Question

Short note on consequences of black money

Answer 1

Black money is defined as factor incomes, property incomes which should have been reported to income tax authorities but are not. The various mediums of generating black money are Land transactions, Encroachments on land, Payment of bribe, Misuse of public property, Misappropriation of public funds, Evasion of taxes etc.

The growth of Black money is shown in the graph embedded below.

Black Money in Indian context

Many people confuse black money with

Parallel economy

A parallel economy is one which is illegal and runs opposite to legal economy. However in Indian case the legal and illegal economy are interlaced together. The legal economy emerges out of illegal and vice versa.

Illegal Economy

An illegal economy is one which completely originates out of illegal activities. However in Indian case legal and illegal economy is interlaced.

Irregular economy

Irregular economy is one which is run by irregular institutions. Irregular institutions are those which influence regular/formal institutions for economic advantage.

Unaccounted economy

It is one in which income is hidden from tax authorities. However Indian tax laws itself are full of flaws and let people hide their income easily.

Why Black Money

In Indian context the generation of black money occurs due to the interactions between the triad.

There is a constant conflict between capital and labor markets, the unorganized sector which always has been taken advantage of and a realization that manipulation of policies can win the market place has led to the growth of black money in India.

Major chunk of black money in India is invested in Real Estate and Share markets as in both these markets capital gains can exceed more than 30% mark. Both are ideal conduits for circulating black incomes

Sources of Black Money:

Under-invoiced inventories: Sometimes the amount of inventory is under-invoiced so as to keep extra amount to sale in the black market. And the amount of sale is never reported in the account book.

Over-invoiced plant and equipments: The fixed costs on plant and inventory are reported higher than the actual amount so as to generate black money. For example, companies buy for perhaps Rs 5lakhs and instead get an invoice for Rs 10lakhs to cover up Rs 5lakhs of black money.

Informal sector activities including trade, films, production etc.: All the film industries in India - be it Bollywood, Kollywood or Mollywood are doing dreadfully bad, but still they continue to produce flop after flop after flop. Perhaps, it is because movies are being made simply to hide excess black money.

Illegal holding of precious metals, gem and jewellery: The most favourite of the sources is hiding metals and jewellery. There are countless instances of the same in the news all the time where prominent personalities' homes are raided and valuables worth crores are recovered.

Conclusion:

The amount of black money stashed both inside and outside the country adds up to more than 40% of our GDP which could have solved a lot many problems plaguing India currently. Hence, a more concerted effort is needed on the part of the Government as well as the citizens of the country to put pressure on the tax haven countries to release information on these black accounts which can be brought back to our country.

Hope it helps u.. :))

Answer 2

Explanation:

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