Black money refers to unaccounted money that is untraceable and has no legitimate source though which it was earned. It does not reflect in any income tax returns or asset declaration statements.
The owners of black money are most often not traceable. Black money in today’s India and also the world is an extremely volatile issue. It is estimated that in the Swiss Bank itself, Indian black money worth 2.1 billion US dollars are deposited.
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How is Black Money Formed?
There are innumerable methods in which black money forms and daily several newer methods crop up.
- Multi-level Marketing/Chit Funds : A group of crooked individuals float a company overnight with fake name and ownership and convince people to invest in them by promising some astronomical returns. When the innocent customers fall into their trap, and pay them, the companies issue postdated cheques and goes undercover. Then they transfer people’s money to their personal offshore accounts to widen the trail. This is one of the main reasons for increase of black money.
- Hawala route: The hawala route since the 80s have remained one of the most effective ways of laundering black money in which a sum of black money is given to a hawala operator who deposits it in offshore accounts that pays him back the money share returns, dividends, or salary and thus black money converts to white and now can be shown as income.
- Mixed Sales: This is one of the most widespread and commonly practiced methods due to which black money forms. Usually done by retail businesses, they do not deposit the total day’s cash collection in the company’s bank account and so they don’t have to pay income tax on that money as there is no written record or proof of it. This kind of cash stockpiling is a very common practice in India.
- Buying physical assets with black money: One of the commonly practiced methods of laundering Black money is to purchase physical assets with it, like expensive mobile phones, computers, clothing, etc., and such other things that don’t draw much attention of the Income Tax Department. In this way black money is now no longer in existence and has been converted in to physical assets most of which won’t come under tax purview.
Black Money in India
- India has the third highest amount of hidden assets abroad. In 2012 itself that amount was close to US $95 billion which is almost 6 lakh crore Indian Rupees.
- Indians have deposited money worth over Rs.4,479 crores in HSBC’s Switzerland branch alone.
- Economists estimate total of Rs.14,958 crore of unaccounted Indian money is floating around the world.
- India’s black money economy is estimated to be as high as 30% of its GDP.
- Black money enters India at a rate of five times more than it leaves.
- Black money in India is 119% that of what India spends on Education.
- India’s black money economy exceeds the GDP of Argentina and Thailand.
How Black Money affects the Economy
Corruption today, is one of the main reasons for the splurge of black money. Human beings have always preferred what’s convenient, rather than going through the rule. In our country corruption flourishes even more because the wrong doers and corrupt people get very nominal punishment and are often exonerated with a convenient settlement.
Seeing the corrupt people not suffer, more and more of us join the bandwagon of corruption and this keeps on increasing its empire, as they find greener pastures on the corrupt side of the fence which ironically is the blacker side of the economy.
Poverty is one of the major side-effects of Black money. Millions of people in India are unable to meet their minimum requirements while a fringe group of so-called elites are getting their wallets swollen. In 2007 alone, there were 220.1 million people below the poverty line.
Nearly 21.1% of the entire rural population and 15% of the urban population of India exists in this difficult physical and financial predicament. The division of resources, as well as wealth, is very uneven in India, and this discrepancy creates poverty.
Black money has a tremendously cancerous effect on the economy too. It robs the government of the taxes and revenues it deserves and puts the pressure of meeting these due revenues from the common poor man. It also paves way for long term inflation.
The rupee is rapidly falling against the dollar and has declined about 50% in the last decade. The gap between the rich and the poor will further widen and an extremely volatile society will be created where social distributive justice will be read about only in history books.
Steps to curb Black Money
The government is taking various initiatives to reduce black money in the country and abroad.
- Recent demonetization of larger currency notes and introduction of newer ones have led to cancellation of values of stockpiled unaccounted and laundered cash.
- The government is strongly rooting for cashless economy by the introduction of easy Credit/Debit cards, prepaid Cash cards, Point of Sales (PoS machines), Net banking, Mobile wallets like BHIM, Payments Banks like PayTM , online payments portals like UPI etc.
- Schemes to voluntarily disclose untaxed property helps restore white money balance and at the same time helps the assailant get away with some relaxation of penalty.
- Unanticipated raids are an effective way of getting hold of tax evaders. But still the powers of Income tax department have to be increased to facilitate more raids and less red tape intervention.
Today’s global economy requires the use of educated, honest workforce in the government and not just shrewd business minded individuals whose only concern is fattening their pay cheques. Once again, government should take actions to curb powers of the wealthy elite. This will reestablish the faith of the masses in the economy and will reunite them.
Black money economy is like a soap bubble while gets bigger and bigger but at the same time the risk of bursting also increases. Such economy is the best recipe for a mutiny or at least a civil war of class struggles which will leave the future of this nation groveling in the humble dust.