for effective distribution (iv) pugree and hawale systems, (v) donations to political parties for elections (vi) corrupt business practices, (vii) smuggling and other illegal anti-social activities.

Dishonesty and corruption have become a normal way of life to set things done. This had led to continuing deterioration of moral standards. In recent years black money generation has been growing at a very fast rate in our country. So much so that it is difficult to isolate a single sector of economy or administration that moves without the use of black money. Most economist are unanimous in their view that black money generation has become a major factor for galloping inflation because it not only misallocates resources, but also shifts them from investment to consumption. The parallel economy of black money has made nonsense of all planning and anti-poverty programmers. Beside, tax evasion creates great inequities between the tax payers, who are honest or who can’t evade taxes and those who are dishonest and are in the position to evade taxes.

The National Institute of Public Policy has roughly estimated the amount of black money in our economy at around Rs 37,000 Crores. This is a little over one-fifth of the gross domestic product (GDP). The institute pointed out that for its very nature, the unaccounted income could not be precisely quantified. According to published reports, and International Monetary Fund survey of the unaccounted sector of the economy in various countries has estimated black money in India at 50 percent of its gross product (GNP).

Some measure may be suggested for curbing the generation and spread of parallel economy of black money.

  • Leaders and persons in position should file a return of their assets and incomes which should be subjected to scrutiny by a special agency created for this purpose.
  • Lowering of tax rates so that tax evasion becomes unnecessary. Tendency to evade tax creeps in when tax rates are high.
  • Controls, licenses, and permits should be reduced to minimum. If necessary, they should be made available without under the table payments.
  • As recommended by Wanchoo committee, agriculture income should also be subjected to income tax as other incomes.
  • Government should subsidies election expenditure of political parties as is done in West Germany.
  • Heavy capital gains tax should be lowered.
  • Registration fees in relation to property and other real estate should be lowered.
  • All tax laws should be revised so as to eliminate loopholes.
  • Deterrent punishment must be given to those who are found guilty of profiteering, black-marketing and smuggling.

The menace of parallel black money has grown to alarming promotions and is eating away the vital of our national economy. Unless it is ruthlessly combated and cut to size, it is likely to upset the whole economy planning.

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