Chanakya IAS Academy Blog

Notice

‘Black money’ or ‘black income’ or ‘dirty money’ is that money on which tax is not paid to the government and so it goes unaccounted in the duration of country’s tax assessment period and hence causes big revenue losses to the government. It is argued that demonetization of higher currency notes can help curbing black money in the country.

Why money earned is hidden from the government or not accounted?

One big reason for it is illegal trade and organized crimes. They generate a lot of money and since their sources are illegal therefore they cannot be accounted in the fear of being tracked. Another reason is to evade payment of taxes especially the income tax. Therefore the money earned is concealed from the government. There are mainly three sources of black money- crime, corruption and business.

Sources of black money:

  • Money derived by corrupt means like bribes, speedy money to enhance procedures, etc.
  • Money obtained from illegal activities like drug trafficking, smuggling, arms trafficking etc.
  • Fake currency notes.
  • Any kind of criminal and illegal trade like frauds, embezzlements, prostitution, human trafficking, etc
  • Unaccounted expenditures during election campaigns.

Impact of black money in the economy:

  • One of the biggest impacts is inflation and high price rise of commodities due to an increase in their demand. More money in the economy gives rise to more demand of commodities and hence their prices go up.
  • The economic growth is poor because proper taxes are not received by the government.
  • Black money also increases corruption. It is a cyclic procedure. Since black money cannot be officially spent, therefore it gives rise to further black money.
  • The income distribution becomes skewed.
  • There is a formation of a parallel economy- the one that is unaccounted along with the one accounted.
  • The country’s reputation in front of the world also goes down for e.g.: Transparency International’s ratings.

How can the generation of black money be stopped?

In order to tackle black money, it is important to prevent generation of black money totally. The use of black money has to be totally discouraged. Black money detection has become a priority task for investigation agencies recently. Yes, discouraging of higher denominations is a good step but other effective means like proper investigation of the source of black money is important. Corruption has to be checked at the immediate levels and should not be allowed to proceed further.

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