Effect of Black Money on Indian Economy
Black money is a socioeconomic evil. The existence of rapidly growing black money in our economy has grave and disastrous consequences. The major effects of black money are discussed below:
- Dual Economy
The increase in the amount of black money in India over a period of time lead to the perpetual growth of economic dualism which consists of Parallel economy(black money economy) operating side by side with the Official or Reported economy on the country.
The black economy represents not less than one fifth of the aggregate economic transactions. There is also interaction between the reported and unreported activities such that it is difficult to identify black money from the white money economy. Such a Parallel Economy will ruin the entire economic development of the country.
- Under-estimation
A large underground economy and growth of black income lead to under-estimation of the true size and incorrect picture of the economy by the officially complied national income data.
Since unreported economy is apparently excluded from the official records of the Gross National Product, the estimates of savings and consumption of nations to the national income and measurement of other macroeconomic variables would be biased and misleading for accurate policy making and planning considerations.
- Loss of Revenue to the Government
Black money is largely attributed to tax evasion. Its direct impact is the loss of the Government revenue. Since the Government fails to get sufficient tax revenue due to large-scale tax evasion, it is forced to resort to high taxation and deficit financing which again carry their ill-economic effects.
- Undermining the Equity
When the Government resorts to progressive direct taxation to maintain equity in the distribution of the tax burden, the tax evasion and growth of black money affect the very concept of social justice by not allowing the desirable reduction in inequalities of incomes. Again, when underground activities like smuggling etc. could not be taxed, the Government will impose higher taxes on officially sanctioned activities.
Further, the tax evasion will also equally enjoy the public services without paying the due contribution; to that extent also social enquiry is undermined. The honest have to bear high tax burden to make up for the deficit in revenue caused by the tax evasion of black money makers.
- Widening the Gap between the Rich and the Poor
Growth of the black economy causes regressive distribution of income in the society. When the black money grows faster, rich becomes richer and the poor become poorer. By way of concentration of income and wealth in few hands, the black money widens the gap between the rich and the poor.