write essay on black money and indian economy

Essay on the Black Money of India

In this essay we will discuss about the Black Money of India. After reading this essay you will learn about: 1. Introduction of Black Money in India 2. Estimates of Black Money in India 3. Factors Governing 4. Impact on Economy 5. Measures.

• Essay on the Measures to Control Generation of Black Money in India 

1. Essay on the Introduction of Black Money in India:

By the term parallel economy we mean working of an unofficial or unsanctioned economy parallel to the parent economy of the country. The objectives of such unsanctioned or black economy run parallel to that of the parent economy but in contradiction with the declared social objective.

This type of economy is also known as ‘black economy’, ‘illegal economy’, ‘unaccounted economy’, ‘unreported economy’, ‘subterranean economy’, ‘unsanctioned economy’ etc. According to Prof. J.C. Sandesara, “in popular parlance, the unofficial economy goes by the name of black money and the official, of white money. Black and white are also variously substituted by number two and number one, unaccounted and accounted, unreported and reported, unrecorded and recorded and so on.”

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Multi-dimensional problems are experienced under parallel economy. This type of economy has political, commercial, legal, industrial, social and ethical aspects. There are wide confrontations between the objectives of the legitimate and illegitimate sectors under parallel economy.

The basic objectives of economic planning in India, i.e. establishment of socialistic pattern of society are very much disturbed with the existence of parallel economy. This parallel or black economy started to operate during the Second World War when the country had to experience a serious shortages in essential items and the Government resorted to system of controls and rationing of these items.

With the growth of the economy in the post-independence period the extent of the parallel or black economy has been magnified and now it is playing a dominant role in determining the trend of economic activities as well as to mould the national policies, to change the composition and structure of the output and also to promote a powerful class having huge black money.

This increasing number of black money operators has been able to establish a parallel economy to suit their own interest which is very much in contradiction with the national interest of the country. D.K. Ragnekar has observed, “If the ‘Parallel economy’ poses a serious threat to stability and growth of the official economy, surely it stems from the fact that the magnitude of “black money” is large and rigged dais are growing in volume and complexity at an alarming rate………..”black incomes” are accentuating the inequalities in income and wealth and breeding a new class of “black rich” in a society which is already harshly stratified. The inequalities are no longer below the surface. The conspicuous consumption of the new “black” rich, their vulgar display of pomp and opulence, their unlimited accessibility to finance, their nest-eggs in various places and countries, their influence in important places, all these are now common knowledge”.

D.R. Pendse is of the opinion that there are two possible sources of black money. Firstly it may originate from illegitimate source of income arising out of illegal gratification such as payment of ‘Selami or Pagri’ or income from smuggling, bribery etc.

Secondly, it may originate from legitimate and legal sources of income but concealed from tax authorities out of tax evasion. In big towns and cities, professionals like Doctors, Engineers, Chartered Accountants, Pleaders etc. usually conceal a large amount of their income, although they earn their income from legitimate sources.

Under various situations, this black money is converted into white money or white money is also converted into black money. This problem of black money is quite mixed and vexed issue which is very difficult to isolate. In order to understand the impact of black economy, it is quite important to estimate the extent of black income over a definite time period.

2. Essay on the Estimates of Black Money in India:

In India, the extent of black money is quite significant. In the mean time, various attempts have been made for the estimation of black money in India. There are two different approaches which are mostly followed in the estimation of black money.

(a) Kaldor’s approach of estimating non-salary incomes above the income tax exemption limit and

(b) Edger L. Feige’s method estimating transaction income on the basis of currency deposit ratio.

In the mean time, various estimates of black money have been made in India by different authorities. N. Kaldor in his report on India Tax Reform assessed the black money to the extent of Rs 600 crore in 1953- 54 which was then about 6.0 per cent of GNP.

Wanchoo Committee again estimated the amount of black money at Rs 700 crore in 1961-62, which was about 4.4 per cent of GNP and then rose to Rs 1,000 crore and Rs 1,400 crore in 1965-66 and 1968-69 respectively. Again, Dr. D.K. Rangnekar’s estimate of black money showed an increase in the extent of black income in India from Rs 1,150 crore in 1961-62 to Rs 3,080 crore in 1969-70 which was 8.4 per cent of GNP.

Again Mr. O.P. Chopra prepared a series of estimates of black money where it increased from Rs 916 crore (6.1. per cent of GNP) in 1961-62 to Rs 8,098 crore (10.5 per cent of GNP) in 1976-77. Besides the estimate of black money by Poonam Gupta and Sanjeev Gupta has revealed an increase in its amount from Rs 3,034 crore (9.5 per cent of GNP) in 1967-68 to Rs 46,487 crore (48.8 per cent of GNP) in 1978-79.

Dr. Malcom S. Adiseshiah also estimated the extent of black money to be about X 59,000 crore which was about 40 per cent of GNP. IMF staff survey on the unaccounted sector has estimated the black money in India at about Rs 72,000 crore.

The National Institute of Public Finance and Policy (NIPFP) had also made an estimate of black money from the range of Rs 9,958 crore to Rs 11,870 crore (15 to 18 per cent of GNP) in 1975-76 to the range of Rs 31,584 to Rs 36,784 crore (18 to 21 per cent of GNP) in 1983-84.

The estimates of black money made by NIPFP is the last official estimate. Since then no official study has been conducted by either Planning Commission, or Finance Ministry or any other research institute. Despite economic reforms bringing in their wake a simplified taxation structure, unaccounted money in the economy has risen sharply.

According to an unofficial estimate made by R.N. Lakotia, the amount of black money in India had doubled since the last study was made. The quantum of black money circulating in the Indian economy is at least 6.6 per cent of the GDP which now would be in the range of Rs 70,000 crore.

However, a Parliamentary Standing Committee on Finance quoted unofficial estimates of black money at Rs 1,10,000 crore in 1994-95. Again Prof. Madhu Dandavate, the then Deputy Chairman of the Planning Commission recently quoting an unofficial estimate, disclosed that black money worth Rs 80,000 crore was in circulation in the country.

Again, Dr. Suraj B. Gupta made a guess estimate of black income for three particular years, i.e., 1980- 81, 1983-84 and 1987-88. Dr. Gupta was of the opinion that the estimate of black income by NIPFP is an under-estimate. But the amount of black income in India which was Rs 50,977 crore in 1980-81, increased to Rs 85,208 crore in 1983-84 and to Rs 1,49,297 crore in 1987-88 which were 41.7 per cent, 45.8 per cent and 51.7 per cent of GNP respectively.

Recently the Supreme Court of India asked the government to take black money as a serious issue. Accordingly, in 2011-12, the Centre has initiated the task of making a statistical study of the quantum of black money in economy and of negotiating with various tax-haven countries like Switzerland to unearth unaccounted black money parked outside India.

The statistical study also includes subjects like tax havens, tax treaties, and the trends adopted by tax evaders within the country as also around the world.

Though it is quite difficult to estimate the quantum of black money with accuracy but many attempts have so far been made in India for quantifying it and in most of the cases the findings appear to be far from reality. However, most of such studies undertaken in our country in recent years put the quantum of black money in the neighbourhood of 40 per cent of gross domestic product (GDP).

Accordingly, Indian Institute of Public Finance and Policy (IIPFP) finds that out of the total amount of black money, 48 per cent is generated from evasion of personal income tax alone, 28 per cent from under-reporting of production and 18 per cent from under- registration of immovable property so that these three main components exhaust about 94 per cent illegal income generation.

Presently, most economists feel that the size of unreported economy would be close to 40 per cent of GDP. India’s GDP currently being in the neighbourhood of 62 lakh crore, the country’s underground economy would be worth at least Rs 25 lakh crore. This simply means that the government is losing a tax revenue of more than Rs 7 lakh crore every year which is more than a year’s total tax collection.

The existence of such huge quantum of black money in India results in not only revenue losses, but also availability of less resources for investment in priority areas, increased inequality, illegal transfer of funds to foreign countries underestimated national income money supply and liquidity quantum per capita income and employment.

During the post- reform period, liberalisation has helped big industrial houses in hiding their incomes and their outflow of funds to tax havens. In spite of agricultural sector offering a safe shelter to concealed incomes, the sector continues to remain outside the tax net due to lake of political will to reverse the system.

Thus to have a proper estimate of black money, the biggest sources of black money i.e., the erosion of income tax under-reporting of output and under-registration of immovable property should be under proper scanner and the government should make the rules governing them simpler.

3. Essay on the Factors Governing Generation of Black Money in India:

Various factors are equally responsible for the growing generation of black income in India.

Following are some of the important factors governing the generation of black income in India:

(i) Higher Rates of Taxes:

One of the important reasons behind the generation of black income is the prevalence of higher rates of taxes both in direct and indirect taxes. Higher rates of taxes has resulted in a growing tendency of tax evasion among the tax payers. Dr. K.N. Kabra’s estimate shows that the estimated amount of evasion of income tax increased from Rs 1890 crore in 1971-72 to ?5305 crore in 1978-79.

The evaded tax as percentage of total tax revenue potential has increased from 77.9 per cent in 1971-72 to 82.1 per cent in 1978-79. Tax evasion is widespread in respect in income tax, corporation tax, union excise duties, custom duties, sales tax etc. and it is mostly resulted from higher rates of these taxes.

(ii) Divergence between Expected Rate of Return and Permissible Rate of Return:

In India, individuals expect a higher rate of return than the legally permissible rate of return. The divergence between these two rates is mostly resulted from higher rates of taxation. At one time, the marginal rate of income tax was set as high as 97.5 per cent.

Accordingly, India was termed by many experts as “The most highly taxed nation”. Various committees such as the Wanchoo Committee also advocated to reduce the rate of income and surcharge in different times. In recent years, the then Finance Minister, Dr. Manmohan Singh has also under­taken a series of measures to reduce the rates of taxes in the different budgets.

This has shown a positive result as the tax revenue earned from income tax has increased considerably in recent years. Personal income and corporate taxes taken together are expected to increase its revenue collection by more than 25 per cent in 1994-95. The share of direct taxes in GDP has increased from 2.1 per cent in 1990-91 to 2.8 per cent in 1994-95.

(iii) System of Control Permits and Licenses:

The system of control, permits, licences and quotas associated with mal-distribution of scarce commodities breeds grounds for increasing volume of corruption and generation of black money.

In this connection the Wanchoo Committee observed, “In spite of the vigilance exercised by the Government, controls and regulations came to be used by the unscrupulous for amassing money for themselves. Since considerable discretionary powers lay in the hands of those who administered controls, this provided them with a scope for corruption—’speed money’ for turning a blind eye to the violation of controls. All these gave rise to trading permits, quotas and licences, malpractices in distribution and in the process, it generated a sizable sums of black money.”

It is really difficult to administer controls efficiently and in a corruption free atmosphere.

(iv) Ineffective Enforcement of Tax Laws:

In India, the enforcement of tax laws in respect of income tax, sales tax, excise duty, stamp duty etc. is quite weak. This has led to huge unchecked evasion of taxes and piling up of black income.

(v) Increase in the Volume of Public Expenditure:

Total expenditure of the Central and State Governments and Union Territories has been increasing steadily from Rs 740 crore in 1950-51 to Rs 2,34,647 crore in 1993- 94, which shows an increase of 317 times. The total expenditure of the Central Government has also increased significantly from Rs 22,056 crore in 1980-81 to Rs 1,05,298 crore in 1990-91 and then to Rs 1,62,272 crore (RE) in 1994-95.

This increasing volume of public expenditure has also resulted in misuse of public money in huge quantity. This has resulted in non-fulfillment of physical targets on every project, diversion of resources meant for target groups to non-entity sectors and generation of huge black income in the economy.

(vi) Funding of Political Parties:

There is a growing tendency of funding of political parties with the help of black money through underhand means. Big business houses are donating a huge amount of black money to the political parties, especially the ruling party with the sole intention to tame the political leadership for deriving undue benefits by manipulating policy decisions.

In order to contain the growth of black money, the link between black money and political forces should be broken.

(vii) Generation of Black Money in the Public Sector:

In India, the public sector is being allocated with larger size of investment in the successive five year plans. Various public sector projects and public sector undertakings are monitored by the bureaucrats. Decision making by these are again monitored by political bosses.

This unhealthy nexus between bureaucracy, contractors and politicians may lead to underhand deals, artificial cost escalation of projects leading to finally generation of black income.

(viii) Ceiling on Depreciation and other Business Expenditures:

Imposition of ceiling on depreciation and restrictions on other expenses on advertisement, entertainment, perquisites etc. by the Government are not liked by the businessmen and industrialists of the country. Therefore, by clandestine devices they want to siphon off or convert a portion of the income of the business into black money for the benefit of rich or elite sections related to their business and industry.

(ix) Other Factors:

Generation of black income in a country like India is also resulted from other different activities like smuggling, property deals, bribery, kick-backs, commissions, concealment of income by professionals, artists etc. Thus in this way a huge amount of black income is continuously resulting in enhancement of the area and activities of parallel economy.

4. Essay on the Impact of Black Income on the Economy:

Generation of black income and thereby establishment of parallel economy has been creating serious impact on the social and economic system of the country.

These points of impact are:

1. Black income has been resulting in underestimation of GDP in India as a huge volume of income is diverted to this unaccounted sector resulting in increasing existence of parallel economy of the country.

2. Generation of black income has been resulting in a huge loss of revenue to the state exchequer due to continuous evasion of taxes both from direct and indirect taxes. In this regard, the Direct Taxes Enquiry Committee observed, “Black money and tax evasion which go hand in hand, have also the effect of seriously undermining the equity concept of taxation and warping its progressiveness. Together, they throw a greater burden on the honest tax payer and lead to economic inequality and concentration of wealth in the hands of the unscrupulous few in the country.”

3. Concentration of black incomes in the hands of businessmen and capitalists increases conspicuous consumption which have a demonstration effect on all classes of people. This would ultimately distort the product-mix and raised the production of non-essential consumption at the cost of commodities of mass consumption.

4. Black money has resulted in diversion of resources for the purchase of real estate and luxury housing.

5. Black income encourages increase in the volume of investment in precious stones, jewellery, bullion etc. which are more or less unproductive in nature and thus create adverse effect on the growth of the economy.

6. Black money encourages speculation, profiteering, black marketing, soaring price level and growing inequality in the distribution of income and wealth, leading to imbalances in the working of the economy.

7. Black money also encourages transfer of funds from India to foreign country through clandestine channels, i.e., through the violation of Foreign Exchange Regulation Act (FERA). This may be done by under invoicing of exports or over-invoicing of imports.

8. Existence of black money results expansion of service organisation for its protection composed of brokers, touts, musclemen on the one side and a group of income tax practitioners, chartered accountants and liaison officers on the other side to establish a black money culture or an evil network within the economy.

9. Lastly, existence of black income or the parallel economy has corrupted the base of the political system of the country. On various occasions, MPs, MLAs, Ministers, part office bearers collect funds from black money operators. This has eroded the moral fibre of Indian polity.

The Wanchoo Committee has rightly observed, “It is, therefore, no exaggeration to say that black money is like a cancerous growth in the country’s economy which if not checked in time, is sure to lead to its ruination.” Thus the existence of parallel economy has totally distorted and disrupted the planned economy of the country.

5. Essay on the Measures to Control the Generation of Black Money in India:

In the meantime, the Government has undertaken various measures to control the menace of parallel economy or black economy in the country.

Following are some of important measures that are undertaken by the Government in this regard:

(i) Checking Tax Evasion:

As evasion of taxes has been considered as the major root of the generation of black income. Thus the Government has undertaken various administrative and legal measures to check evasion of both direct and indirect taxes.

These measures were undertaken as per the recommendations of various commissions and committees such as Taxation Enquiry Commission (1953), Kaldor’s recommendation for Indian Tax Reform (1956), Direct Taxes Administrative Enquiry Committee (1958) and Direct Tax Enquiry Committee (1991). The Commissions and Committees pointed out various loopholes and weaknesses in tax laws and suggested various measures to check evasion of taxes.

(ii) Demonetization:

Demonetization of high denomination currency has also been suggested from different levels. In India, demonetization was done for the first time in 1946 and the value of demonetized notes was about Rs 144 crore.

Demonetization of high denomination currency worth Rs 1,000 and Rs 5,000 and Rs 10,000 was again attempted in 1978. Till August 1981, notes worth 125 crore was demonetized. Thus demonetization as a measure of checking black money is not at all successful and it is also very much unpopular.

(iii) Voluntary Disclosure Scheme:

The Government introduced voluntary discloser schemes in different times to unearth black money. This scheme was first introduced in 1951 which resulted disclosures amounting to Rs 71 crore and tax collection of Rs 11 crore. Again the scheme (VDS) was introduced in 1965 with a provision of 60 per cent tax on disclosed income which resulted disclosures worth Rs 146 crore and tax collection of Rs 68 crore.

Again as per the recommendation of the Direct Tax Enquiry Committee, the Government again utilised this scheme (VDS) for both income and wealth. Accordingly, this scheme disclosed Rs 1,578 crore and tax collection of Rs 248.7 crore as income tax and wealth tax. The 1997-98 Budget again introduced the voluntary Disclosure scheme to unearth black money.

(iv) Special Bearer Bond Scheme:

Government introduced special bearer bond scheme in 1981 in order to canalize unreported money. Accordingly, the Special Bearer Bonds, 1981 of the face value of Rs 10,000 each were issued for a period of 10 years at 2 per cent rate of interest per annum. As per 1982-83 budget, a total to Rs 875 crore was subscribed under the Special Bearer Bond Scheme.

(v) Reduction of Tax Rates:

In order to make the taxes more productive, the Government has been reducing the peak rate of personal income tax from 61.9 per cent to 54 per cent in 1990-91 and then to 40 per cent in 1992-93 budget and then finally to 30 per cent in 1997-98 Budget.

Thus reduction of personal income and corporation tax are expected to increase tax revenue by more than 25 per cent in 1994-95. The share of direct taxes in GDP has also increased from 2.1 per cent in 1990-91 to 2.8 per cent in 1994-95 as a result of reduction in tax rates.

(vi) Economic Liberalization:

Introduction of economic liberalisation has removed the regime of controls and regulations and thereby the extent of black economy would be reduced gradually.

(vii) Other Measures:

The Government has also introduced some other measures to contain the growth of black money in the country which includes—Deposit in the National Housing Bank in 1991, NRI-foreign exchanges remittance, issuing National Development Bonds in US dollars, controlling the election expenses incurred by the candidates, conducting searches, seizures, raids and other steps to plug loopholes in the tax- administration etc.

The 1995-96 Budget has also introduced a new scheme where undisclosed income detected as a result of search shall be assessed separately at a flat rate of 60 per cent.

But unfortunately, all these measures are introduced in India half-heartedly, and thus the grip of parallel economy is gradually being strengthened. Had there been a sincere attempt to control the generation of black money in the country by the Government, bureaucrats, tax administrators etc., the network of parallel economy might have been checked and the country might have experienced a better economic situation characterised by better level of living for the common people, moderate inflation and rational economic decisions.

Recently in May, 2011, the Centre has taken a decision to set up a directorate of criminal investigation to its income tax department to deal with issues related to tax crimes and trace black money. This directorate will deal with tax crimes related to illegal activities. It will locate crimes or criminals by tracing the movement of money before, during and after a crime is committed.

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The Black Money Saga In India: A Short Analysis

Last updated on November 8, 2016 by ClearIAS Team

We hear news about Black Money in Indian economy very often these days. But what exactly is Black money? What makes money black or white? This short analysis is a humble attempt to cover essentials one should know about the black money issue in India.

Table of Contents

Definition of Black Money:

It is to be noted here that there is no clear cut definition for black money in either economic or sociological concepts. In very simple terms we can say any money which is not accounted as one or another form of black money.

Black money is often money illegally obtained or transacted . As being unaccounted money, black money is not declared for tax purposes . Black money is also hidden from the government authorities which calculates national income like GDP, GNP etc.

Black money is not fake notes!

It has not be understood that fake notes are not synonymous to black money. Counterfeiting is about printing new money by unauthorized agents. Black money is not about printing new money, but is more related to tax evasion.

Ideal economy – accounted and legitimate transactions

Ideally all transactions where money change hands should be accounted. This helps the government to collect taxes.

But if money change hands without proper accounting (Eg: cash transactions), government may fail to notice even the presence of such money in the economy. Besides, there are many economic transactions in the countries which are by the nature itself illegal (Eg: Smuggling). These transactions can by now means taxed. All these unaccounted money can be classified under the umbrella term – black money.

Cash transactions can be black money!

You may wonder; but if cash change hands without proper transaction accounting, the money involved is black money!

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How is black money generated in an economy?

• Illegitimate Activities:  Money is generated through illegitimate activities like trafficking, robbery, smuggling, terrorism, money laundering, corruption etc.
• Tax Evasion: People either fail to report their tax to the authorities by virtue of ignorance or intentionally to avoid paying tax which is otherwise termed as tax evasion .
• Tax Avoidance: The third scenario is about taking advantage of the legal system in a country, where individuals and companies avoid paying tax – which is called as tax avoidance.

Black money generation – day to day examples

Some very common forms of this menace may include:

• Sellers who don’t give bills for sales creates a form of black money.
• In the land registration process and in other reality sector business, people tend to undervalue their costs (sssets) so as to reduce the tax and registration fees to be paid.
• People investing in jewelry and bullion so as to to hide their actual income. Money is also hidden in places like bank lockers and underground tunnels.
• Nonprofit organizations, trusts, financial markets etc are often pointed for their involvement in black money.
• Tax heavens, round tripping, transfer pricing, hawala transactions, treaty shopping etc. (to be dealt in detail later.)
• Participatory Notes otherwise called P – Notes are another source of black money.
• Till recently bitcoins were also considered to be a source of funding of black money as it provides a safe platform for investors with handsome returns from its value appreciation.

The black money problem in India

The problem of black money in India started popping up by 1960’s. This is mainly attributed due to the high level of income tax and corporate tax charged then. This resulted in huge tax evasion by individuals and business communities. Now, after liberalization in 1991, the black money issue has compounded.

Estimates of Black Money in India

As black money is not accounted it is not easy to estimate it either. Different reports suggests different estimates. Some estimates are as below:

• A former CBI Director of India has said that the total black money in India is around 500 billion US dollars.
• Global Financial Integrity Report has mentioned that India lost around 120 billion US Dollars in the time frame of 2001-2010. It ranked India in 8th spot in black money generation.
• Indians’ share in tax-havens across the world is estimated at $152-181 billion (Rs. 10 lakh crore), by one calculation of Bank of Italy. Note – 6-7 trillion dollars worth of black wealth lies hidden in tax havens across the world, according the senior economists from the Bank of Italy.

Indian Black Money – Abroad or in India itself?

There are many experts who consider that 90 percent of India’s black money stays in India itself. Some value it around 70 lack crore. This is because funds transferred to foreign banks fetch very little or no bank interest. But at the same time, the booming Indian economy offers large scope for investment.

According to one study, out of 100 rupees of black money generated in our country, 90 percent stays in India. The balance 10 percent is takes the form of round tripping and transfer pricing; while a little portion is consumed abroad itself.

Can black money be made white money?

Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through money laundering . Money laundering is the process by which black money is converted to white money. One of the practice involved in money laundering is round-tripping, where tax-evaded money comes back to the same country as foreign investment.

Effects of Black Money

The after effects of black money in our economy is manifold and have serious consequences. Some of the negative impacts are listed below.

• It affects the financial system of the country. RBI may not be able to control the money supply in the economy and thereby leading to higher inflation in the system. The persistent level of high inflation is detrimental to the economy as it will erode the value of money and eats up investments and savings.
• It will affect the credibility of our country.
• The money generated in the form of black money is often routed for terrorism and hence, it becomes an issue of national security.
• A parallel economy will be created in the country and hence, governance will be ineffective to a large extent. We have the examples like Mexico where a parallel economy is rampant due to illegal drug trafficking.
• There is a huge loss of money for government exchequer because of tax loss for the country
• Real estate prices may shoot up. This may result in asset bubble which is detrimental to an economy.

Steps to curb black money: Some recent developments

Different steps has been formulated to curb the menace of black money in India. There were co-ordinated efforts from the part of government, RBI, and Supreme court. Steps taken include:

• Formation of Special Investigation Team (SIT) by SC during the UPA government tenure while considering a case filed by former Law Minister Shri. Ram Jetmalani.
• The government passed The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015
• RBI initiated the process of taking back the currency notes issued before 2005 to reduce the level of counterfeit notes and also to curb the menace of black money to a greater extent.
• The government is mulling for a dual strategy in the form of framing policies to bring back the illicit money stashed abroad and also making domestic laws stringent to locate and identify the black money in India.
• Tax reforms in the form of tax deduction at source (TDS) , increasing tax base than merely increasing tax rates, voluntary disclosure schemes etc.
• Government and RBI are promoting the cashless economy . The government has either slashed taxes or surcharge on online / card transactions to make transfers accountable and try to bring the money into the normal banking system.
• Government has scrapped Rs.500 and Rs.1000 notes and changed the cash withdrawal limits from banks and ATMs .
• India joined FATF ( Financial action Task forece)  in 2005 to combat against financing terrorism through the black money route. We also framed AML / PML laws in 2003 for combating money laundering activities in our country.
• Prevention of Corruption Act and Binami Transactions Act were other such steps in the right direction.
• Under pressure from India and other countries Switzerland and other tax havens have agreed in principle to share the details of accounts to the public authorities on a case to case basis.
• Making PAN number mandatory for real estate and bullion purchases.
• The government is in a process of renegotiating DTAAs with countries which we have already signed.
• Limitation of benefits clause needs to be invoked in appropriate areas where it deemed necessary.
• 2015 HSBC leak.
• 2016 Panama Papers leak .

It is to be noted here that though we have formulated different strategies and policies to combat black money, its effect is not reflected in implementation. The need of the hour is greater political will and global coordination to counter the issue.

Article by Sandeep A

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Black Money In India And Its Impact On Indian Economy

Read this article to know about black money in India and its impact on Indian economy. This article starts with origin and meaning of black money. The article then goes on to explain the causes of the black money. It further brings to the notice of the reader the consequences or the impact of the black money on the Indian economy.

Block loopholes in the Mauritius route

Restructuring tax system & severe punishment to errant tax officials • the government should restructure its tax system including gst and vat making it more convenient and easy for the income earner to pay the taxes. all the cumbersome procedures in submission of forms and returns should be done away with. the government has become aware of this and have done a lot of work to improve the system. it has recently come out with an announcement that salaried employees with salary income up to rs.5 lakh and saving bank interest up to rs.10,000 need not to file income tax returns for the year 2011-12. much more needed to be done by simplifying the rules and regulations in this respect. the government should broaden the tax base and should bring all people in whatever is the source of income including agricultural income if the income exceeds rs.5 lakh a year. all people above this limit should be taxed with no exemptions. no return needs to be filed by any person if the income is below rs. 5 lakhs. similar tax reforms should be made in the corporate direct tax and all other indirect taxes. severe punishment should be mooted out to the tax personnel who are found to be involved in the corrupt practices including the persons who are found to have paid bribes to the tax officials to avoid taxes. these should include tax consultants and chartered accountants who guide the tax payers with tips to avoid tax taking advantage of loopholes in the tax laws. use of electronic media and banks for money transfers, people should be made aware of the evil of black money on a continual basis.

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For the first time I came across such a vast article on black money in India and its impact on the economy which was well convinced and written to the understanding level of common man. The subject is very hot in the political circle and this reading shall further pep the interest to bring back those black monies which are stashed elsewhere in outside the country. Hope which ever Government comes at the center shall take appropriate step to bring the stashed money to India and undertake rebuilding of our Economy with more infra projects.

The Telugu Desam Party President Chandrababu Naidu has made a wonderful suggestion yesterday while addressing the Press conference that Governement of India must ban rupees 1000 and 500 denominations and thus pave way for getting back over 72,000 lakh crores black money stashed elsewhere in the world. I think he made a very good suggestion. Those who are having legal money in the banks, they will come out with proper accounting documents and those who have stashed it illegally has to forgo the same and that money can be used for development of this country.

Real estate transactions are the real culprits of generating and circulating black money. The Government should plug the routes of investments of black money. To check the menace we need to have Cash Less Corruption Free Society.

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• Essay on Black Money

Introduction

Many countries' governments in the world levies tax on the citizens as a payment to the government. This tax imposition is done so the money collected as income tax can be used as a part of government projects for the sake of people. Not all transactions are recorded. The undocumented ones are being transacted by illegal means and that is called Black Money. There are many reasons as to why it is deemed illegal and the country with high rates of such transactions suffer losses. Below, we will explore the ways to write an Essay On Black Money In English. It can be a Long Essay On Black Money or a Short Black Money Essay.

Long and Short Essay on Black Money in English

Short essay on black money.

Let us take a look at the Black money essay which is a brief note about the meaning and the sources and how it affects the economic state of the country. 

In India, like many other countries in the world, every citizen who earns above the minimum wage must pay tax to the government. The tax to be paid must also be confined to all the documents on monetary transactions. This is a rule every citizen must abide by, and yet some people manage to find loopholes in the set rules. 

These irresponsible citizens also try to fool the government and practice illegal black money transactions. The ones who avoid such taxation are the highest-earning powerful officials like politicians and businessmen, other individuals try to evade taxation like criminals and smugglers. All funds obtained through illegal transactions are called black money, which they try to convert to legal earnings via money laundering.  

The consequences of this practice are catastrophic because it directly affects the economic and financial health of the country. There will be no growth and improvement, therefore, for the people who live life by the means of honest earning face the consequences. Fighting against black money should be a collaborative effort only then we could eradicate this issue. 

Long Essay on Black Money

In this essay on black money, many important points can be covered like the effects, both advantage and disadvantage and how one can handle this problem. 

In any country, it is important to have laws that monitor and ensure the growth of the people along with the growth of the country. One such law is the tax law. In India, there is a certain amount of income that has to be exempted from tax and that amount is solely dependent on the earnings and the spendings. All of which should be taken into consideration and documented even the loans, insurance etc. This is the legitimate practice to be followed. 

Any practice that has been done illegally, or illegitimately and hiding away the money from paying it to the government is a threat to the country’s development. For instance, when you purchase from a store and pay in cash but do not receive a store receipt from the store since the money earned by the store is not documented, it becomes black money because no tax can be paid on unrecorded sales.  

Black money is often cash operated. 

There are many countries and territories in the world where tax is not imposed like the United Arab Emirates, Monaco, Bermuda, Bahrain, Brunei, Kuwait, Oman and Qatar. They live in tax-free land and evidently, it is working because the government still soars high in making progress economically.

The benefit of Black Money- Like everything else, this illegal activity has certain benefits. Even though in the Soviet Union where black money is considered illegal, the practices occurring were mostly in the underground black market. But it proved to be quite useful in this oppressive nation. When the nation was suffering from economic losses, the government turned to the underground market and used it legally to make the country again a contender in the economic market. 

Disadvantages of Black Money-

Since all such transactions are unrecorded they go unnoticed and the corruption in the nation increases.

When the corruption rate grows higher, all heinous acts also rises like terrorism, gunrunning, human trafficking, selling of prohibited alcohol and drugs or any commodity that is harmful also increases.

The law enforcement weakens and even the lawmakers like the policemen fall prey to such a corrupt system.

With no stricter laws, corruption and the black money market cannot be stopped from growing.

 Financial leakage occurs and the government loses revenues.

Such financial loss alleviates the underestimation of the country’s gross national product.

With such loss at micro levels, macroeconomics suffers and is varying constantly.

Ways to Tackle- The best way to handle this is to cooperate with the law and the government. This should be the teamwork of the citizens and the lawmakers. Our government has taken a huge step in the right direction towards stopping the flow of black money. Demonetization was enforced that stands for stripping a particular denomination currency, as illegal. So all the stacked up illegal money no longer held any value and had to be returned and exchanged from the RBI that is the Reserve Bank Of India or discard completely. 

Demonetization was the right move by our government, but there is no denying that we as a nation still have a long way to go before we are free from corruption. There should be an implementation of stricter laws, anyone who tries to bribe must be fined or arrested. There should certainly be clear monitoring and removal of the existing loopholes that further such illegal acts. Another attempt to uproot this problem should be made and laws must be changing so the country’s growth is not hindered. People must be alert and cooperative and immediately report any such practices. Tackling this issue will certainly bring equilibrium to financial and social imbalance.  

FAQs on Essay on Black Money

1. Is the Black Money Even Real?

Ans. Black money is obtained fraudulently and by illegal means of activity. The money is certainly real and can be paid for in cash for other transactions that are also considered illegal because no tax is exempted from them due to the sole reason of the undocumented form of spending and earning. One should not by any means exhibit this practice as it curbs the growth of an entire nation.

2. What Can I Do to Stop Black Money Flow?

Ans. The first and most important step is to record every transaction, even the electronic store purchase and insist upon getting a receipt even if the store doesn’t provide it. The other way if you find any sort of such illegal activity occurring at your nearby places or neighbourhood, you must immediately report it. We must all work together for our nation’s development and growth. 

Essay on Indian Economy

India’s economy is described as huge, complex and growing. It is one of the most exciting and emerging markets in the world. Since 1951, India has grown as a planned economy. The first few plans focused on growth with the strengthening of the manufacturing sector, emphasising heavy industries to form the backbone of the economy. Other principal areas of planning were agriculture and social development. During the post-independence period and the period of the “Five-year plans”, efforts were focused on identifying the needs of the economy. Further, the economic reforms in the early 90s opened a new chapter in India’s economic history. It gave India an opportunity to shake off the shackles of its past and emerge on the world stage as a progressive nation. This essay on the Indian Economy will help students know about the Indian economy in detail.

Students can go through the list of CBSE Essays on different topics. It will help them to improve their writing skills and also increase their scores on the English exam. Moreover, they can participate in different essay writing competitions which are conducted at the school level.

500+ Words Essay on the Indian Economy

India is on the high road to economic growth. Since 2020, the world economy has declined due to the COVID-19 pandemic. Repeated waves of infection, supply-chain disruptions and inflation have created challenging times. Faced with these challenges, the Government of India has taken immediate action so that it has the least impact on the Indian economy.

The Indian economy has been staging a sustained recovery since the second half of 2020-21. However, the second wave of the pandemic in April-June 2021 was more severe from a health perspective. The national lockdown has affected small businesses, common people and everyone in India. Due to this, the Indian economy has gone down. But now, it is slowly rising up and taking its form.

Role of Agriculture in the Indian Economy

Agriculture is one of the most important sectors of the Indian economy. It supplies food and raw materials in the country. At the time of independence, more than 70% of India’s population depended on agriculture to earn a livelihood. Accordingly, the share of agriculture in the national product/income was as high as 56.6% in 1950-51. However, with the development of industries and the service sector, the percentage of the population depending on agriculture, as well as the share of agriculture in the national product, has come down. Agriculture is the source of food supply. Agriculture is also a major source of foreign exchange earnings through export. The share of agriculture in India’s export in the year 2011-12 was 12.3%. The major items of export include tea, sugar, tobacco, spices, cotton, rice, fruits and vegetables, etc.

Role of Industry in India’s Economy

Industry is the secondary sector of the economy and is another important area of economic activity. After independence, the Government of India emphasised the role of industrialisation in the country’s economic development in the long run. Initially, the public sector contributed the maximum to economic growth. In the early 1990s, it was found that the public sector undertakings were not performing up to expectations. So, in 1991, the Indian Government decided to encourage the role of the private sector in industrial development. This step was taken to strengthen the process of industrialisation in India.

The progress of the Indian economy after independence was impressive indeed. India became self-sufficient in food production due to the green revolution, and industries became far more diversified. However, we still have to go a long way to become a 5 trillion economy by 2025. But, with government effort and the right policymakers, it can be achieved.

Students must have found this essay on the Indian Economy useful for improving their essay-writing skills. They can get the study material and the latest update on CBSE/ICSE/State Board/Competitive Exams at BYJU’S.

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160. Short Essay and Article on : War on Black Money in India

Using the information given below with your own views, write an article on ‘War on Black Money in India’.

Hints:  • Crackdown on black money • G20 summit in London • era of banking secrecy over • India, a foreign supporter of the move • black money a political football in India • rather than looking for foreign hand battle must be waged at home unless generated at home money can’t be transferred abroad • tax rates must be moderate and simple • time to push ahead of the new direct tax code.

Ans.                           War on Black Money in India                                                                                                                

 ‘More smoke than light’ has been generated by the current outcry on black money. People think that there is a lot of money out there in Swiss banks. Black money does not remain black money forever. A lot of foreign funds and investments come back to India as white money. Income generated through illegal activities is the basis for generating black money. Global terror business, drugs, arms dealing, real estate, hawala transactions, to name just a few, create `black money’.

Fortunately, the global crackdown on black money has begun. The G20 summit in London gave a clear message. The era of ‘banking secrecy’ is over. India is a strong supporter of this move. Black money has become a political football in India. The government must bite off only what it can chew. The success in getting black money depends on international actions and cooperation among nations. Rather than looking for the foreign hand, the battle against black money must be waged at home. Unless black money is generated at home, unaccounted money can’t be transferred abroad. Centre and states need to work on reforms. Tax rates need to be moderate. The laws must be simple. There should be no temptation to evade. It is time to push ahead with a new direct tax code. This is a long-drawn-out battle and can be won with a lot of patience and sincerity on the part of the government and the people of the country.

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Essay on Indian Economy for Students and Children

500+ words essay on indian economy.

India is mainly an agricultural economy . Agricultural activities contribute about 50% of the economy. Agriculture involves growing and selling of crops, poultry, fishing, cattle rearing, and animal husbandry. People in India earn their livelihood by involving themselves in many of these activities. These activities are vital to our economy. The Indian economy has seen major growth in the last few decades. The credit for this boom largely goes to the service sector. Agriculture and associated activities have also been improvised to match the global standards and the export of various food products has seen an upward trend thereby adding to the economic growth. The industrial sector does not lag behind a bit. A number of new large scale, as well as small scale industries, have been set up in recent times and these have also proved to have a positive impact on the Indian economy.

Government’s Role in Economic Growth

Majority of the working Indian population was and is still engaged in the agriculture sector. Growing crops, fishing, poultry and animal husbandry were among the tasks undertaken by them. They manufactured handicraft items that were losing their charm with the introduction of the industrial goods. The demand for these goods began to decline. The agricultural activities also did not pay enough.

The government identified these problems as hindering the economic growth of the country and established policies to curb them. Promotion of cottage industry, providing fair wages to the laborers and providing enough means of livelihood to the people were some of the policies laid by the government for the country’s economic growth.

Get the huge list of more than 500 Essay Topics and Ideas

The Rise of the Industrial Sector

The government of India also promoted the growth of small scale and large scale industry as it understood that agriculture alone would not be able to help in the country’s economic growth. Many industries have been set up since independence. A large number of people shifted from the agricultural sector to the industrial sector in an attempt to earn better.

Today, we have numerous industries manufacturing a large amount of raw material as well as finished goods. The pharmaceutical industry, iron and steel industry , chemical industry, textile industry, automotive industry, timber industry, jute, and paper industry are among some of the industries which have contributed a great deal in our economic growth.

The Growth in Service Sector

The service sector has also helped in the growth of our country. This sector has seen growth in the last few decades. The privatization of the banking and telecom sectors has a positive impact on the service sector. The tourism and hotel industries are also seeing a gradual growth. As per a recent survey, the service sector is contributing to more than 50% of the country’s economy.

Indian Economy after Demonetization

The worst affected were the people in the rural areas who did not have access to internet and plastic money. This affects many big and small businesses in the country very badly. Several of them were shut down as a result of this. While the short term effects of demonetization were devastating, this decision did have a brighter side when looked at from long term perspective.

The positive impact of demonetization on the Indian economy is a breakdown of black money, the decline in fake currency notes, increase in bank deposits, demonetization stopped the flow of black money in the real estate sector to ensure a fair play, increase in digital transactions, cutting monetary support for terrorist activities.

Many of our industries are cash-driven and sudden demonetization left all these industries starving. Also, many of our small scale, as well as large scale manufacturing industries, suffered huge losses thereby impacting the economy of the country negatively. Many factories and shops had to be shut down. This did not only impact the businesses but also the workers employed there. Several people, especially the laborers, lost their jobs.

The Indian economy undergoes several positive changes since independence. It is growing at a good pace. However, the rural regions of our country are still under-developed. The government must make efforts to improve the economic condition of these areas.

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5 Things to Know to Understand India’s Economy Under Modi

As Prime Minister Narendra Modi seeks a third term, India’s growth has received the attention of the world’s investors but inequality has deepened.

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By Alex Travelli

Reporting from New Delhi

Narendra Modi has big money behind him as he appears set to win a third term as India’s prime minister. His party has collected more political cash than the others combined, and the country’s richest business leaders support him.

The campaign is fueled partly by a winning story Mr. Modi tells about India’s economy, some of which can be traced to changes made during his decade in office. He has also benefited from geopolitical currents that have made India more attractive to global financiers. Here are five factors that are essential to understanding India’s economy. Elections will start on April 19 and conclude June 4.

India is big and getting bigger.

India, the world’s largest population , has been poor for centuries on a per person basis. But its economy has developed an undeniable momentum in the past three decades and is now worth $3.7 trillion. Size like that has its advantages: Even one percentage point of growth is monumental.

“Fastest-growing major economy” has become India’s signature in the past few years. In 2022 India became the fifth-largest economy — stepping over Britain. Even if it continues to grow at a relatively modest pace, it should overtake Germany and Japan to become the third-largest economy around 2030, behind only China and the United States.

The “India growth story,” as local businesspeople call it, is attracting a surge of excitement from investors, especially overseas. Under Mr. Modi, Indians are becoming more hopeful about their country’s economic future. As the economy gets bigger, even smaller rates of growth pile on huge sums of wealth.

Yet many facts of the Indian economy remain stubbornly in place. A large proportion of the work force toils on farms, for instance, and a relatively small part of it is employed in factories. Without better jobs , most Indians will be left waiting to taste this success.

There’s nothing like being in the right place at the right time.

Over the past 10 years, the rest of the world has given Mr. Modi opportunities to turn adversity into India’s advantage. He took office as oil prices were cut in half, a huge boost to the country because it relies heavily on imported crude .

The next few years were bumpier. Shocks caused by Mr. Modi’s boldest moves — an abrupt ban on bank notes and a big tax overhaul — were slow to be absorbed. By 2019 growth was slowing to less than 5 percent. Mr. Modi won re-election that year on the strength of a nationalistic campaign after brief border clashes with Pakistan.

When the Covid-19 pandemic came, it was cruel to India. During the first lockdowns, the economy shrank 23.9 percent. A 2021 wave pulled India’s health-care system into crisis.

India’s economic recovery then coincided with a supercharged enthusiasm by Western countries to tap India as an economic and strategic partner. The pandemic had exposed the world’s deep dependence on China as a supplier and manufacturer. And China’s heightened tensions with the United States, its own border clashes with India, and now its uncertain economic prospects inspired businesses and investors to look to India as a solution.

Build, baby, build: India shows off shiny new projects.

The most visible improvements to India’s economy are in infrastructure. Mr. Modi’s gift for implementation has helped build up capacity exactly where India has missed it most.

The building boom started with transportation: the railways, ports, bridges, roads, airports. India is remaking itself rapidly. Some of the developments are truly eye-catching and are laying the tracks for faster growth. The hope is that local businesses will start investing more where the government has lent its muscle.

Investment in India’s education and public health has been less meaningful. Instead, the government under Mr. Modi has aimed to make concrete improvements for ordinary Indians: bringing electricity to most remote villages, and drinking water and toilets to homes that lacked them.

Beneath the gleam, a digital powerhouse is built.

Less tangible but perhaps more significant has been India’s rapid adoption of what the government calls “digital public infrastructure.” This is a web of software that starts with Aadhaar, a biometric identification system established under Mr. Modi’s predecessor, Prime Minister Manmohan Singh. From unique digital identities, it has tied together access to bank accounts, welfare benefits and tax requirements.

This new organization of India’s data, combined with a dense and cost-effective mobile network, has brought efficiencies that grease the gears of commerce. India is proudly exporting the basic framework of its digital architecture to other countries.

Inequality deepens as old problems go unsolved.

Some of the Indian economy’s persistent ailments have been left to fester. Mr. Modi has tried and failed to fix things that plagued previous governments, like industrial policy, the broken agricultural markets and rules for land acquisition. What has become even worse under his government is the country’s vast inequality.

A study published last month by the World Inequality Database in Paris found that while the number of billionaires in India nearly tripled in the past 10 years, the incomes of most Indians were stagnant. The median income is still only $1,265 a year, and 90 percent of the country makes less than $3,900. When so many are left with so little, it is hard to see how domestic consumption will spur faster growth.

The Indian government is quick to reject most such reports; the underlying data is too thin, its economists say. But that’s partly because of the government’s own doing. For all of India’s digital innovation, deciphering what is going on in the country’s economic life has become harder. Under Mr. Modi’s government, fewer official statistics are published and some important data sets, such as those tracking household consumption, have been delayed and redesigned.

What’s more, institutions like think tanks and universities face legal and financial pressure to fall in line behind the government’s messaging.

Alex Travelli is a correspondent for The Times based in New Delhi, covering business and economic matters in India and the rest of South Asia. He previously worked as an editor and correspondent for The Economist. More about Alex Travelli