consequences of black money

The Consequences of Black Money


Black money is a scourge on society. The presence of rapidly rising black money in our economy has serious and catastrophic consequences. Some of the most notable consequences of black money include:

1. Dual Economic System

The rise of black money in India has resulted in the continuance of economic dualism, in which a parallel economy (black money economy) coexists with the official or reported economy of the country.

At least one-fifth of all economic transactions take place in the shadow economy. It’s also difficult to tell the difference between black and white money because of the connection between reported and undeclared operations. Such a parallel economy will sabotage the country’s entire economic progress.

2. Belief in something that isn’t true

Official national income figures underestimate the true size of the economy and provide an erroneous image of the economy due to the scale of the underground economy and the growth of black income.

Estimates of national savings and consumption and assessments of other macroeconomic variables would be distorted and deceptive for good policymaking and planning because the unreported economy appears to be excluded from official records of the Gross National Product.

3. Revenue loss for the government

Tax evasion is a significant source of illicit funds. It has a direct financial impact on the government. Due to rampant tax evasion, the government is forced to rely on high taxation and deficit financing, both of which have severe economic implications.

4. Undermining the Fairness of the System

Tax evasion and the generation of black money undercut the concept of social justice by impeding the expected reduction in income gaps when the government implements progressive direct taxation to ensure that the tax burden is spread fairly. When illicit activities such as smuggling and other criminal activities are not taxed, the government will raise taxes on officially sanctioned activities.

Furthermore, tax evasion will be able to make use of public advantages without contributing the required amount, hurting social inquiry in the process. The honest must pay a high tax burden to compensate for the revenue imbalance created by black money generators’ tax avoidance.

5. Widening the Wealth Gap Between Rich and Poor

The rise of the black economy has resulted in an income distribution that is regressive across society. As illicit money grows faster, the wealthiest gain richer, and the poor get poorer. By concentrating income and wealth in a few hands, black money widens the gap between the rich and the poor.

6. Excessive Spending on Consumption

Excursions and trips, entertainment, dazzling merchandise, and the financing of expensive elections are all examples of where black money is lavishly spent. This has resulted in a host of societal issues as well as a deterioration in the lives of ordinary people.

7. Production Pattern Distortion

Because of the presence of black money, the market’s choice coefficients have altered in favor of luxury, resulting in a shift in productive resources from essential to non-essential commodities.

8. Scarce Resource Distribution

Black money holders are always able to lay a claim on restricted products on the market due to their willingness and ability to pay more, robbing honest and poor people of their legitimate share. This reduces the overall net economic welfare of society.

9. Compromise society’s general moral standards

Black money is largely to blame for the erosion of society’s overall moral standards. Black income generating is unethical in the eyes of society since it deviates from society’s established rules.

We could claim that a society’s structure and ethos vary substantially in terms of social structure and ethos. Social qualities such as honesty, hard work, thrift, and simplicity are fading. As they become further enmeshed in the black income production system, even official institutions and organizations lose trust.

10. Average Production Effect

As a result, purchasing patterns are skewed in favor of the wealthy and privileged, depressing the growth of mass-market goods. As total consumption rises, fewer resources are available for investment in priority areas, resulting in lower output.